Free 2008 Instruction 1120 - Federal


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2008
Instructions for Form 1120
U.S. Corporation Income Tax Return
Section references are to the Internal Revenue Code unless otherwise noted. Contents Page Photographs of Missing Children . . . . 1 Unresolved Tax Issues . . . . . . . . . . . . 1 Direct Deposit of Refund . . . . . . . . . . . 1 How To Make a Contribution To Reduce Debt Held by the Public . . . . . . . . . . . . . . . . . . . . . . 1 How To Get Forms and Publications . . . . . . . . . . . . . . . . . . 2 General Instructions . . . . . . . . . . . . . 2 Purpose of Form . . . . . . . . . . . . . . . . 2 Who Must File . . . . . . . . . . . . . . . . . . 2 Electronic Filing . . . . . . . . . . . . . . . . . 2 When To File . . . . . . . . . . . . . . . . . . . 3 Where To File . . . . . . . . . . . . . . . . . . 3 Who Must Sign . . . . . . . . . . . . . . . . . 3 Paid Preparer Authorization . . . . . . . . 3 Assembling the Return . . . . . . . . . . . . 4 Depository Methods of Tax Payment . . . . . . . . . . . . . . . . . . . . 4 Estimated Tax Payments . . . . . . . . . . 4 Interest and Penalties . . . . . . . . . . . . . 4 Accounting Methods . . . . . . . . . . . . . . 5 Accounting Period . . . . . . . . . . . . . . . 5 Rounding Off To Whole Dollars . . . . . . 5 Recordkeeping . . . . . . . . . . . . . . . . . . 5 Other Forms and Statements That May Be Required . . . . . . . . . . 5 Specific Instructions . . . . . . . . . . . . 6 Period Covered . . . . . . . . . . . . . . . . . 6 Name and Address . . . . . . . . . . . . . . 6 Identifying Information . . . . . . . . . . . . 6 Employer Identification Number (EIN) . . . . . . . . . . . . . . . . . . . . . . . 7 Total Assets . . . . . . . . . . . . . . . . . . . 7 Initial Return, Final Return, Name Change, Address Change . . . . . . . . . . . . . . . . . . . . . 7 Income . . . . . . . . . . . . . . . . . . . . . . . 7 Deductions . . . . . . . . . . . . . . . . . . . . 8 Tax and Payments . . . . . . . . . . . . . . 13 Schedule A. Cost of Goods Sold . . . 14 Schedule C. Dividends and Special Deductions . . . . . . . . . . . . 15 Worksheet for Schedule C . . . . . . . . 16 Schedule J. Tax Computation . . . . . . 17 Schedule K. Other Information . . . . . 18 Schedule L. Balance Sheets per Books . . . . . . . . . . . . . . . . . . . . . 20 Schedule M-1. Reconciliation of Income . . . . . . . . . . . . . . . . . . . . . 20 Principal Business Activity Codes . . . . . . . . . . . . . . . . . . . . . 22 Index . . . . . . . . . . . . . . . . . . . . . . . . 25

Department of the Treasury Internal Revenue Service

What's New
corporations whose principal business office or agency is located in Georgia or Tennessee has changed. See Where To File on page 3. A corporation can elect to claim additional research and minimum tax credits in lieu of claiming any additional first-year special depreciation allowance for eligible qualified property. See the instructions for line 32g. For returns required to be filed after December 31, 2008, the minimum penalty for failure to file a return that is over 60 days late has increased to the smaller of the tax due or $135. See page 4 of the Instructions. For business start-up and organizational costs paid or incurred after September 8, 2008, a corporation is no longer required to attach a statement to its return or specifically identify the amount deducted as organizational or start-up costs for the election under sections 195(b) or 248(a) to be effective. See page 9 of the instructions. For tax years ending after May 22, 2008, and beginning before May 23, 2009, a maximum 15% alternative tax will apply to the corporation's qualified timber gain (as defined under section 1201(b)(2)). The alternative tax applies for both the regular tax and the alternative minimum tax. See the instructions for Schedule J, line 2. All general business credits allowed against the alternative minimum tax are claimed on Form 3800. See the instructions for Schedule J, line 5c, on page 17, and Form 3800. For information on temporary tax relief for certain taxpayers in Kiowa County, Kansas, and surrounding areas, see Pub. 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes. For information on tax relief granted to certain taxpayers in the Midwestern disaster areas that were affected by floods between May and August 2008 and declared eligible for federal assistance, see Pub. 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.

The filing address for certain

Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Unresolved Tax Issues
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. The service is free, confidential, tailored to meet your needs, and is available for businesses, as well as individuals. The corporation can contact the TAS as follows. Call the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if the corporation is eligible for assistance. Call or write the corporation's local taxpayer advocate, whose phone number and address are listed in the local telephone directory and in Pub. 1546, Taxpayer Advocate Service Your Voice at the IRS. File Form 911, Request for Taxpayer Advocate Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on the corporation's behalf. For more information, go to www.irs. gov/advocate.

Direct Deposit of Refund
To request a direct deposit of the corporation's income tax refund into an account at a U.S. bank or other financial institution, attach Form 8050, Direct Deposit of Corporate Tax Refund. See the instructions for line 36 on page 14.

How To Make a Contribution To Reduce Debt Held by the Public
To help reduce debt held by the public, make a check payable to "Bureau of the Public Debt." Send it to Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. Or, enclose a check with the income tax return. Contributions to reduce debt held by the public are deductible subject to the

Photographs of Missing Children
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children.
Cat. No. 11455T

rules and limitations for charitable contributions.

How To Get Forms and Publications
Internet. You can access the IRS website 24 hours a day, 7 days a week, at www.irs.gov to: Download forms, instructions, and publications; Order IRS products online; Research your tax questions online; Search publications online by topic or keyword; and Sign up to receive local and national tax news by email. IRS Tax Products DVD. You can order Pub. 1796, IRS Tax Products DVD, and obtain: publications. Prior-year forms, instructions, and publications. Tax Map: an electronic research tool and finding aid. Tax law frequently asked questions (FAQs). Tax Topics from the IRS telephone response system. Internal Revenue Code Title 26. Fill-in, print, and save features for most tax forms. Internal Revenue Bulletins. Toll-free and email technical support. Two releases during the year. The first release will ship early in January 2009. The final release will ship early in March 2009. Purchase the DVD from the National Technical Information Service (NTIS) at www.irs.gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). By phone and in person. You can order forms and publications by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.

Current-year forms, instructions, and

Limited liability companies. If an entity with more than one owner was formed as a limited liability company (LLC) under state law, it generally is treated as a partnership for federal income tax purposes and files Form 1065, U.S. Return of Partnership Income. Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. The LLC can file a Form 1120 only if it has filed Form 8832, Entity Classification Election, to elect to be treated as an association taxable as a corporation. For more information about LLCs, see Pub. 3402, Tax Issues for Limited Liability Companies. Corporations engaged in farming. A corporation (other than a corporation that is a subchapter T cooperative) that engages in farming should use Form 1120 to report the income (loss) from such activities. Enter the income and deductions of the corporation according to the instructions for lines 1 through 10 and 12 through 29. Ownership interest in a Financial Asset Securitization Investment Trust (FASIT). Special rules apply to a FASIT in existence on October 22, 2004, to the extent that regular interests issued by the FASIT before October 22, 2004, continue to remain outstanding in accordance with their original terms. If a corporation holds an ownership interest in a FASIT to which these special rules apply, it must report all items of income, gain, deductions, losses, and credits on the corporation's income tax return (except as provided in section 860H). Show a breakdown of the items on an attached schedule. For more information, see sections 860H and 860L.

Visit www.irs.gov/efile for details.

Special Returns for Certain Organizations
Instead of filing Form 1120, certain organizations, as shown below, have to file special returns. If the organization is a: Exempt organization with unrelated trade or business income Religious or apostolic organization exempt under section 501(d) Entity formed as a limited liability company under state law and treated as a partnership for federal income tax purposes Subchapter T cooperative association (including a farmers' cooperative) Entity that elects to be treated as a real estate mortgage investment conduit (REMIC) under section 860D Interest charge domestic international sales corporation (section 992) Foreign corporation (other than life and property and casualty insurance company filing Form 1120-L or Form 1120-PC) Foreign sales corporation (section 922) Condominium management, residential real estate management, or timeshare association that elects to be treated as a homeowners association under section 528 Life insurance company (section 801) Fund set up to pay for nuclear decommissioning costs (section 468A) Property and casualty insurance company (section 831) Political organization (section 527) File Form

990-T

1065

1065

1120-C

1066

1120-IC-DISC

Electronic Filing
Corporations can generally electronically file (e-file) Form 1120, related forms, schedules, and attachments, Form 7004, Form 940 and Form 941 employment tax returns. If there is a balance due, the corporation can authorize an electronic funds withdrawal while e-filing. Form 1099 and other information returns can also be electronically filed. However, the option to e-file does not apply to certain returns, including: Returns with precomputed penalty and interest, Returns with reasonable cause for failing to file timely, Returns with reasonable cause for failing to pay timely, and Returns with request for overpayment to be applied to another account. Required filers. Certain corporations with total assets of $10 million or more that file at least 250 returns a year are required to e-file Form 1120. See Regulations section 301.6011-5. However, these corporations can request a waiver of the electronic filing requirements. See Notice 2005-88, 2005-48 I.R.B. 1060.

1120-F

1120-FSC

1120-H

General Instructions
Purpose of Form
Use Form 1120, U.S. Corporation Income Tax Return, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.

1120-L

Who Must File
Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Domestic corporations must file Form 1120 unless they are required to file a special return. See Special Returns for Certain Organizations below.

1120-ND

1120-PC

1120-POL

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Instructions for Form 1120

Real estate investment trust (section 856) Regulated investment company (section 851) S corporation (section 1361) Settlement fund (section 468B)

1120-REIT

1120-RIC 1120S 1120-SF

When To File
Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. If the due date falls on a Saturday, Sunday, or legal holiday, the corporation can file on the next business day.

Private Delivery Services
Corporations can use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing/ paying" rule for tax returns and payments. These private delivery services include only the following. DHL Express (DHL): DHL Same Day Service, DHL Next Day 10:30 am, DHL Next Day 12:00 pm, DHL Next Day 3:00 pm, and DHL 2nd Day Service. Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. The private delivery service can tell you how to get written proof of the mailing date. Private delivery services cannot deliver items to P.O. boxes. You CAUTION must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

If a return is filed on behalf of a corporation by a receiver, trustee, or assignee, the fiduciary must sign the return, instead of the corporate officer. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a corporation must be accompanied by a copy of the order or instructions of the court authorizing signing of the return or form. If an employee of the corporation completes Form 1120, the paid preparer's space should remain blank. Anyone who prepares Form 1120 but does not charge the corporation should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the "Paid Preparer's Use Only" area. The paid preparer must complete the required preparer information and: Sign the return in the space provided for the preparer's signature. Give a copy of the return to the taxpayer. Note. A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.

box in the signature area of the return. This authorization applies only to the individual whose signature appears in the "Paid Preparer's Use Only" section of the return. It does not apply to the firm, if any, shown in that section. If the "Yes," box is checked, the corporation is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The corporation is also authorizing the paid preparer to: Give the IRS any information that is missing from the return, Call the IRS for information about the processing of the return or the status of any related refund or payment(s), and Respond to certain IRS notices about math errors, offsets, and return preparation. The corporation is not authorizing the paid preparer to receive any refund check, bind the corporation to anything (including any additional tax liability), or otherwise represent the corporation before the IRS. The authorization will automatically end no later than the due date (excluding extensions) for filing the corporation's 2009 tax return. If the corporation wants to expand the paid preparer's authorization or revoke the authorization before it ends, see Pub. 947, Practice Before the IRS and Power of Attorney.

Paid Preparer Authorization
If the corporation wants to allow the IRS to discuss its 2008 tax return with the paid preparer who signed it, check the "Yes,"

Where To File
File the corporation's return at the applicable IRS address listed below.
If the corporation's principal And the total assets at business, office, or agency the end of the tax year is located in: are: Connecticut, Delaware, District Less than $10 million and of Columbia, Georgia, Illinois, Schedule M-3 is not filed Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, $10 million or more or Rhode Island, South Carolina, Tennessee, Vermont, Virginia, less than $10 million and Schedule M-3 is filed West Virginia, Wisconsin Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming A foreign country or U.S. possession

Use the following address: Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999-0012

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Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012

Extension of Time To File
File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request a 6-month extension of time to file. Generally, the corporation must file Form 7004 by the regular due date of the return.

Any amount

Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012

Who Must Sign
The return must be signed and dated by: The president, vice president, treasurer, assistant treasurer, chief accounting officer; or Any other corporate officer (such as tax officer) authorized to sign. Instructions for Form 1120

Any amount

Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409

A group of corporations with members located in more than one service center area will often keep all the books and records at the principal office of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the area in which the principal office of the managing corporation is located.

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Assembling the Return
To ensure that the corporation's tax return is correctly processed, attach all schedules and other forms after page 5 of Form 1120 in the following order. 1. Schedule N (Form 1120). 2. Schedule O (Form 1120). 3. Form 4626. 4. Form 8050. 5. Form 4136. 6. Form 851. 7. Additional schedules in alphabetical order. 8. Additional forms in numerical order. Complete every applicable entry space on Form 1120. Do not enter "See Attached" instead of completing the entry spaces. If more space is needed on the forms or schedules, attach separate sheets using the same size and format as the printed forms. If there are supporting statements and attachments, arrange them in the same order as the schedules or forms they support and attach them last. Show the totals on the printed forms. Enter the corporation's name and EIN on each supporting statement or attachment.

Depository Methods of Tax Payment
The corporation must pay any tax due in full no later than the 15th day of the 3rd month after the end of the tax year. The two methods of depositing taxes are discussed below.

Do not send deposits directly to an IRS office; otherwise, the corporation may have to pay a penalty. Mail or deliver the completed Form 8109 with the payment to an authorized depositary (a commercial bank or other financial institution authorized to accept federal tax deposits). Make checks or money orders payable to the depositary. If the corporation prefers, it can mail the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make the check or money order payable to "Financial Agent." To help ensure proper crediting, enter the corporation's EIN, the tax period to which the deposit applies, and "Form 1120" on the check or money order. Darken the "1120" box under "Type of Tax" and the appropriate "Quarter" box under "Tax Period" on the coupon. Records of these deposits will be sent to the IRS. For more information, see "Marking the Proper Tax Period" in the Instructions for Form 8109. For more information on deposits, see the instructions in the coupon booklet (Form 8109) and Pub. 583, Starting a Business and Keeping Records. If the corporation owes tax when it files Form 1120, do not include the CAUTION payment with the tax return. Instead, mail or deliver the payment with Form 8109 to an authorized depositary, or use EFTPS, if applicable.

See section 6655 for details and exceptions, including special rules for large corporations. Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the corporation owes a penalty and to figure the amount of the penalty. Generally, the corporation does not have to file this form because the IRS can figure the amount of any penalty and bill the corporation for it. However, even if the corporation does not owe the penalty, complete and attach Form 2220 if: The annualized income or adjusted seasonal installment method is used, or The corporation is a large corporation computing its first required installment based on the prior year's tax. See the Instructions for Form 2220 for the definition of a large corporation. Also, see the instructions for line 33.

Interest and Penalties
Interest. Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621. Late filing of return. A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $135. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause. Corporations that file late should attach a statement explaining the reasonable cause. Late payment of tax. A corporation that does not pay the tax when due generally may be penalized 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the corporation can show that the failure to pay on time was due to reasonable cause. Trust fund recovery penalty. This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not paid. These taxes are generally reported on: Form 720, Quarterly Federal Excise Tax Return; Form 941, Employer's QUARTERLY Federal Tax Return; Form 943, Employer's Annual Federal Tax Return for Agricultural Employees; or Form 945, Annual Return of Withheld Federal Income Tax. Instructions for Form 1120

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Electronic Deposit Requirement
The corporation must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2009 if: The total deposits of such taxes in 2007 were more than $200,000 or The corporation was required to use EFTPS in 2008. If the corporation is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If the corporation is not required to use EFTPS, it can participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477. To enroll online, visit www.eftps.gov. Depositing on time. For EFTPS deposits to be made timely, the corporation must initiate the transaction at least 1 business day before the date the deposit is due.

Estimated Tax Payments
Generally, the following rules apply to the corporation's payments of estimated tax. The corporation must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day. Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax. If the corporation does not use EFTPS, use the deposit coupons (Forms 8109) to make deposits of estimated tax. If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. See the instructions for lines 32b and 32c. Estimated tax penalty. A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a corporation is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of: Its tax liability for 2008 or Its prior year's tax.

Deposits With Form 8109
If the corporation does not use EFTPS, deposit corporation income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit Coupon. If you do not have a preprinted Form 8109, use Form 8109-B to make deposits. You can get this form by calling 1-800-829-4933 or visiting an IRS taxpayer assistance center. Have your EIN ready when you call or visit.

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The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax. See the Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax Guide, for details, including the definition of responsible persons. Other penalties. Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

Accounting Period
A corporation must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Generally, corporations can use a calendar year or a fiscal year. Personal service corporations, however, must use a calendar year unless they meet one of the exceptions discussed on page 6. Change of tax year. Generally, a corporation, including a personal service corporation, must get the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, under certain conditions, a corporation can change its tax year without getting consent. See the Instructions for Form 1128 and Pub. 538 for more information on accounting periods and tax years.

Accounting Methods
Figure taxable income using the method of accounting regularly used in keeping the corporation's books and records. In all cases, the method used must clearly show taxable income. Permissible methods include cash, accrual, or any other method authorized by the Internal Revenue Code.

corporation is affected by its participation in the transaction. The following are reportable transactions. 1. Any listed transaction, which is a transaction that is the same as or substantially similar to tax avoidance transactions identified by the IRS. 2. Any transaction offered under conditions of confidentiality for which the corporation paid an advisor a fee of at least $250,000. 3. Certain transactions for which the corporation has contractual protection against disallowance of the tax benefits. 4. Certain transactions resulting in a loss of at least $10 million in any single year or $20 million in any combination of years. 5. Any transaction identified by the IRS in published guidance as a "transaction of interest" (a transaction that the IRS believes has a potential for tax avoidance or evasion, but has not yet been identified as a listed transaction). For more information, see Regulations section 1.6011-4 and the Instructions for Form 8886. Penalties. The corporation may have to pay a penalty if it is required to disclose a reportable transaction under section 6011 and fails to properly complete and file Form 8886. Penalties may also apply under section 6707A if the corporation fails to file Form 8886 with its corporate return, fails to provide a copy of Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a form that fails to include all the information required (or includes incorrect information). Other penalties, such as an accuracy-related penalty under section 6662A, may also apply. See the Instructions for Form 8886 for details on these and other penalties. Reportable transactions by material advisors. Material advisors to any reportable transaction must disclose certain information about the reportable transaction by filing Form 8918, Material Advisor Disclosure Statement, with the IRS. Transfers to a corporation controlled by the transferor. Every significant transferor (as defined in Regulations section 1.351-3(d)) that receives stock of a corporation in exchange for property in a nonrecognition event must attach the statement required by Regulations section 1.351-3(a) to its return for the tax year of the exchange. The transferee corporation must include the statement required by Regulations section 1.351-3(b) for the tax year of the exchange, unless all the required information is included in any statement(s) provided by a significant transferor that is attached to the same return for the same section 351 exchange. Distributions under section 355. Every corporation that makes a distribution of stock or securities of a controlled corporation, as described in section 355 (or so much of section 356 as it relates to

Rounding Off To Whole Dollars
The corporation can round off cents to whole dollars on its return and schedules. If the corporation does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. If two or more amounts must be added to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. However, see Nonaccrual experience method on page 7. Unless it is a qualifying taxpayer or a qualifying small business taxpayer, a corporation must use the accrual method for sales and purchases of inventory items. See Schedule A. Cost of Goods Sold on page 14. A corporation engaged in farming must use the accrual method. For exceptions, see section 447. Special rules apply to long-term contracts. See section 460. Dealers in securities must use the mark-to-market accounting method. Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. See section 475. Change in accounting method. Generally, the corporation must get IRS consent to change the method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). To do so, the corporation generally must file Form 3115, Application for Change in Accounting Method. See Form 3115 and Pub. 538, Accounting Periods and Methods, for more information. There are some instances when the corporation can obtain automatic consent from the IRS to change to certain accounting methods. See Rev. Proc. 2008-52, 2008-36 I.R.B. 587, as modified by Announcement 2008-84, 2008-38 I.R.B. 748. Instructions for Form 1120

A corporation (other than a qualified

Generally, the following rules apply.

Recordkeeping
Keep the corporation's records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. The corporation should keep copies of all filed returns. They help in preparing future and amended returns.

Other Forms and Statements That May Be Required
Amended return. Use Form 1120X, Amended U.S. Corporation Income Tax Return, to correct a previously filed Form 1120. Reportable transaction disclosure statement. Disclose information for each reportable transaction in which the corporation participated. Form 8886, Reportable Transaction Disclosure Statement, must be filed for each tax year that the federal income tax liability of the

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section 355), must attach the statement required by Regulations section 1.355-5 to its return for the year of the distribution. If the distributing corporation is a controlled foreign corporation, each U.S. shareholder (within the meaning of section 951(b)), must include the statement on or with its return. Dual consolidated losses. If a domestic corporation incurs a dual consolidated loss (as defined in Regulations section 1.1503-2(c)(5)), the corporation (or consolidated group) may need to attach an elective relief agreement and/or an annual certification as provided in Regulations section 1.1503-2(g)(2). Election to reduce basis under section 362(e)(2)(C). The transferor and transferee in certain section 351 transactions can make a joint election under section 362(e)(2)(C) to limit the transferor's basis in the stock received instead of the transferee's basis in the transferred property. The transferor and transferee may make the election by attaching the statement as provided in Notice 2005-70, 2005-41 I.R.B. 694, to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. If the transferor is a controlled foreign corporation, its controlling U.S. shareholder(s) can make the election. The common parent of a consolidated group can make the election for the group. Once made, the election is irrevocable. See section 362(e)(2)(C) and Notice 2005-70. Other forms and statements. See Pub. 542 for a list of other forms and statements a corporation may need to file in addition to the forms and statements discussed throughout these instructions.

document creating it), address, and EIN on the appropriate lines. Enter the address of the corporation's principal office or place of business. Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the corporation has a P.O. box, show the box number instead. Note. Do not use the address of the registered agent for the state in which the corporation is incorporated. For example, if a business is incorporated in Delaware or Nevada and the corporation's principal office is located in Little Rock, AR, the corporation should enter the Little Rock address. If the corporation receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line "C/O" followed by the third party's name and street address or P.O. box. If the corporation received a Form 1120 tax package, use the preprinted label. Cross out any errors and print the correct information on the label.

The corporation does not have to

TIP complete lines 3, 4, and 5 above,
if its total receipts (line 1a plus lines 4 through 10 on page 1 of the return) and its total assets at the end of the tax year are less than $250,000. For more information on consolidated returns, see the regulations under section 1502.

Life-Nonlife Consolidated Return
If the corporation is the common parent of a consolidated group that includes a life-nonlife insurance company, check box 1b of Item A. See Temporary Regulations section 1.1502-47T(s).

Personal Holding Company
A personal holding company must attach to Form 1120 a Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax. See the Instructions for Schedule PH (Form 1120) for details.

Personal Service Corporation
A personal service corporation is a corporation whose principal activity for the testing period (generally the prior tax year unless the corporation has just been formed) for tax year is the performance of personal services. Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, and the performing arts. The services must be substantially performed by employee-owners. A personal service corporation must use a calendar tax year unless: It elects to use a 52-53-week tax year that ends with reference to the calendar year or tax year elected under section 444; It can establish a business purpose for a different tax year and obtains the approval of the IRS (see the Instructions for Form 1128 and Pub. 538); or It elects under section 444 to have a tax year other than a calendar year. To make the election, use Form 8716, Election To Have a Tax Year Other Than a Required Tax Year. If a corporation makes the section 444 election, its deduction for certain amounts paid to employee-owners may be limited. See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. If a section 444 election is terminated and the termination results in a short tax year, type or print at the top of the first page of Form 1120 for the short tax year "SECTION 444 ELECTION TERMINATED." See Temporary Regulations section 1.444-1T(a)(5) for more information. For more information regarding a personal service corporation, see Pub. 542. Instructions for Form 1120

Item A. Identifying Information
Consolidated Return
Corporations filing a consolidated return must attach Form 851, Affiliations Schedule, and other supporting statements to the return. Also, for the first year a subsidiary corporation is being included in a consolidated return, attach Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return, to the parent's consolidated return. Attach a separate Form 1122 for each subsidiary being included in the consolidated return. File supporting statements for each corporation included in the consolidated return. Do not use Form 1120 as a supporting statement. On the supporting statement, use columns to show the following, both before and after adjustments. 1. Items of gross income and deductions. 2. A computation of taxable income. 3. Balance sheets as of the beginning and end of the tax year. 4. A reconciliation of income per books with income per return. 5. A reconciliation of retained earnings. Enter on Form 1120 the totals for each item of income, gain, loss, expense, or deduction, net of eliminating entries for intercompany transactions between corporations within the consolidated group. Attach consolidated balance sheets and a reconciliation of consolidated retained earnings.

Specific Instructions
Period Covered
File the 2008 return for calendar year 2008 and fiscal years that begin in 2008 and end in 2009. For a fiscal or short tax year return, fill in the tax year space at the top of the form. The 2008 Form 1120 can also be used if: The corporation has a tax year of less than 12 months that begins and ends in 2009, and The 2009 Form 1120 is not available at the time the corporation is required to file its return. The corporation must show its 2009 tax year on the 2008 Form 1120 and take into account any tax law changes that are effective for tax years beginning after December 31, 2008.

Name and Address
Enter the corporation's true name (as set forth in the charter or other legal

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Schedule M-3 (Form 1120)
A corporation with total assets (non-consolidated or consolidated for all corporations included within a tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, instead of Schedule M-1. A corporation filing Form 1120 that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1. If you are filing Schedule M-3, check box 4 of Item A to indicate that Schedule M-3 is attached. See the Instructions for Schedule M-3 for more details.

incorporation and filed the amendment with the state in which it was incorporated. If the corporation has changed its address since it last filed a return (including a change to an "in care of" address), check the "Address change" box. Note. If a change in address occurs after the return is filed, use Form 8822, Change of Address, to notify the IRS of the new address.

Income
Except as otherwise provided in the Internal Revenue Code, gross income includes all income from whatever source derived. Income from qualifying shipping activities. Gross income does not include income from qualifying shipping activities if the corporation makes an election under section 1354 to be taxed on its notional shipping income (as defined in section 1353) at the highest corporate tax rate (35%). If the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. A corporation making this election also may elect to defer gain on the disposition of a qualifying vessel. Use Form 8902, Alternative Tax on Qualifying Shipping Activities, to figure the tax. Include the alternative tax on Schedule J, line 9.

Item B. Employer Identification Number (EIN)
Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN can be applied for: Online -- Click on the EIN link at www. irs.gov/businesses/small. The EIN is issued immediately once the application information is validated. By telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. in the corporation's local time zone. By mailing or faxing Form SS-4, Application for Employer Identification Number. If the corporation has not received its EIN by the time the return is due, enter "Applied for" and the date you applied in the space for the EIN. For more details, see the Instructions for Form SS-4. Note. Only corporations located in the United States or U.S. possessions can use the online application. Foreign corporations must use one of the other methods to apply.

increased by the interest payable under section 453(l)(3). Report this addition to the tax on line 9, Schedule J. Enter on line 1 (and carry to line 3), the gross profit on collections from installment sales for any of the following. Dealer dispositions of property before March 1, 1986. Dispositions of property used or produced in the trade or business of farming. Certain dispositions of timeshares and residential lots reported under the installment method. Attach a schedule showing the following information for the current and the 3 preceding years: (a) gross sales, (b) cost of goods sold, (c) gross profits, (d) percentage of gross profits to gross sales, (e) amount collected, and (f) gross profit on the amount collected. Nonaccrual experience method. Accrual method corporations are not required to accrue certain amounts to be received from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. For more information, see Regulations section 1.448-2. Corporations that qualify to use the nonaccrual experience method should attach a schedule showing total gross receipts, the amount not accrued as a result of the application of section 448(d)(5), and the net amount accrued. Enter the net amount on line 1a.

Line 1. Gross Receipts or Sales
Enter gross receipts or sales from all business operations except those that must be reported on lines 4 through 10. In general, advance payments are reported in the year of receipt. To report income from long-term contracts, see section 460. For special rules for reporting certain advance payments for goods and long-term contracts, see Regulations section 1.451-5. For permissible methods for reporting advance payments for services and certain goods by an accrual method corporation, see Rev. Proc. 2004-34, 2004-22 I.R.B. 991. Installment sales. Generally, the installment method cannot be used for dealer dispositions of property. A "dealer disposition" is any disposition of: (a) personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan or (b) real property held for sale to customers in the ordinary course of the taxpayer's trade or business. These restrictions on using the installment method do not apply to dispositions of property used or produced in a farming business or sales of timeshares and residential lots for which the corporation elects to pay interest under section 453(l)(3). For sales of timeshares and residential lots reported under the installment method, the corporation's income tax is

Item D. Total Assets
Enter the corporation's total assets (as determined by the accounting method regularly used in keeping the corporation's books and records) at the end of the tax year. If there are no assets at the end of the tax year, enter -0-. If the corporation is required to complete Schedule L, enter total assets from Schedule L, line 15, column (d) on page 1, item D. If filing a consolidated return, report total consolidated assets for all corporations joining in the return.

Line 2. Cost of Goods Sold
Enter the cost of goods sold on line 2, page 1. Before making this entry, complete Schedule A on page 2 of Form 1120. See the Schedule A instructions on page 14.

Line 4. Dividends
See the instructions for Schedule C. Then, complete Schedule C and enter on line 4 the amount from Schedule C, line 19.

If this is the corporation's first return, check the "Initial return" box. If this is the corporation's final return and it will no longer exist, check the "Final return" box. If the corporation changed its name since it last filed a return, check "Name change" box. Generally, a corporation also must have amended its articles of
Instructions for Form 1120

Item E. Initial Return, Final Return, Name Change, or Address Change

Line 5. Interest
Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, etc. Do not offset interest expense against interest income. Special rules apply to interest income from certain below-market-rate loans. See section 7872 for details. Note. Report tax-exempt interest income on Schedule K, item 9. Also, if required, include the same amount on Schedule

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M-1, line 7, or Schedule M-3 (Form 1120), Part II, line 13, if applicable.

Line 6. Gross Rents
Enter the gross amount received for the rental of property. Deduct expenses such as repairs, interest, taxes, and depreciation on the proper lines for deductions. A rental activity held by a closely held corporation or a personal service corporation may be subject to the passive activity loss rules. See Passive activity limitations on page 9.

Line 10. Other Income
Enter any other taxable income not reported on lines 1 through 9. List the type and amount of income on an attached schedule. If the corporation has only one item of other income, describe it in parentheses on line 10. Examples of other income to report on line 10 include the following. 1. Recoveries of bad debts deducted in prior years under the specific charge-off method. 2. The amount included in income from Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit. 3. The amount included in income from Form 8864, Biodiesel and Renewable Diesel Fuels Credit. 4. Refunds of taxes deducted in prior years to the extent they reduced income subject to tax in the year deducted (see section 111). Do not offset current year taxes against tax refunds. 5. Any recapture amount under section 179A for certain clean-fuel vehicle property (or clean-fuel vehicle refueling property) that ceases to qualify. See Regulations section 1.179A-1 for details. 6. Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 26. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership. 7. Any LIFO recapture amount under section 1363(d). The corporation may have to include a LIFO recapture amount in income if it: a. Used the LIFO inventory method for its last tax year before the first tax year for which it elected to become an S corporation or b. Transferred LIFO inventory assets to an S corporation in a nonrecognition transaction in which those assets were transferred basis property. The LIFO recapture amount is the amount by which the C corporation's inventory under the FIFO method exceeds the inventory amount under the LIFO method at the close of the corporation's last tax year as a C corporation (or for the year of the transfer, if (b) above applies). For more information, see Regulations section

1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B. 775. Also see the instructions for Schedule J, line 10. 8. Any net positive section 481(a) adjustment. The corporation may have to make an adjustment under section 481(a) to prevent amounts of income or expense from being duplicated or omitted. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. The corporation must complete the appropriate lines of Form 3115 to make this election. Also, under certain other conditions, the corporation can modify the period for taking into account a net positive section 481 adjustment. See Rev. Proc. 2007-67, 2007-48 I.R.B. 1072. If the net section 481(a) adjustment is negative, report it on line 26. 9. Part or all of the proceeds received from certain corporate-owned life insurance contracts issued after August 17, 2006. See section 101(j) for details.

Deductions
Limitations on Deductions
Section 263A uniform capitalization rules. The uniform capitalization rules of section 263A generally require corporations to capitalize, or include in inventory, certain costs incurred in connection with: The production of real property and tangible personal property held in inventory or held for sale in the ordinary course of business. Real property or personal property (tangible and intangible) acquired for resale. The production of real property and tangible personal property by a corporation for use in its trade or business or in an activity engaged in for profit. Tangible personal property produced by a corporation includes a film, sound recording, videotape, book, or similar property. Corporations subject to the section 263A uniform capitalization rules are required to capitalize: 1. Direct costs and 2. An allocable part of most indirect costs (including taxes) that (a) benefit the assets produced or acquired for resale or (b) are incurred because of the performance of production or resale activities. For inventory, some of the indirect expenses that must be capitalized are: Administration expenses; Taxes; Depreciation; Insurance; Compensation paid to officers attributable to services; Rework labor; and

Contributions to pension, stock bonus, and certain profit-sharing, annuity, or deferred compensation plans. Regulations section 1.263A-1(e)(3) specifies other indirect costs that relate to production or resale activities that must be capitalized and those that may be currently deductible. Interest expense paid or incurred during the production period of designated property must be capitalized and is governed by special rules. For more details, see Regulations sections 1.263A-8 through 1.263A-15. The costs required to be capitalized under section 263A are not deductible until the property (to which the costs relate) is sold, used, or otherwise disposed of by the corporation. Exceptions. Section 263A does not apply to the following. Personal property acquired for resale if the corporation's (or any of its predecessors) average annual gross receipts for the 3 prior tax years were $10 million or less. Timber. Most property produced under a long-term contract. Certain property produced in a farming business. Research and experimental costs under section 174. Geological and geophysical costs amortized under section 167(h). Capital costs incurred to comply with EPA sulfur regulations. Intangible drilling costs for oil, gas, and geothermal property. Mining exploration and development costs. Inventoriable items accounted for in the same manner as materials and supplies that are not incidental. See Cost of Goods Sold on page 14. For more details on the uniform capitalization rules, see Regulations sections 1.263A-1 through 1.263A-3. See Regulations section 1.263A-4 for rules for property produced in a farming business. Transactions between related taxpayers. Generally, an accrual basis taxpayer can only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. See sections 163(e)(3),163(j), and 267 for limitations on deductions for unpaid interest and expenses. Corporations use Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, to figure the amount of any corporate interest expense disallowed by section 163(j). Section 291 limitations. Corporations may be required to adjust deductions for depletion of iron ore and coal, intangible drilling and exploration and development costs, certain deductions for financial institutions, and the amortizable basis of pollution control facilities. See section 291
Instructions for Form 1120

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to determine the amount of the adjustment. Also see section 43. Golden parachute payments. A portion of the payments made by a corporation to key personnel that exceeds their usual compensation may not be deductible. This occurs when the corporation has an agreement (golden parachute) with these key employees to pay them these excess amounts if control of the corporation changes. See section 280G and Regulations section 1.280G-1. Also see the instructions for line 12. Business start-up and organizational costs. For business start-up and organization costs paid or incurred after September 8, 2008, a corporation can deduct up to $5,000 of such costs for the year it begins business (unless the corporation elects to capitalize all such costs). The $5,000 deduction is reduced by the amount the total costs exceed $50,000. If the total costs are $55,000 or more, the deduction is reduced to zero. Any cost not deducted must be amortized ratably over a 180-month period, beginning with the month the corporation begins business. The corporation is not required to attach a statement or specifically identify the amount deducted in order for the election to be effective. The corporation can choose to forgo the deduction and instead elect to capitalize all such costs. The election to deduct or capitalize costs is irrevocable. See Temporary Regulations sections 1.195-1T and 1.248-1T. For business start-up and organization costs paid after October 22, 2004, and before September 9, 2008, a corporation can elect to deduct up to $5,000 of such costs for the year it begins business (otherwise the corporation must capitalize all such costs). The $5,000 deduction is reduced by the amount the total costs exceed $50,000. If the total costs are $55,000 or more, the deduction is reduced to zero. Any costs not deducted must be amortized ratably over a 180-month period, beginning with the month the corporation begins business. If the election is made, the corporation must attach any statement required by Regulations sections 1.195-1(b) and 1.248-1(c). However, the corporation can apply the provisions of Temporary Regulations sections 1.195-1T and 1.248-1T to all expenses paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Otherwise the provisions under Regulations sections 1.195-1(b) and 1.248-1(c) will apply. For business start-up and organization costs paid or incurred before October 23, 2004, a corporation can elect to amortize such costs over a period of 60-months or more. Report the deductible amount of such costs and any amortization on line 26. For amortization that begins during the 2008 tax year, complete and attach Form 4562. Instructions for Form 1120

For more details on business start-up and organization costs, see Pub 535. Passive activity limitations. Limitations on passive activity losses and credits under section 469 apply to personal service corporations (defined on page 6) and closely held corporations (defined below). Generally, the two kinds of passive activities are: Trade or business activities in which the corporation did not materially participate for the tax year; and Rental activities, regardless of its participation. For exceptions, see Form 8810, Corporate Passive Activity Loss and Credit Limitations. Corporations subject to the passive activity limitations must complete Form 8810 to compute their allowable passive activity loss and credit. Before completing Form 8810, see Temporary Regulations section 1.163-8T, which provides rules for allocating interest expense among activities. If a passive activity is also subject to the earnings stripping rules of section 163(j), the at-risk rules of section 465, or the tax-exempt use loss rules of section 470, those rules apply before the passive loss rules. For more information, see section 469, the related regulations, and Pub. 925, Passive Activity and At-Risk Rules. Closely held corporations. A corporation is a closely held corporation if: At any time during the last half of the tax year more than 50% in value of its outstanding stock is directly or indirectly owned by or for not more than five individuals, and The corporation is not a personal service corporation. Certain organizations are treated as individuals for purposes of this test. See section 542(a)(2). For rules for determining stock ownership, see section 544 (as modified by section 465(a)(3)). Reducing certain expenses for which credits are allowable. If the corporation claims certain credits, it may need to reduce the otherwise allowable deductions for expenses used to figure the credit. The following are examples of such credits. Work opportunity credit. Credits for affected Midwestern disaster area employers. Empowerment zone and renewal community credit. Indian employment credit. Welfare-to-work credit. Research credit. Orphan drug credit. Disabled access credit. Employer credit for social security and Medicare taxes paid on certain employee tips. Credit for small employer pension plan startup costs. Credit for employer-provided childcare facilities and services.

payments. If the corporation has any of these credits, figure each current year credit before figuring the deduction for expenses on which the credit is based. If the corporation capitalized any costs on which it figured the credit, reduce the amount capitalized by the credit attributable to these costs. See the instructions for the form used to figure the applicable credit. Limitations on deductions related to property leased to tax-exempt entities. If a corporation leases property to a governmental or other tax-exempt entity, the corporation cannot claim deductions related to the property to the extent that they exceed the corporation's income from the lease payments (tax-exempt use loss). Amounts disallowed may be carried over to the next tax year and treated as a deduction with respect to the property for that tax year. See section 470 for more details and exceptions.

Mine rescue team training credit. Agricultural chemicals security credit. Credit for employer differential wage

Line 12. Compensation of Officers
Enter deductible officers' compensation on line 12. Do not include compensation deductible elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan. Complete Schedule E if the total receipts (line 1a, plus lines 4 through 10) are $500,000 or more. Include only the deductible part of each officer's compensation on Schedule E. See Disallowance of deduction for employee compensation in excess of $1 million below. Complete Schedule E, line 1, columns (a) through (f), for all officers. The corporation determines who is an officer under the laws of the state where it is incorporated. If a consolidated return is filed, each member of an affiliated group must furnish this information. Disallowance of deduction for employee compensation in excess of $1 million. Publicly held corporations cannot deduct compensation to a "covered employee" to the extent that the compensation exceeds $1 million. Generally, a covered employee is: The principal executive officer of the corporation (or an individual acting in that capacity) as of the end of the tax year or An employee whose total compensation must be reported to shareholders under the Securities Exchange Act of 1934 because the employee is among the three highest compensated officers for that tax year (other than the principal executive officer). For this purpose, compensation does not include the following.

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annuity plans, or pensions. Any benefit paid to an employee that is excluded from the employee's income.

Income from certain employee trusts,

Line 14. Repairs and Maintenance
Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that do not add to the value of the property or appreciably prolong its life. New buildings, machinery, or permanent improvements that increase the value of the property are not deductible. They must be depreciated or amortized.

Commissions based on individual Qualified performance-based
performance,

The deduction limit does not apply to:

compensation, and Income payable under a written, binding contract in effect on February 17, 1993. The $1 million limit is reduced by amounts disallowed as excess parachute payments under section 280G. See section 162(m) and Regulations section 1.162-27. Also see Notice 2007-49, 2007-25 I.R.B. 1429. Limitations on tax benefits for executive compensation under a Treasury troubled asset relief program. The $1 million compensation limit is reduced to $500,000 for executive remuneration and deferred deduction executive remuneration paid to covered executives during an applicable tax year by an applicable employer under a troubled asset relief program. The $500,000 is reduced by any amounts disallowed as excess parachute payments. See section 162(m)(5) for definitions and other special rules. Also see Notice 2008-94, 2008-44 I.R.B. 1070, for additional guidance. In addition, a portion of any parachute payments made to a covered executive by an applicable employer participating in a Treasury troubled asset relief program is not deductible as compensation if the payments are made because of a severance from employment during an applicable tax year. For this purpose, applicable employer, covered executive, and applicable tax year have the same meaning as under section 162(m)(5). These limits do not apply to a payment already treated as a parachute payment. See section 280G(e) and Notice 2008-94.

Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.). Taxes deducted elsewhere on the return, such as those reflected in cost of goods sold. See section 164(d) for apportionment of taxes on real property between seller and purchaser.

Line 18. Interest
Note. Do not offset interest income against interest expense. The corporation must make an interest allocation if the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire an interest in a passive activity). See Temporary Regulations section 1.163-8T for the interest allocation rules. Mutual savings banks, building and loan associations, and cooperative banks can deduct the amounts paid or credited to the accounts of depositors as dividends, interest, or earnings. See section 591. Do not deduct the following interest. Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. For exceptions, see section 265(b). For cash basis taxpayers, prepaid interest allocable to years following the current tax year. For example, a cash basis calendar year taxpayer who in 2008 prepaid interest allocable to any period after 2008 can deduct only the amount allocable to 2008. Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g). Interest on debt allocable to the production of designated property by a corporation for its own use or for sale. The corporation must capitalize this interest. Also capitalize any interest on debt allocable to an asset used to produce the property. See section 263A(f) and Regulations sections 1.263A-8 through 1.263A-15 for definitions and more information. Interest paid or incurred on any portion of an underpayment of tax that is attributable to an understatement arising from an undisclosed listed transaction or an undisclosed reportable avoidance transaction (other than a listed transaction) entered into in tax years beginning after October 22, 2004. Special rules apply to: Disqualified interest on certain indebtedness under section 163(j). See Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, and the related Instructions. Interest on which no tax is imposed (see section 163(j)). A corporation that owns an interest in a partnership, directly or indirectly, must treat its distributive share of the partnership liabilities, interest income, and interest expense as Instructions for Form 1120

Line 15. Bad Debts
Enter the total debts that became worthless in whole or in part during the tax year. A small bank or thrift institution using the reserve method of section 585 should attach a schedule showing how it figured the current year's provision. A cash basis taxpayer cannot claim a bad debt deduction unless the amount was previously included in income.

Line 16. Rents
If the corporation rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred during the year. Also complete Part V of Form 4562, Depreciation and Amortization. If the corporation leased a vehicle for a term of 30 days or more, the deduction for vehicle lease expense may have to be reduced by an amount called the inclusion amount. The corporation may have an inclusion amount if:
And the vehicle's FMV on the first day of the lease exceeded:

The lease term began:

After 12/31/07 but before 1/1/09 . . $18,500 After 12/31/06 but before 1/1/08 . . $15,500 After 12/31/04 but before 1/1/07 . . $15,200 After 12/31/03 but before 1/1/05 . . $17,500
If the lease term began before January 1, 2004, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses, to find out if the corporation has an inclusion amount. The inclusion amount for lease terms beginning in 2009 will be published in the Internal Revenue Bulletin in early 2009.

Line 13. Salaries and Wages
Enter the total salaries and wages paid for the tax year. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers' compensation, cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan. If the corporation claims a credit for any wages paid or incurred, it may need to reduce its deduction for officer's compensation and salaries and wages. See Reducing certain expenses for which credits are allowable on page 9. If the corporation provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages the amount allocated for depreciation and other expenses claimed on lines 20 and 26.

See Pub. 463 for instructions on figuring the inclusion amount.

Line 17. Taxes and Licenses
Enter taxes paid or accrued during the tax year, but do not include the following. Federal income taxes. Foreign or U.S. possession income taxes if a foreign tax credit is claimed. Taxes not imposed on the corporation. Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property (these taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition).

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liabilities, income, and expenses of the corporation for purposes of applying the earnings stripping rules. For more details, see section 163(j)(8). Foregone interest on certain below-market-rate loans (see section 7872). Original issue discount on certain high-yield discount obligations. (See section 163(e) to figure the disqualified portion.) Interest which is allocable to unborrowed policy cash values of life insurance, endowment, or annuity contracts issued after June 8, 1997. See section 264(f). Attach a statement showing the computation of the deduction.

next 15 years subject to the 100% limitation. See section 170(b)(2)(B). Certain contributions of food made after October 2, 2008, and before January 1, 2009, are treated as a qualified contribution for purposes of the suspension of the 10% limit. See section 170(b)(3). Temporary suspension of 10% limit for contributions to Midwestern disaster area. A corporation can elect to deduct qualified cash contributions without regard to the general 10% limit, if the contributions were paid after May 1, 2008, and before January 1, 2009, to a qualified charitable organization as defined in section 170(b)(1)(A) (except for contributions to a section 509(a)(3) organization or a donor advised fund (as defined in section 4966(d)(2))), and were for relief efforts in one or more Midwestern disaster areas. The corporation must obtain contemporaneous written acknowledgment from the organization that the contribution was used (or will be used) for relief efforts in one or more Midwestern disaster areas. The total amount claimed cannot exceed 100% of the excess of the corporation's taxable income (as computed under Limitation on deduction above, substituting "100%" for "10%") over the corporation's deduction for all other charitable contributions. Any excess contributions can be carried over to the next 5 years. For more information, see Pub. 4492-B. Carryover. Charitable contributions over the 10% limitation cannot be deducted for the tax year but can be carried over to the next 5 tax years. Special rules apply if the corporation has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the current tax year, the 10% limit is applied using the taxable income after taking into account any deduction for the NOL. To figure the amount of any remaining NOL carryover to later years, taxable income must be modified (see section 172(b)). To the extent that contributions are used to reduce taxable income for this purpose and increase an NOL carryover, a contributions carryover is not allowed. See section 170(d)(2)(B). Cash contributions. For contributions of cash, check, or other monetary gifts (regardless of the amount), the corporation must maintain a bank record, or a receipt, letter, or other written communication from the donee organization indicating the name of the organization, the date of the contribution, and the amount of the contribution. Contributions of $250 or more. Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property

contributed, and, either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the corporation's return, or, if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with the corporation's records. Contributions of property other than cash. If a corporation (other than a closely held or personal service corporation) contributes property other than cash and claims over a $500 deduction for the property, it must attach a schedule to the return describing the kind of property contributed and the method used to determine its fair market value (FMV). Closely held corporations and personal service corporations must complete Form 8283, Noncash Charitable Contributions, and attach it to their returns. All other corporations generally must complete and attach Form 8283 to their returns for contributions of property (other than money) if the total claimed deduction for all property contributed was more than $5,000. Special rules apply to the contribution of certain property. See the Instructions for Form 8283. Qualified conservation contributions. Special rules apply to qualified conservation contributions, including contributions of certain easements on buildings located in a registered historic district. See section 170(h) and Pub. 526, Charitable Contributions. Other special rules. The corporation must reduce its deduction for contributions of certain capital gain property. See sections 170(e)(1) and 170(e)(5). A larger deduction is allowed for certain contributions of: Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (see section 170(e)(3)), including contributions of "apparently wholesome food" (see section 170(e)(3)(C)), and contributions of qualified book inventory to public schools (see section 170(e)(3)(D)), Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations (other than by personal holding companies and service organizations (section 170(e)(4)), and Computer technology and equipment for educational purposes (section 170(e)(6)). For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 and the related regulations and Pub. 526, Charitable Contributions. For other special rules that apply to corporations, see Pub. 542.

Line 19. Charitable Contributions
Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused contributions carried over from prior years. Special rules and limits apply to contributions to organizations conducting lobbying activities. See section 170(f)(9). Corporations reporting taxable income on the accrual method can elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. The declaration must include the date the resolution was adopted. See Regulations section 1.170A-11. Limitation on deduction. The total amount claimed cannot be more than 10% of taxable income (line 30) computed without regard to the following. Any deduction for contributions. The special deductions on line 29b. The deduction allowed under section 249. The domestic production activities deduction under section 199. Any net operating loss (NOL) carryback to the tax year under section 172. Any capital loss carryback to the tax year under section 1212(a)(1). Suspension of 10% limitation for farmers and ranchers. A corporation that is a qualified farmer or rancher (as defined in section 170(b)(1)(E)) that does not have publicly traded stock, can deduct contributions of qualified conservation property without regard to the general 10% limit. The total amount of the contribution claimed for the qualified conservation property cannot exceed 100% of the excess of the corporation's taxable income (as computed above substituting "100%" for "10%") over all other allowable charitable contributions. Any excess qualified conservation contributions can be carried over to the Instructions for Form 1120

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Line 20. Depreciation
Include on line 20 depreciation and the cost of certain property that the corporation elected to expense under section 179. See Form 4562 and its Instructions.

Line 21. Depletion
See sections 613 and 613A for percentage depletion rates applicable to natural deposits. Also see section 291 for the limitation on the depletion deduction for iron ore and coal (including lignite). Attach Form T (Timber), Forest Activities Schedule, if a deduction for depletion of timber is taken. Foreign intangible drilling costs and foreign exploration and development costs must either be added to the corporation's basis for cost depletion purposes or be deducted ratably over a 10-year period. See sections 263(i), 616, and 617 for details. See Pub. 535 for more information on depletion.

Line 23. Pension, Profit-Sharing, etc., Plans
Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the corporation does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f). Form 5500, Annual Return/Report of Employee Benefit Plan. File this form for a plan that is not a one-participant plan (see below). Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers the owner (or the owner and his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire business.

Line 24. Employee Benefit Programs
Enter contributions to employee benefit programs not claimed elsewhere on the return (for example, insurance, health and welfare programs, etc.) that are not an incidental part of a pension, profit-sharing, etc., plan included on line 23.

Line 26. Other Deductions
Attach a schedule, listing by type and amount, all allowable deductions that are not deductible elsewhere on Form 1120. Enter the total on line 26. Examples of other deductions include the following. See Pub. 535 and Pub. 542 for details on other deductions that may apply to corporations.

4562. Certain costs of qualified film or television productions that the corporation elects to deduct. See section 181 and Temporary Regulations section 1.181-1T. Certain business start-up and organizational costs. See page 9 of the instructions. Qualified demolition and clean-up costs attributable to damage from storms and tornadoes in the Kansas and Midwestern disaster areas. See Pubs. 4492-A and 4492-B. Certain environmental remediation costs. See section 1400N(g) and Pub. 4492-B. Certain qualified disaster expenses that the corporation elects to deduct. See section 198A. Reforestation costs. The corporation can elect to deduct up to $10,000 of qualifying reforestation expenses for each qualified timber property. The corporation can elect to amortize over 84 months any amount not deducted. See Pub. 535. Insurance premiums. Legal and professional fees. Supplies used and consumed in the business. Travel, meals, and entertainment expenses. Special rules apply (discussed below). Utilities. Ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary income against ordinary losses. Instead, include the income on line 10. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount is from more than one partnership, identify the amount from each partnership. Any extraterritorial income exclusion (from Form 8873, line 52). Any negative net section 481(a) adjustment. See the instructions for line 10. Deduction for certain energy efficient commercial building property placed in service. See section 179D, Notice 2008-40, 2008-14 I.R.B. 725, and Notice 2006-52, 2006-26 I.R.B. 1175. Dividends paid in cash on stock held by an employee stock ownership plan. However, a deduction can only be taken for the dividends above if, according to the plan, the dividends are: 1. Paid in cash directly to the plan participants or beneficiaries; 2. Paid to the plan, which distributes them in cash to the plan participants or their beneficiaries no later than 90 days after the end of the plan year in which the dividends are paid; 3. At the election of such participants or their beneficiaries (a) payable as provided under 1or 2 above or (b) paid to the plan and reinvested in qualifying employer securities; or 4. Used to make payments on a loan described in section 404(a)(9).

Amortization. See Part VI of Form

See section 404(k) for more details and the limitation on certain dividends.

for violating any law. Any amount that is allocable to a class of exempt income. See section 265(b) for exceptions. Lobbying expenses. However, see exceptions (discussed later). Travel, meals, and entertainment. Subject to limitations and restrictions discussed below, a corporation can deduct ordinary and necessary travel, meals, and entertainment expenses paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water travel, convention expenses, and entertainment tickets. See section 274 and Pub. 463 for details.

Fines or penalties paid to a government

Do not deduct the following.

Travel. The corporation cannot deduct travel expenses of any individual accompanying a corporate officer or employee, including a spouse or dependent of the officer or employee, unless: That individual is an employee of the corporation, and His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual. Meals and entertainment. Generally, the corporation can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses paid or incurred in its trade or business. In addition (subject to exceptions under section 274(k)(2)): Meals must not be lavish or extravagant; A bona fide business discussion must occur during, immediately before, or immediately after the meal; and An employee of the corporation must be present at the meal. See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the hours of service limits of the Department of Transportation. Membership dues. The corporation can deduct amounts paid or incurred for membership dues in civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However, no deduction is allowed if a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests. In addition, corporations cannot deduct membership dues in any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion. Instructions for Form 1120

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Entertainment facilities. The corporation cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for an activity usually considered entertainment, amusement, or recreation. Amounts treated as compensation. Generally, the corporation may be able to deduct otherwise nondeductible entertainment, amusement, or recreation expenses if the amounts are treated as compensation to the recipient and reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor. However, if the recipient is an officer, director, or beneficial owner (directly or indirectly) of more than 10% of any class of stock, the deductible expense is limited. See section 274(e)(2) and Notice 2005-45, 2005-24 I.R.B. 1228. Lobbying expenses. Generally, lobbying expenses are not deductible. These expenses include: Amounts paid or incurred in connection with influencing federal or state legislation (but not local legislation) or Amounts paid or incurred in connection with any communication with certain federal executive branch officials in an attempt to influence the official actions or positions of the officials. See Regulations section 1.162-29 for the definition of "influencing legislation." Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. See section 162(e)(3). If certain in-house lobbying expenditures do not exceed $2,000, they are deductible.

deductions for the activities with the losses. If the corporation sells or otherwise disposes of an asset or its interest (either total or partial) in an activity to which the at-risk rules apply, determine the net profit or loss from the activity by combining the gain or loss on the sale or disposition with the profit or loss from the activity. If the corporation has a net loss, it may be limited because of the at-risk rules. Treat any loss from an activity not allowed for the tax year as a deduction allocable to the activity in the next tax year.

loss is carried forward from a tax year preceding the first tax year for which the alternative tax election was made. See section 1358(b)(2). If a corporation has a loss attributable to a disaster, special rules apply. See the Instructions for Form 1139. For more details on the NOL deduction, see section 172, the Instructions for Form 1139, and Pub. 542.

Line 29b. Special Deductions
See the instructions for Schedule C beginning on page 15.

Tax and Payments Line 30. Taxable Income
Minimum taxable income. The corporation's taxable income cannot be less than the largest of the following amounts. The inversion gain of the corporation for the tax year, if the corporation is an expatriated entity or a partner in an expatriated entity. For details, see section 7874. The sum of the corporation's excess inclusions from Schedules Q (Form 1066), line 2c, and the corporation's taxable income determined solely with respect to its ownership and high-yield interests in FASITs. For details, see sections 860E(a) and 860J. Net operating loss (NOL). If line 30 (figured without regard to the items listed above under minimum taxable income), is zero or less, the corporation may have an NOL that can be carried back or forward as a deduction to other tax years. Generally, a corporation first carries back an NOL 2 tax years. However, the corporation can elect to waive the carryback period and instead carry the NOL forward to future tax years. To make the election, see the instructions for Schedule K, item 11 on page 20. See Form 1139 for details, including other elections that may be available, which must be made no later than 6 months after the due date (excluding extensions) of the corporation's tax return. Merchant Marine capital construction fund. To take a deduction for amounts contributed to a capital construction fund (CCF), reduce the amount that would otherwise be entered on line 30 by the amount of the deduction. On the dotted line next to the entry space, enter "CCF" and the amount of the deduction. For more information, see section 7518.

Line 29a. Net Operating Loss Deduction
A corporation can use the NOL incurred in one tax year to reduce its taxable income in another tax year. Enter on line 29a the total NOL carryovers from other tax years, but do not enter more than the corporation's taxable income (after special deductions). Attach a schedule showing the computation of the NOL deduction. Complete item 12 on Schedule K. The following special rules apply. A personal service corporation may not carry back an NOL to or from any tax year to which an election under section 444 to have a tax year other than a required tax year applies. A corporate equity reduction interest loss may not be carried back to a tax year preceding the year of the equity reduction transaction (see section 172(b)(1)(E)). If an ownership change occurs, the amount of the taxable income of a loss corporation that may be offset by the pre-change NOL carryovers may be limited. See section 382 and the related regulations. A loss corporation must include the information statement as provided in Regulations section 1.382-11(a), with its income tax return for each tax year that it is a loss corporation in which an ownership shift, equity structures shift, or other transaction described in Temporary Regulations section 1.382-2T(a)(2)(i) occur. If the corporation makes the closing-of-the-books election, see Regulations section 1.382-6(b). For guidance in applying section 382 to loss corporations whose instruments were acquired by Treasury under the Capital Purchase Program under the Emergency Economic Stabilization Act of 2008, see Notice 2008-100, 2008-44 I.R.B. 1081. If a corporation acquires control of another corporation (or acquires its assets in a reorganization), the amount of pre-acquisition losses that may offset recognized built-in gain may be limited (see section 384). If a corporation elects the alternative tax on qualifying shipping activities under section 1354, no deduction is allowed for an NOL attributable to the qualifying shipping activities to the extent that the

Line 28. Taxable Income Before NOL Deduction and Special Deductions
At-risk rules. Generally, special at-risk rules under section 465 apply to closely held corporations (see Passive activity limitations on page 9) engaged in any activity as a trade or business or for the production of income. These corporations may have to adjust the amount on line 28. (See below.) The at-risk rules do not apply to: Holding real property placed in service by the taxpayer before 1987; Equipment leasing under sections 465(c)(4), (5), and (6); or Any qualifying business of a qualified corporation under section 465(c)(7). However, the at-risk rules do apply to the holding of mineral property. If the at-risk rules apply, adjust the amount on this line for any section 465(d) losses. These losses are limited to the amount for which the corporation is at risk for each separate activity at the close of the tax year. If the corporation is involved in one or more activities, any of which incurs a loss for the year, report the losses for each activity separately. Attach Form 6198, At-Risk Limitations, showing the amount at risk and gross income and Instructions for Form 1120

Line 32b. Estimated Tax Payments
Enter any estimated tax payments the corporation made for the tax year. Beneficiaries of trusts. If the corporation is the beneficiary of a trust, and the trust makes a section 643(g) election to credit its estimated tax payments to its beneficiaries, include the corporation's share of the payment in the total for line 32b. Enter "T" and the

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amount on the dotted line next to the entry space. Special estimated tax payments for certain life insurance companies. If the corporation is required to make or apply special estimated tax payments (SETP) under section 847 in addition to its regular estimated tax payments, enter on line 32b, the corporation's total estimated tax payments. In the margin near line 32b, enter "Form 8816" and the amount. Attach a schedule showing your computation of estimated tax payments. See sections 847(2) and 847(8) and Form 8816, Special Loss Discount Account and Special Estimated Tax Payments for Insurance Companies, for more information.

payments it received because, for example, it failed to give the payer its correct EIN, include the amount withheld in the total for line 32h. Enter the amount withheld and the words "Backup Withholding" in the blank space above line 32h.

uniform capitalization rules on page 8 before completing Schedule A.

Line 1. Inventory at Beginning of Year
If the corporation is changing its method of accounting for the current tax year, it must refigure last year's closing inventory using its new method of accounting and enter the result on line 1. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation and take it into account when figuring the corporation's section 481(a) adjustment.

Line 33. Estimated Tax Penalty
If Form 2220 is attached, check the box on line 33, and enter the amount of any penalty on this line.

Line 36
Direct deposit of refund. If the corporation wants its refund directly deposited into its checking or savings account at any U.S. bank or other financial institution instead of having a check sent to the corporation, complete Form 8050 and attach it to the corporation's tax return.

Line 4. Additional Section 263A Costs
An entry is required on this line only for corporations that have elected a simplified method of accounting. For corporations that have elected the simplified production method, additional section 263A costs are generally those costs, other than interest, that were not capitalized under the corporation's method of accounting immediately prior to the effective date of section 263A but are now required to be capitalized under section 263A. For details, see Regulations section 1.263A-2(b). For corporations that have elected the simplified resale method, additional section 263A costs are generally those costs incurred with respect to the following categories. Off-site storage or warehousing. Purchasing. Handling, such as processing, assembling, repackaging, and transporting. General and administrative costs (mixed service costs). For details, see Regulations section 1.263A-3(d). Enter on line 4 the balance of section 263A costs paid or incurred during the tax year not includible on lines 2, 3, and 5.

Line 32c. Overpaid estimated tax
If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466. The overpayment must be at least 10% of the corporation's expected income tax liability and at least $500. File Form 4466 after the end of the corporation's tax year, and no later than the 15th day of the third month after the end of the tax year. Form 4466 must be filed before the corporation files its tax return.

Schedule A. Cost of Goods Sold
Generally, inventories are required at the beginning and end of each tax year if the production, purchase, or sale of merchandise is an income-producing factor. However, if the corporation is a qualifying taxpayer or a qualifying small business taxpayer, it can adopt or change its accounting method to account for inventoriable items in the same manner as materials and supplies that are not incidental, unless its business is a tax shelter as defined in section 448(d)(3). A qualifying taxpayer is a taxpayer that, for each prior tax year ending after December 16, 1998, has average annual gross receipts of $1 million or less for the 3 prior tax years. A qualifying small business taxpayer is a taxpayer (a) that, for each prior tax year ending on or after December 31, 2000, has average annual gross receipts of $10 million or less for the 3 prior tax years, and (b) whose principal business activity is not an ineligible activity. Under this accounting method, inventory costs for raw materials purchased for use in producing finished goods and merchandise purchased for resale are deductible in the year the finished goods or merchandise are sold (but not before the year the corporation paid for the raw materials or merchandise, if it is also using the cash method). For additional guidance on this method of accounting for inventoriable items, see Pub. 538 and the Instructions for Form 3115. Enter amounts paid for all raw materials and merchandise during the tax year on line 2. The amount the corporation can deduct for the tax year is figured on line 8. All filers not using the cash method of accounting should see Section 263A

Line 32f
Credit from Form 2439. Enter any credit from Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, for the corporation's share of the tax paid by a regulated investment company (RIC) or a real estate investment trust (REIT) on undistributed long-term capital gains included in the corporation's income. Attach Form 2439 to Form 1120. Credit for federal tax on fuels. Enter any credit from Form 4136, Credit for Federal Tax Paid on Fuels. Attach Form 4136 to Form 1120. Credit for tax on ozone-depleting chemicals. Include on line 32f any credit the corporation is claiming under section 4682(g)(2) for tax on ozone-depleting chemicals. Enter "ODC" next to the entry space.

Line 5. Other Costs
Enter on line 5 any costs paid or incurred during the tax year not entered on lines 2 through 4.

Line 32g. Refundable Credits From Forms 3800 and 8827
The corporation can elect to claim certain unused research and minimum tax credits instead of claiming any additional first-year special depreciation allowance for eligible qualified property. If the corporation makes the election, enter on line 32g the amounts from line 19c of Form 3800 and line 8c of Form 8827, if applicable. See the instructions for these forms. Also, see Rev. Proc. 2008-65, 2008-44 I.R.B. 1082.

Line 7. Inventory at End of Year
See Regulations sections 1.263A-1 through 1.263A-3 for details on figuring the amount of additional section 263A costs to be included in ending inventory. If the corporation accounts for inventoriable items in the same manner as materials and supplies that are not incidental, enter on line 7 the portion of its raw materials and merchandise purchased for resale that is included on line 6 and was not sold during the year.

Line 32h. Total Payments
Add the amounts on lines 32d through 32g and enter the total on line 32h. Backup withholding. If the corporation had federal income tax withheld from any

Lines 9a Through 9f. Inventory Valuation Methods
Inventories can be valued at: Cost; Cost or market value (whichever is lower); or Instructions for Form 1120

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that conforms to the requirements of the applicable regulations cited below. However, if the corporation is using the cash method of accounting, it is required to use cost. Corporations that account for inventoriable items in the same manner as materials and supplies that are not incidental can currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs. Generally, the average cost (rolling average) method of valuing inventories does not conform to the requirements of the regulations. See Rev. Rul. 71-234, 1971-1 C.B. 148. However, if a corporation uses the average cost method for financial accounting purposes, there are two safe harbors under which this method will be deemed to clearly reflect income for federal income tax purposes. See Rev. Proc. 2008-43, 2008-30 I.R.B. 186, for details. Corporations that use erroneous valuation methods must change to a method permitted for federal income tax purposes. Use Form 3115 to make this change. On line 9a, check the method(s) used for valuing inventories. Under lower of cost or market, the term "market" (for normal goods) means the current bid price prevailing on the inventory valuation date for the particular merchandise in the volume usually purchased by the taxpayer. For a manufacturer, market applies to the basic elements of cost -- raw materials, labor, and burden. If section 263A applies to the taxpayer, the basic elements of cost must reflect the current bid price of all direct costs and all indirect costs properly allocable to goods on hand at the inventory date. Inventory may be valued below cost when the merchandise is unsalable at normal prices or unusable in the normal way because the goods are subnormal due to damage, imperfections, shopwear, etc., within the meaning of Regulations section 1.471-2(c). The goods may be valued at the bona fide selling price, minus direct cost of disposition (but not less than scrap value). Bona fide selling price means actual offering of goods during a period ending not later than 30 days after inventory date. If this is the first year the Last-in, First-out (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Also check the LIFO box on line 9c. On line 9d, enter the amount or the percent of total closing inventories covered under section 472. Estimates are acceptable. If the corporation changed or extended its inventory method to LIFO and had to Instructions for Form 1120

Any other method approved by the IRS

write up the opening inventory to cost in the year of election, report the effect of the write-up as other income (line 10, page 1), proportionately over a 3-year period that begins with the year of the LIFO election (section 472(d)). Note. Corporations using the LIFO method that make an S corporation election or transfer LIFO inventory to an S corporation in a nonrecognition transaction may be subject to an additional tax attributable to the LIFO recapture amount. See the instructions for Schedule J, line 10, on page 18, and line 10, Other Income, on page 8. For more information on inventory valuation methods, see Pub. 538.

20%-or-more-owned domestic corporations subject to income tax and that are subject to the 80% deduction under section 243(c), and Taxable distributions from an IC-DISC or former DISC that are considered eligible for the 80% deduction.

Line 3, Column (a)
Enter the following. Dividends received on debt-financed stock acquired after July 18, 1984, from domestic and foreign corporations subject to income tax that would otherwise be subject to the dividends-received deduction under section 243(a)(1), 243(c), or 245(a). Generally, debt-financed stock is stock that the corporation acquired by incurring a debt (for example, it borrowed money to buy the stock). Dividends received from a RIC on debt-financed stock. The amount of dividends eligible for the dividends-received deduction is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.

Schedule C. Dividends and Special Deductions
For purposes of the 20% ownership test on lines 1 through 7, the percentage of stock owned by the corporation is based on voting power and value of the stock. Preferred stock described in section 1504(a)(4) is not taken into account. Corporations filing a consolidated return should see Regulations sections 1.1502-13, 1.1502-26, and 1.1502-27 before completing Schedule C. Corporations filing a consolidated return must not report as dividends on Schedule C any amounts received from corporations within the tax consolidation group. Such dividends are eliminated in consolidation rather than offset by the dividends-received deduction.

Line 3, Columns (b) and (c)
Dividends received on debt-financed stock acquired after July 18, 1984, are not entitled to the full 70% or 80% dividends-received deduction. The 70% or 80% deduction is reduced by a percentage that is related to the amount of debt incurred to acquire the stock. See section 246A. Also see section 245(a) before making this computation for an additional limitation that applies to dividends received from foreign corporations. Attach a schedule to Form 1120 showing how the amount on line 3, column (c), was figured.

Line 1, Column (a)
Enter dividends (except those received on debt-financed stock acquired after July 18, 1984 see section 246A) that are: Received from less-than-20%-owned domestic corporations subject to income tax, and Qualified for the 70% deduction under section 243(a)(1). Also include on line 1 the following. Taxable distributions from an IC-DISC or former DISC that are designated as eligible for the 70% deduction and certain dividends of Federal Home Loan Banks. See section 246(a)(2). Dividends (except those received on debt-financed stock acquired after July 18, 1984) from a regulated investment company (RIC). The amount of dividends eligible for the dividends-received deduction under section 243 is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction. Report so-called dividends or earnings received from mutual savings banks, etc., as interest. Do not treat them as dividends.

Line 4, Column (a)
Enter dividends received on preferred stock of a less-than-20%-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 5, Column (a)
Enter dividends received on preferred stock of a 20%-or-more-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 6, Column (a)
Enter the U.S.-source portion of dividends that: Are received from less-than-20%-owned foreign corporations, and Qualify for the 70% deduction under section 245(a). To qualify for the 70% deduction, the corporation must own at least 10% of the stock of the foreign corporation by vote and value. Also include dividends received from a less-than-20%-owned FSC that: Are attributable to income treated as effectively connected with the conduct of a trade or business within the United

Line 2, Column (a)
debt-financed stock acquired after July 18, 1984) that are received from

Dividends (except those received on
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Enter on line 2:

States (excluding foreign trade income), and Qualify for the 70% deduction under section 245(c)(1)(B).

Line 10, Columns (a) and (c)
Small business investment companies operating under the Small Business Investment Act of 1958 (see 15 U.S.C. 661 and following) must enter dividends that are received from domestic corporations subject to income tax even though a deduction is allowed for the entire amount of those dividends. To claim the 100% deduction on line 10, column (c), the company must file with its return a statement that it was a federal licensee under the Small Business Investment Act of 1958 at the time it received the dividends.

Line 14, Column (a)
Include income constructively received from CFCs under subpart F. This amount should equal the total subpart F income reported on Schedule I of Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

Line 7, Column (a)
Enter the U.S.-source portion of dividends that: Are received from 20%-or-more-owned foreign corporations, and Qualify for the 80% deduction under section 245(a). Also include dividends received from a 20%-or-more-owned FSC that: Are attributable to income treated as effectively connected with the conduct of a trade or business within the United States (excluding foreign trade income), and Qualify for the 80% deduction under section 245(c)(1)(B).

Line 15, Column (a)
Include gross-up for taxes deemed paid under sections 902 and 960.

Line 16, Column (a)
Enter taxable distributions from an IC-DISC or former DISC that are designated as not eligible for a dividends-received deduction. No deduction is allowed under section 243 for a dividend from an IC-DISC or former DISC (as defined in section 992(a)) to the extent the dividend: Is paid out of the corporation's accumulated IC-DISC income or previously taxed income, or Is a deemed distribution under section 995(b)(1).

Line 11, Columns (a) and (c)
Enter only dividends that qualify under section 243(b) for the 100% dividends-received deduction described in section 243(a)(3). Corporations taking this deduction are subject to the provisions of section 1561. The 100% deduction does not apply to affiliated group members that are joining in the filing of a consolidated return.

Line 8, Column (a)
Enter dividends received from wholly owned foreign subsidiaries that are eligible for the 100% deduction under section 245(b). In general, the deduction under section 245(b) applies to dividends paid out of the earnings and profits of a foreign corporation for a tax year during which: All of its outstanding stock is directly or indirectly owned by the domestic corporation receiving the dividends, and All of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States.

Line 12, Column (a)
Enter dividends from FSCs that are attributable to foreign trade income and that are eligible for the 100% deduction provided in section 245(c)(1)(A).

Line 17, Column (a)
Include the following. 1. Dividends (other than capital gain distributions reported on Schedule D (Form 1120) and exempt-interest dividends) that are received from RICs and that are not subject to the 70% deduction. 2. Dividends from tax-exempt organizations. 3. Dividends (other than capital gain distributions) received from a REIT that, for the tax year of the trust in which the dividends are paid, qualifies under sections 856 through 860. 4. Dividends not eligible for a dividends-received deduction, which include the following. a. Dividends received on any share of stock held for less than 46 days during the 91-day period beginning 45 days before the ex-dividend date. When counting the number of days the corporation held the stock, you cannot count certain days during which the corporation's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details. b. Dividends attributable to periods totaling more than 366 days that the corporation received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days the corporation held the stock, you cannot count certain days during which the corporation's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 46-day holding period rule above. c. Dividends on any share of stock to the extent the corporation is under an obligation (including a short sale) to make Instructions for Form 1120

Line 13, Column (a)
Enter foreign dividends not reportable on lines 3, 6, 7, 8, 11, or 12 of column (a). Include on line 13 the corporation's share of the ordinary earnings of a qualified electing fund from line 1c of Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualifying Electing Fund. Exclude distributions of amounts constructively taxed in the current year or in prior years under subpart F (sections 951 through 964).

Line 9, Column (c)
Generally, line 9, column (c), cannot exceed the amount from the worksheet below. However, in a year in which an NOL occurs, this limitation does not apply even if the loss is created by the dividends-received deduction. See sections 172(d) and 246(b).

Worksheet for Schedule C, line 9
1. Refigure line 28, page 1, Form 1120, without any domestic production activities deduction, any adjustment under section 1059, and without any capital loss carryback to the tax year under section 1212(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Complete lines 10, 11, and 12, column (c), and enter the total here 3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Multiply line 3 by 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Add lines 2, 5, 7, and 8, column (c), and the part of the deduction on line 3, column (c), that is attributable to dividends from 20%-or-more-owned corporations . . . . . . . . . . . . . . . . . . . . . . 6. Enter the smaller of line 4 or 5. If line 5 is greater than line 4, stop here; enter the amount from line 6 on line 9, column (c), and do not complete the rest of this worksheet . . . . . . . . . . . . . . . . . . . . . 7. Enter the total amount of dividends from 20%-or-more-owned corporations that are included on lines 2, 3, 5, 7, and 8, column (a) 8. Subtract line 7 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Multiply line 8 by 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Subtract line 5 above from line 9, column (c) . . . . . . . . . . . . . . . 11. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . 12. Dividends-received deduction after limitation (sec. 246(b)). Add lines 6 and 11. Enter the result here and on line 9, column (c) . . .

Keep for Your Records

1. 2. 3. 4.

5.

6. 7. 8. 9. 10. 11. 12.

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related payments with respect to positions in substantially similar or related property. 5. Any other taxable dividend income not properly reported above. If patronage dividends or per-unit retain allocations are included on line 17, identify the total of these amounts in a schedule attached to Form 1120.

Line 18, Column (c)
Section 247 allows public utilities a deduction of 40% of the smaller of (a) dividends paid on their preferred stock during the tax year, or (b) taxable income computed without regard to this deduction. In a year in which an NOL occurs, compute the deduction without regard to section 247(a)(1)(B). See section 172(d).

1. Substantially all of the corporation's activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. 2. At least 95% of the corporation's stock, by value, is directly or indirectly owned by a. Employees performing the services, b. Retired employees who had performed the services listed above, c. Any estate of an employee or retiree described above, or d. Any person who acquired the stock of the corporation as a result of the death of an employee or retiree (but only for the 2-year period beginning on the date of the employee's or retiree's death). Alternative tax for corporations with qualified timber gains. A corporation that has net capital gain and qualified timber gain (as defined in section 1201(b)(2)) is subject to an alternative tax computation. The alternative tax applies for tax years ending after May 22, 2008, and beginning before May 23, 2009. The tax is figured on Schedule D (Form 1120), Part IV. Enter on Schedule J, line 2, the tax from Schedule D, Part IV, line 26. Mutual savings bank conducting life insurance business. The tax under section 594 consists of the sum of (a) a partial tax computed on Form 1120 on the taxable income of the bank determined without regard to income or deductions allocable to the life insurance department, and (b) a partial tax on the taxable income computed on Form 1120-L of the life insurance department. Enter the combined tax on line 2. Attach Form 1120-L as a schedule (and identify it as such), together with the annual statements and schedules required to be filed with Form 1120-L. See Regulations section 1.6012-2(c)(1)(ii). An exception applies for insurance companies that electronically file their returns. See Regulations section 1.6012-2(c)(4). Deferred tax under section 1291. If the corporation was a shareholder in a passive foreign investment company (PFIC) and received an excess distribution or disposed of its investment in the PFIC during the year, it must include the increase in taxes due under section 1291(c)(2) in the total for line 2. On the dotted line next to line 2, enter "Section 1291" and the amount. Do not include on line 2 any interest due under section 1291(c)(3). Instead, show the amount of interest owed in the bottom margin of page 1, Form 1120, and enter "Section 1291 interest." For details, see Form 8621. Additional tax under section 197(f). A corporation that elects to pay tax on the gain from the sale of an intangible under the related person exception to the anti-churning rules should include any additional tax due under section 197(f)(9)(B) in the total for line 2. On the

dotted line next to line 2, enter "Section 197" and the amount.

Line 3
A corporation that is not a small corporation exempt from the AMT CAUTION may be required to file Form 4626 if it claims certain credits, even though it does not owe any AMT. See Form 4626 for details. Unless the corporation is treated as a small corporation exempt from the AMT, it may owe the AMT if it has any of the adjustments and tax preference items listed on Form 4626. The corporation must file Form 4626 if its taxable income (or loss) before the NOL deduction, combined with these adjustments and tax preference items is more than the smaller of $40,000 or the corporation's allowable exemption amount (from Form 4626). For this purpose, taxable income does not include the NOL deduction. See Form 4626 for definitions and details on how to figure the tax.

!

Schedule J. Tax Computation
Line 1
If the corporation is a member of a controlled group, check the box on line 1. Complete and attach Schedule O (Form 1120), Consent Plan and Apportionment Schedule for a Controlled Group. Members of a controlled group must use Schedule O to report the apportionment of taxable income, income tax, and certain tax benefits between the members of the group. See Schedule O and its Instructions for more information.

Line 5a
To find out when a corporation can take the credit for payment of income tax to a foreign country or U.S. possession, see Form 1118, Foreign Tax Credit Corporations.

Line 5b
Enter the amount of any credit from Form 8834, Qualified Electric Vehicle Credit, for qualified electric vehicle passive activity credits from prior years allowed on Form 8810 for the current tax year. Also include on line 5b any credits from Form 5735, American Samoa Economic Development Credit. See the Instructions for Form 5735.

Line 2
If the corporation is a member of a controlled group, enter the corporation's tax from Part III of Schedule O (Form 1120). Most corporations that are not members of a controlled group and not filing a consolidated return figure their tax by using the Tax Rate Schedule below. Qualified personal service corporations should see the instructions later. Tax Rate Schedule
If taxable income (line 30, Form 1120) on page 1 is: Of the amount over --

Line 5c
Enter on line 5c the allowable credit from Form 3800, Part II, line 32. The corporation is required to file Form 3800, General Business Credit, to claim most business credits. For a list of allowable credits, see Form 3800. Also, see the applicable credit form and its instructions.

Over --

But not over --

Tax is:

Line 5d
To figure the minimum tax credit and any carryforward of that credit, use Form 8827, Credit for Prior Year Minimum Tax -- Corporations.

$0 $50,000 15% $0 50,000 75,000 $ 7,500 + 25% 50,000 75,000 100,000 13,750 + 34% 75,000 100,000 335,000 22,250 + 39% 100,000 335,000 10,000,000 113,900 + 34% 335,000 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 15,000,000 18,333,333 5,150,000 + 38% 15,000,000 18,333,333 ----35% 0

Line 5e
Enter the allowable credits from Form 8912, Credit to Holders of Tax Credit Bonds, line 17.

Qualified personal service corporation. A qualified personal service corporation is taxed at a flat rate of 35% on taxable income. If the corporation is a qualified personal service corporation, check the box on line 2 even if the corporation has no tax liability. A corporation is a qualified personal service corporation if it meets both of the following tests. Instructions for Form 1120

Line 8
A corporation is taxed as a personal holding company under section 542 if: At least 60% of its adjusted ordinary gross income for the tax year is personal holding company income, and At any time during the last half of the tax year more than 50% in value of its outstanding stock is directly or indirectly owned by five or fewer individuals.

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See Schedule PH (Form 1120) for definitions and details on how to figure the tax.

Line 9
Include any of the following taxes and interest in the total on line 9. Check the appropriate box(es) for the form, if any, used to compute the total. Recapture of investment credit. If the corporation disposed of investment credit property or changed its use before the end of its useful life or recovery period, it may owe a tax. See Form 4255, Recapture of Investment Credit. Recapture of low-income housing credit. If the corporation disposed of property (or there was a reduction in the qualified basis of the property) for which it took the low-income housing credit, it may owe a tax. See Form 8611, Recapture of Low-Income Housing Credit. Interest due under the look-back methods. If the corporation used the look-back method for certain long-term contracts, see Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, for information on figuring the interest the corporation may have to include. The corporation may also have to include interest due under the look-back method for property depreciated under the income forecast method. See Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method. Alternative tax on qualifying shipping activities. Enter any alternative tax on qualifying shipping activities from Form 8902. Check the box for Form 8902. Other. Additional taxes and interest amounts can be included in the total entered on line 9. Check the box for "Other" if the corporation includes any additional taxes and interest such as the items discussed below. See How to report below for details on reporting these amounts on an attached schedule. Recapture of qualified electric vehicle (QEV) credit. The corporation must recapture part of the QEV credit it claimed in a prior year if, within 3 years of the date the vehicle was placed in service, it ceases to qualify for the credit. See Regulations section 1.30-1 for details on how to figure the recapture. Recapture of Indian employment credit. Generally, if an employer terminates the employment of a qualified employee less than 1 year after the date of initial employment, any Indian employment credit allowed for a prior tax year because of wages paid or incurred to that employee must be recaptured. For details, see Form 8845 and section 45A. Recapture of new markets credit (see Form 8874). Recapture of employer-provided childcare facilities and services credit (see Form 8882).

withdrawal from a capital construction fund (section 7518(g)). Interest on deferred tax attributable to (a) installment sales of certain timeshares and residential lots (section 453(l)(3)) and (b) certain nondealer installment obligations (section 453A(c)). Interest due on deferred gain (section 1260(b)). How to report. If the corporation checked the "Other" box, attach a schedule showing the computation of each item included in the total for line 9 and identify the applicable Code section and the type of tax or interest.

Tax and interest on a nonqualified

Schedule K. Other Information
Complete all items that apply to the corporation.

Question 3
Check the "Yes" box for question 3 if: The corporation is a subsidiary in an affiliated group (defined below), but is not filing a consolidated return for the tax year with that group, or The corporation is a subsidiary in a parent-subsidiary controlled group. For a definition of a parent-subsidiary controlled group, see the Instructions for Schedule O (Form 1120). Any corporation that meets either of the requirements above should check the "Yes" box. This applies even if the corporation is a subsidiary member of one group and the parent corporation of another. Note. If the corporation is an "excluded member" of a controlled group (see section 1563(b)(2)), it is still considered a member of a controlled group for this purpose. Affiliated group. An affiliated group is one or more chains of includible corporations (section 1504(a)) connected through stock ownership with a common parent corporation. The common parent must be an includible corporation and the following requirements must be met. 1. The common parent must own directly stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of at least one of the other includible corporations. 2. Stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of each of the other corporations (except for the common parent) must be owned directly by one or more of the other includible corporations. For this purpose, the term "stock" generally does not include any stock that (a) is nonvoting, (b) is nonconvertible, (c) is limited and preferred as to dividends and does not participate significantly in corporate growth, and (d) has redemption and liquidation rights that do not exceed the issue price of the stock (except for a reasonable redemption or liquidation premium). See section 1504(a)(4). See section 1563(d)(1) for the definition of stock for purposes of determining stock ownership above.

Line 10
Include any deferred tax on the termination of a section 1294 election applicable to shareholders in a qualified electing fund in the amount entered on line 10. See Form 8621, Part V, and How to report, below. Subtract the following amounts from the total for line 10. Deferred tax on the corporation's share of undistributed earnings of a qualified electing fund (see Form 8621, Part II). Deferred LIFO recapture tax (section 1363(d)). This tax is the part of the LIFO recapture tax that will be deferred and paid with Form 1120S in the future. To figure the deferred tax, first figure the total LIFO recapture tax. Follow the steps below to figure the total LIFO recapture tax and the deferred amount. Also see the instructions regarding LIFO recapture amount on page 8 under Line 10. Other Income. Step 1. Figure the tax on the corporation's income including the LIFO recapture amount. (Complete Schedule J through line 9, but do not enter a total on line 10 yet.) Step 2. Using a separate worksheet, complete Schedule J again, but do not include the LIFO recapture amount in the corporation's taxable income. Step 3. Compare the tax in Step 2 to the tax in Step 1. (The difference between the two is the LIFO recapture tax.) Step 4. Multiply the amount figured in Step 3 by 75%. (The result is the deferred LIFO recapture tax.) How to report. Attach a schedule showing the computation of each item included in, or subtracted from, the total for line 10. On the dotted line next to line 10, specify (a) the applicable Code section, (b) the type of tax, and (c) enter the amount of tax. For example, if the corporation is deferring a $100 LIFO recapture tax, subtract this amount from the total on line 10, then enter "Section 1363-Deferred Tax-$100" on the dotted line next to line 10.

Question 4
Constructive Ownership of the Corporation
For purposes of question 4, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in corporate stock and ownership of interests in the profit, loss, or capital of a partnership. An interest in the corporation owned directly Instructions for Form 1120

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or indirectly by or for another entity (corporation, partnership, estate, or trust) is considered to be owned proportionately by the owners (shareholders, partners, or beneficiaries) of the owning entity. Also, under section 267(c), an individual is considered to own an interest owned directly or indirectly by or for his or her family. The family of an individual includes only that individual's spouse, brothers, sisters, ancestors, and lineal descendants. An interest will be attributed from an individual under the family attribution rules only if the person to whom the interest is attributed owns a direct or an indirect interest in the corporation under section 267(c)(1) or (5). However, for purposes of these instructions, an individual will not be considered to own, under section 267(c)(2), an interest in the corporation owned, directly or indirectly, by a family member unless the individual also owns an interest in the corporation either directly or indirectly through a corporation, partnership or trust. Constructive ownership examples for questions 4 and 5 follow the instructions for questions 4b and 5b.

indirectly, through Partnership B, a 35% interest (50% of 70%) in the profit, loss, or capital of Partnership C and owns, indirectly, 35% of the voting stock of Corporation D. Corporation A owns, directly or indirectly, a 50% interest in the profit, loss, or capital of Partnership C (15% directly and 35% indirectly), and owns, directly or indirectly, 50% of the voting stock of Corporation D (15% directly and 35% indirectly). Corporation D reports in its answer to question 4a that its voting stock is owned, directly or indirectly, 50% by Corporation A and is owned, directly, 70% by Partnership B. Example 2. A owns, directly, 50% of the voting stock of Corporation X. B, the daughter of A, does not own, directly, any interest in Corporation X and does not own, indirectly, any interest in Corporation X through any entity (corporation, partnership, trust, or estate). Therefore, the family attribution rules do not apply and, for the purposes of question 4b, the 50% interest of A in Corporation X is not attributed to B. Example 3. A owns, directly, 50% of the voting stock of Corporation X. B, the daughter of A, does not own, directly, any interest in X but does own, indirectly, 10% of the voting stock of Corporation X through Trust T of which she is the sole beneficiary. No other family member of A or B owns, directly, any interest in Corporation X nor does any own, indirectly, any interest in Corporation X through any entity. Neither A nor B owns any other interest in Corporation X through any entity. For the purposes of question 4b, the 50% interest of A in the voting stock of Corporation X is attributed to B and the 10% interest of B in the voting stock of Corporation X is attributed to A. A owns, directly or indirectly, 60% of the voting stock of Corporation X, 50% directly and 10% indirectly through B. B owns, directly or indirectly, 60% of the voting stock of Corporation X (50% indirectly through A and 10% indirectly through Trust T).

Question 5a
List each foreign or domestic corporation not included on Form 851, Affiliations Schedule, in which the corporation, at the end of the tax year, owned directly 20% or more, or owned, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote. Indicate the name of the corporation, EIN (if any), country of incorporation, and the percentage interest owned, directly or indirectly, in the total voting power. List the parent corporation of an affiliated group of corporations filing a consolidated tax return rather than the subsidiary members except for subsidiary members in which an interest is owned, directly or indirectly, independent of the interest owned, directly or indirectly, in the parent corporation. List a corporation owned through a disregarded entity rather than the disregarded entity.

Question 5b
List each foreign or domestic partnership in which the corporation, at the end of the tax year, owned directly an interest of 20% or more, or owned, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of the partnership. List each trust in which the corporation, at the end of the tax year, owned directly an interest of 20% or more, or owned, directly or indirectly, an interest of 50% or more in the trust beneficial interest. Indicate the name, EIN (if any), country of organization, and the maximum percentage interest owned, directly or indirectly, in the profit, loss, or capital of the partnership at the end of the partnership tax year, or, for a trust, the percentage interest owned in the trust beneficial interest. List a partnership or trust owned through a disregarded entity rather than the disregarded entity. Maximum percentage owned in partnership profit, loss, or capital. For the purposes of question 5b, the term "maximum percentage owned" means the highest percentage of interest in a partnership's profit, loss, or capital as of the end of the partnership's tax year, as determined under the partnership agreement, when taking into account the constructive ownership rules above. If the partnership agreement does not express the partner's share of profit, loss, and capital as fixed percentages, use a reasonable method in arriving at the percentage items for the purposes of completing question 5b. Such method must be consistent with the partnership agreement. The method used to compute a percentage share of profit, loss, and capital must be applied consistently from year to year. Maintain records to support the determination of the share of profits, losses, and share of capital. Example 4. Assuming the same facts as Example 1, Corporation A reports in its answer to question 5a that it owns, directly or indirectly, 50% of the voting stock of Corporation D. Corporation A reports in its answer to question 5b that it

Question 4a
List each foreign or domestic corporation, partnership, or trust owning, at the end of the tax year, directly 20% or more, or owning, directly or indirectly, 50% or more of the total voting power of all classes of the corporation's stock entitled to vote. Indicate the name of the entity, EIN (if any), type of entity (corporation, partnership, or trust), country of organization, and the percentage owned, directly or indirectly, of the voting stock of the corporation. For an affiliated group filing a consolidated tax return, list the parent corporation rather than the subsidiary members. List the entity owner of a disregarded entity rather than the disregarded entity. If the owner of a disregarded entity is an individual rather than an entity, list the individual under question 4b.

Question 4b
List each individual or estate owning, at the end of the tax year, directly 20% or more, or owning, directly or indirectly, 50% or more, of the total voting power of all classes of the corporation's stock entitled to vote. Indicate the name of the individual or estate, TIN (if any), country of citizenship (for an estate, the citizenship of the decedent), and the percentage owned, directly or indirectly of the voting stock of the corporation. Example 1. Corporation A owns, directly, a 50% interest in the profit, loss, or capital of Partnership B. Corporation A also owns, directly, a 15% interest in the profit, loss, or capital of Partnership C and owns, directly, 15% of the voting stock of Corporation D. Partnership B owns, directly, a 70% interest in the profit, loss, or capital of Partnership C and owns, directly, 70% of the voting stock of Corporation D. Corporation A owns, Instructions for Form 1120

Question 5
Constructive Ownership of Other Entities
For purposes of determining the corporation's constructive ownership of other entities, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in partnerships and trusts as well as corporate stock. Generally, if an entity (a corporation, partnership, or trust) is owned, directly or indirectly, by or for another entity (corporation, partnership, estate, or trust), the owned entity is considered to be owned proportionately by or for the owners (shareholders, partners, or beneficiaries) of the owning entity.

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owns, directly, an interest of 50% in the profit, loss, or capital of Partnership B and owns, directly or indirectly, 50% of the profit, loss, or capital of Partnership C.

Question 7
Check the "Yes," box if one foreign person owned at least 25% of (a) the total voting power of all classes of stock of the corporation entitled to vote, or (b) the total value of all classes of stock of the corporation. The constructive ownership rules of section 318 apply in determining if a corporation is foreign owned. See section 6038A(c)(5) and the related regulations. Enter on line 7a the percentage owned by the foreign person specified in question 7. On line 7b, enter the name of the owner's country. Note. If there is more than one 25%-or-more foreign owner, complete lines 7a and 7b for the foreign person with the highest percentage of ownership. Foreign person. The term "foreign person" means: A foreign citizen or nonresident alien, An individual who is a citizen of a U.S. possession (but who is not a U.S. citizen or resident), A foreign partnership, A foreign corporation, Any foreign estate or trust within the meaning of section 7701(a)(31), or A foreign government (or one of its agencies or instrumentalities) to the extent that it is engaged in the conduct of a commercial activity as described in section 892. Owner's country. For individuals, the term "owner's country" means the country of residence. For all others, it is the country where incorporated, organized, created, or administered. Requirement to file Form 5472. If the corporation checked "Yes," it may have to file Form 5472, Information Return of a 25% Foreign Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Generally, a 25% foreign-owned corporation that had a reportable transaction with a foreign or domestic related party during the tax year must file Form 5472. See Form 5472 for filing instructions and penalties for failure to file.

including extensions. Do not attach the statement described in Temporary Regulations section 301.9100-12T. Once made, the election is irrevocable. See Form 1139 for more details. Corporations filing a consolidated return must also attach the statement required by Regulations section 1.1502-21(b)(3).

The excess of additional pension liability over unrecognized prior service cost. Guarantees of employee stock (ESOP) debt. Compensation related to employee stock award plans.
If the total adjustment to be entered on line 26 is a negative amount, enter the amount in parentheses.

Item 12
Enter the amount of the NOL carryover to the tax year from prior years, even if some of the loss is used to offset income on this return. The amount to enter is the total of all NOLs generated in prior years but not used to offset income (either as a carryback or carryover) to a tax year prior to 2008. Do not reduce the amount by any NOL deduction reported on line 29a.

Schedule M-1. Reconciliation of Income (Loss) per Books With Income per Return
Corporations with total receipts (line 1a plus lines 4 through 10 on page 1) and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2 if the "Yes" box on Schedule K, question 13, is checked. Corporations with total assets non-consolidated (or consolidated for all corporations included within the tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120) instead of Schedule M-1. A corporation filing Form 1120 that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1. See the Instructions for Schedule M-3 (Form 1120) for more information.

Schedule L. Balance Sheet per Books
The balance sheet should agree with the corporation's books and records. Corporations with total receipts (line 1a plus lines 4 through 10 on page 1) and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2 if the "Yes" box on Schedule K, question 13, is checked. If the corporation is required to complete Schedule L, include total assets reported on Schedule L, line 15, column (d), on page 1, item D. Corporations with total assets non-consolidated (or consolidated for all corporations included within the tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120) instead of Schedule M-1. See the separate Instructions for Schedule M-3 (Form 1120) for provisions that also affect Schedule L. If filing a consolidated return, report total consolidated assets, liabilities, and shareholder's equity for all corporations joining in the return. See Consolidated Return on page 6 of these instructions.

Line 5c
Include any of the following. Meal and entertainment expenses not deductible under section 274(n). Expenses for the use of an entertainment facility. The part of business gifts over $25. Expenses of an individual over $2,000, which are allocable to conventions on cruise ships. Employee achievement awards over $400. The cost of entertainment tickets over face value (also subject to 50% limit under section 274(n)). The cost of skyboxes over the face value of nonluxury box seat tickets. The part of luxury water travel expenses not deductible under section 274(m). Expenses for travel as a form of education. Other nondeductible travel and entertainment expenses. For more information, see Pub. 542.

Line 1
Include certificates of deposit as cash on this line.

Item 9
Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other RIC. Also, if required, include the same amount on Schedule M-1, line 7 (or Schedule M-3, Part II, line 13, if applicable).

Line 5
Include on this line: State and local government obligations, the interest on which is excludable from gross income under section 103(a) and Stock in a mutual fund or other RIC that distributed exempt-interest dividends during the tax year of the corporation.

Item 11
If the corporation has an NOL for its 2008 tax year, it can elect to waive the entire carryback period for the NOL and instead carry the NOL forward to future tax years. To do so, check the box on line 11 and file the tax return by its due date,

Line 26
Some examples of adjustments to report on this line include: Unrealized gains and losses on securities held "available for sale." Foreign currency translation adjustments.

Line 7
Report any tax exempt interest received or accrued, including any exempt-interest dividends received as a shareholder in a mutual fund or other RIC. Also report this same amount on Schedule K, item 9. Instructions for Form 1120

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Privacy Act and Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. Section 6109 requires return preparers to provide their identifying numbers on the return. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The time needed to complete and file the following forms will vary depending on individual circumstances. The estimated average times are:
Learning about the law or the form 40 hr., 54 min. 35 min. 3 hr., 55 min. 35 min. 3 hr., 40 min. 1 hr., 30 min. 2 hr., 5 min. 4 hr., 18 min. Copying, assembling, and sending the form to the IRS 7 hr., 30 min. ----32 min. --------48 min. ----32 min.

Form 1120 Sch B (1120) Sch. D (1120) Sch. H (1120) Sch. M-3 (1120) Sch. N (1120) Sch. O (1120) Sch. PH (1120)

Recordkeeping 67 hr., 40 min. 2hr., 37 min. 9 hr., 05 min. 5 hr., 58 min. 79 hr., 52 min. 3 hr., 21 min. 12 hr., 40 min. 12 hr., 54 min.

Preparing the form 69 hr., 51 min. 40 min. 6 hr., 5 min. 43 min. 5 hr., 8 min. 4 hr., 24 min. 2 hr., 22 min. 6 hr., 34 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedules simpler, we would be happy to hear from you. You can write to Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this address. Instead, see Where To File on page 3.

Instructions for Form 1120

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Principal Business Activity Codes
This list of principal business activities and their associated codes is designed to classify an enterprise by the type of activity in which it is engaged to facilitate the administration of the Internal Revenue Code. These principal business activity codes are based on the North American Industry Classification System. Code Code

Using the list of activities and codes below, determine from which activity the company derives the largest percentage of its "total receipts." Total receipts is defined as the sum of gross receipts or sales (page 1, line 1a) plus all other income (page 1, lines 4 through 10). If the company purchases raw materials and supplies them to a subcontractor to produce the finished product, but retains title to the product, the company is considered a manufacturer and must use one of the manufacturing codes (311110-339900). Code

Once the principal business activity is determined, entries must be made on Form 1120, Schedule K, lines 2a, 2b, and 2c. For the business activity code number, enter the six digit code selected from the list below. On the next line (Form 1120, Schedule K, line 2b), enter a brief description of the company's business activity. Finally, enter a description of the principal product or service of the company on Form 1120, Schedule K, line 2c.

Code 332810 Coating, Engraving, Heat Treating, & Allied Activities 332900 Other Fabricated Metal Product Mfg Machinery Manufacturing 333100 Agriculture, Construction, & Mining Machinery Mfg 333200 Industrial Machinery Mfg 333310 Commercial & Service Industry Machinery Mfg 333410 Ventilation, Heating, Air-Conditioning, & Commercial Refrigeration Equipment Mfg 333510 Metalworking Machinery Mfg 333610 Engine, Turbine & Power Transmission Equipment Mfg 333900 Other General Purpose Machinery Mfg Computer and Electronic Product Manufacturing 334110 Computer & Peripheral Equipment Mfg 334200 Communications Equipment Mfg 334310 Audio & Video Equipment Mfg 334410 Semiconductor & Other Electronic Component Mfg 334500 Navigational, Measuring, Electromedical, & Control Instruments Mfg 334610 Manufacturing & Reproducing Magnetic & Optical Media Electrical Equipment, Appliance, and Component Manufacturing 335100 Electric Lighting Equipment Mfg 335200 Household Appliance Mfg 335310 Electrical Equipment Mfg 335900 Other Electrical Equipment & Component Mfg Transportation Equipment Manufacturing 336100 Motor Vehicle Mfg 336210 Motor Vehicle Body & Trailer Mfg 336300 Motor Vehicle Parts Mfg 336410 Aerospace Product & Parts Mfg 336510 Railroad Rolling Stock Mfg 336610 Ship & Boat Building 336990 Other Transportation Equipment Mfg Furniture and Related Product Manufacturing 337000 Furniture & Related Product Manufacturing Miscellaneous Manufacturing 339110 Medical Equipment & Supplies Mfg 339900 Other Miscellaneous Manufacturing

Agriculture, Forestry, Fishing and Hunting
Crop Production 111100 Oilseed & Grain Farming 111210 Vegetable & Melon Farming (including potatoes & yams) 111300 Fruit & Tree Nut Farming 111400 Greenhouse, Nursery, & Floriculture Production 111900 Other Crop Farming (including tobacco, cotton, sugarcane, hay, peanut, sugar beet & all other crop farming) Animal Production 112111 Beef Cattle Ranching & Farming 112112 Cattle Feedlots 112120 Dairy Cattle & Milk Production 112210 Hog & Pig Farming 112300 Poultry & Egg Production 112400 Sheep & Goat Farming 112510 Aquaculture (including shellfish & finfish farms & hatcheries) 112900 Other Animal Production Forestry and Logging 113110 Timber Tract Operations 113210 Forest Nurseries & Gathering of Forest Products 113310 Logging Fishing, Hunting and Trapping 114110 Fishing 114210 Hunting & Trapping Support Activities for Agriculture and Forestry 115110 Support Activities for Crop Production (including cotton ginning, soil preparation, planting, & cultivating) 115210 Support Activities for Animal Production 115310 Support Activities For Forestry

Heavy and Civil Engineering Construction 237100 Utility System Construction 237210 Land Subdivision 237310 Highway, Street, & Bridge Construction 237990 Other Heavy & Civil Engineering Construction Specialty Trade Contractors 238100 Foundation, Structure, & Building Exterior Contractors (including framing carpentry, masonry, glass, roofing, & siding) 238210 Electrical Contractors 238220 Plumbing, Heating, & Air-Conditioning Contractors 238290 Other Building Equipment Contractors 238300 Building Finishing Contractors (including drywall, insulation, painting, wallcovering, flooring, tile, & finish carpentry) 238900 Other Specialty Trade Contractors (including site preparation)

Manufacturing
Food Manufacturing 311110 Animal Food Mfg 311200 Grain & Oilseed Milling 311300 Sugar & Confectionery Product Mfg 311400 Fruit & Vegetable Preserving & Specialty Food Mfg 311500 Dairy Product Mfg 311610 Animal Slaughtering and Processing 311710 Seafood Product Preparation & Packaging 311800 Bakeries & Tortilla Mfg 311900 Other Food Mfg (including coffee, tea, flavorings & seasonings) Beverage and Tobacco Product Manufacturing 312110 Soft Drink & Ice Mfg 312120 Breweries 312130 Wineries 312140 Distilleries 312200 Tobacco Manufacturing Textile Mills and Textile Product Mills 313000 Textile Mills 314000 Textile Product Mills Apparel Manufacturing 315100 Apparel Knitting Mills 315210 Cut & Sew Apparel Contractors 315220 Men's & Boys' Cut & Sew Apparel Mfg 315230 Women's & Girls' Cut & Sew Apparel Mfg 315290 Other Cut & Sew Apparel Mfg 315990 Apparel Accessories & Other Apparel Mfg Leather and Allied Product Manufacturing 316110 Leather & Hide Tanning & Finishing 316210 Footwear Mfg (including rubber & plastics) 316990 Other Leather & Allied Product Mfg

Mining
Oil & Gas Extraction Coal Mining Metal Ore Mining Stone Mining & Quarrying Sand, Gravel, Clay, & Ceramic & Refractory Minerals Mining & Quarrying 212390 Other Nonmetallic Mineral Mining & Quarrying 213110 Support Activities for Mining 211110 212110 212200 212310 212320

Utilities
221100 Electric Power Generation, Transmission & Distribution 221210 Natural Gas Distribution 221300 Water, Sewage & Other Systems 221500 Combination Gas & Electric

Construction
Construction of Buildings 236110 Residential Building Construction 236200 Nonresidential Building Construction

Wood Product Manufacturing 321110 Sawmills & Wood Preservation 321210 Veneer, Plywood, & Engineered Wood Product Mfg 321900 Other Wood Product Mfg Paper Manufacturing 322100 Pulp, Paper, & Paperboard Mills 322200 Converted Paper Product Mfg Printing and Related Support Activities 323100 Printing & Related Support Activities Petroleum and Coal Products Manufacturing 324110 Petroleum Refineries (including integrated) 324120 Asphalt Paving, Roofing, & Saturated Materials Mfg 324190 Other Petroleum & Coal Products Mfg Chemical Manufacturing 325100 Basic Chemical Mfg 325200 Resin, Synthetic Rubber, & Artificial & Synthetic Fibers & Filaments Mfg 325300 Pesticide, Fertilizer, & Other Agricultural Chemical Mfg 325410 Pharmaceutical & Medicine Mfg 325500 Paint, Coating, & Adhesive Mfg 325600 Soap, Cleaning Compound, & Toilet Preparation Mfg 325900 Other Chemical Product & Preparation Mfg Plastics and Rubber Products Manufacturing 326100 Plastics Product Mfg 326200 Rubber Product Mfg Nonmetallic Mineral Product Manufacturing 327100 Clay Product & Refractory Mfg 327210 Glass & Glass Product Mfg 327300 Cement & Concrete Product Mfg 327400 Lime & Gypsum Product Mfg 327900 Other Nonmetallic Mineral Product Mfg Primary Metal Manufacturing 331110 Iron & Steel Mills & Ferroalloy Mfg 331200 Steel Product Mfg from Purchased Steel 331310 Alumina & Aluminum Production & Processing 331400 Nonferrous Metal (except Aluminum) Production & Processing 331500 Foundries Fabricated Metal Product Manufacturing 332110 Forging & Stamping 332210 Cutlery & Handtool Mfg 332300 Architectural & Structural Metals Mfg 332400 Boiler, Tank, & Shipping Container Mfg 332510 Hardware Mfg 332610 Spring & Wire Product Mfg 332700 Machine Shops; Turned Product; & Screw, Nut, & Bolt Mfg

Wholesale Trade
Merchant Wholesalers, Durable Goods 423100 Motor Vehicle & Motor Vehicle Parts & Supplies 423200 Furniture & Home Furnishings 423300 Lumber & Other Construction Materials 423400 Professional & Commercial Equipment & Supplies

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Instructions for Form 1120

Principal Business Activity Codes (continued)
Code 423500 Metal & Mineral (except Petroleum) 423600 Electrical & Electronic Goods 423700 Hardware, & Plumbing & Heating Equipment & Supplies 423800 Machinery, Equipment, & Supplies 423910 Sporting & Recreational Goods & Supplies 423920 Toy & Hobby Goods & Supplies 423930 Recyclable Materials 423940 Jewelry, Watch, Precious Stone, & Precious Metals 423990 Other Miscellaneous Durable Goods Merchant Wholesalers, Nondurable Goods 424100 Paper & Paper Products 424210 Drugs & Druggists' Sundries 424300 Apparel, Piece Goods, & Notions 424400 Grocery & Related Products 424500 Farm Product Raw Materials 424600 Chemical & Allied Products 424700 Petroleum & Petroleum Products 424800 Beer, Wine, & Distilled Alcoholic Beverages 424910 Farm Supplies 424920 Book, Periodical, & Newspapers 424930 Flower, Nursery Stock, & Florists' Supplies 424940 Tobacco & Tobacco Products 424950 Paint, Varnish, & Supplies 424990 Other Miscellaneous Nondurable Goods Wholesale Electronic Markets and Agents and Brokers 425110 Business to Business Electronic Markets 425120 Wholesale Trade Agents & Brokers Code Convenience Stores Meat Markets Fish & Seafood Markets Fruit & Vegetable Markets Baked Goods Stores Confectionery & Nut Stores All Other Specialty Food Stores 445310 Beer, Wine, & Liquor Stores Health and Personal Care Stores 446110 Pharmacies & Drug Stores 446120 Cosmetics, Beauty Supplies, & Perfume Stores 446130 Optical Goods Stores 446190 Other Health & Personal Care Stores Gasoline Stations 447100 Gasoline Stations (including convenience stores with gas) Clothing and Clothing Accessories Stores 448110 Men's Clothing Stores 448120 Women's Clothing Stores 448130 Children's & Infants' Clothing Stores 448140 Family Clothing Stores 448150 Clothing Accessories Stores 448190 Other Clothing Stores 448210 Shoe Stores 448310 Jewelry Stores 448320 Luggage & Leather Goods Stores Sporting Goods, Hobby, Book, and Music Stores 451110 Sporting Goods Stores 451120 Hobby, Toy, & Game Stores 451130 Sewing, Needlework, & Piece Goods Stores 451140 Musical Instrument & Supplies Stores 451211 Book Stores 451212 News Dealers & Newsstands 451220 Prerecorded Tape, Compact Disc, & Record Stores General Merchandise Stores 452110 Department Stores 452900 Other General Merchandise Stores Miscellaneous Store Retailers 453110 Florists 453210 Office Supplies & Stationery Stores 453220 Gift, Novelty, & Souvenir Stores 453310 Used Merchandise Stores 453910 Pet & Pet Supplies Stores 453920 Art Dealers 453930 Manufactured (Mobile) Home Dealers 453990 All Other Miscellaneous Store Retailers (including tobacco, candle, & trophy shops) Nonstore Retailers 454110 Electronic Shopping & Mail-Order Houses 454210 Vending Machine Operators 454311 Heating Oil Dealers 454312 Liquefied Petroleum Gas (Bottled Gas) Dealers 454319 Other Fuel Dealers 454390 Other Direct Selling Establishments (including door-to-door retailing, frozen food plan providers, party plan merchandisers, & coffee-break service providers) 445120 445210 445220 445230 445291 445292 445299 Code Truck Transportation 484110 General Freight Trucking, Local 484120 General Freight Trucking, Long-distance 484200 Specialized Freight Trucking Transit and Ground Passenger Transportation 485110 Urban Transit Systems 485210 Interurban & Rural Bus Transportation 485310 Taxi Service 485320 Limousine Service 485410 School & Employee Bus Transportation 485510 Charter Bus Industry 485990 Other Transit & Ground Passenger Transportation Pipeline Transportation 486000 Pipeline Transportation Scenic & Sightseeing Transportation 487000 Scenic & Sightseeing Transportation Support Activities for Transportation 488100 Support Activities for Air Transportation 488210 Support Activities for Rail Transportation 488300 Support Activities for Water Transportation 488410 Motor Vehicle Towing 488490 Other Support Activities for Road Transportation 488510 Freight Transportation Arrangement 488990 Other Support Activities for Transportation Couriers and Messengers 492110 Couriers 492210 Local Messengers & Local Delivery Warehousing and Storage 493100 Warehousing & Storage (except lessors of miniwarehouses & self-storage units) Code

Finance and Insurance
Depository Credit Intermediation 522110 Commercial Banking 522120 Savings Institutions 522130 Credit Unions 522190 Other Depository Credit Intermediation Nondepository Credit Intermediation 522210 Credit Card Issuing 522220 Sales Financing 522291 Consumer Lending 522292 Real Estate Credit (including mortgage bankers & originators) 522293 International Trade Financing 522294 Secondary Market Financing 522298 All Other Nondepository Credit Intermediation Activities Related to Credit Intermediation 522300 Activities Related to Credit Intermediation (including loan brokers, check clearing, & money transmitting) Securities, Commodity Contracts, and Other Financial Investments and Related Activities 523110 Investment Banking & Securities Dealing 523120 Securities Brokerage 523130 Commodity Contracts Dealing 523140 Commodity Contracts Brokerage 523210 Securities & Commodity Exchanges 523900 Other Financial Investment Activities (including portfolio management & investment advice) Insurance Carriers and Related Activities 524140 Direct Life, Health, & Medical Insurance & Reinsurance Carriers 524150 Direct Insurance & Reinsurance (except Life, Health & Medical) Carriers 524210 Insurance Agencies & Brokerages 524290 Other Insurance Related Activities (including third-party administration of insurance and pension funds) Funds, Trusts, and Other Financial Vehicles 525100 Insurance & Employee Benefit Funds 525910 Open-End Investment Funds (Form 1120-RIC) 525920 Trusts, Estates, & Agency Accounts 525990 Other Financial Vehicles (including mortgage REITs & closed-end investment funds) "Offices of Bank Holding Companies" and "Offices of Other Holding Companies" are located under Management of Companies (Holding Companies) on page 24.

Retail Trade
Motor Vehicle and Parts Dealers 441110 New Car Dealers 441120 Used Car Dealers 441210 Recreational Vehicle Dealers 441221 Motorcycle Dealers 441222 Boat Dealers 441229 All Other Motor Vehicle Dealers 441300 Automotive Parts, Accessories, & Tire Stores Furniture and Home Furnishings Stores 442110 Furniture Stores 442210 Floor Covering Stores 442291 Window Treatment Stores 442299 All Other Home Furnishings Stores Electronics and Appliance Stores 443111 Household Appliance Stores 443112 Radio, Television, & Other Electronics Stores 443120 Computer & Software Stores 443130 Camera & Photographic Supplies Stores Building Material and Garden Equipment and Supplies Dealers 444110 Home Centers 444120 Paint & Wallpaper Stores 444130 Hardware Stores 444190 Other Building Material Dealers 444200 Lawn & Garden Equipment & Supplies Stores Food and Beverage Stores 445110 Supermarkets and Other Grocery (except Convenience) Stores

Information
Publishing Industries (except Internet) 511110 Newspaper Publishers 511120 Periodical Publishers 511130 Book Publishers 511140 Directory & Mailing List Publishers 511190 Other Publishers 511210 Software Publishers Motion Picture and Sound Recording Industries 512100 Motion Picture & Video Industries (except video rental) 512200 Sound Recording Industries Broadcasting (except Internet) 515100 Radio & Television Broadcasting 515210 Cable & Other Subscription Programming Telecommunications 517000 Telecommunications (including paging, cellular, satellite, cable & other program distribution, resellers, other telecommunications, & internet service providers) Data Processing Services 518210 Data Processing, Hosting, & Related Services Other Information Services 519100 Other Information Services (including news syndicates, libraries, internet publishing & broadcasting)

Real Estate and Rental and Leasing
Real Estate 531110 Lessors of Residential Buildings & Dwellings (including equity REITs) 531114 Cooperative Housing (including equity REITs) 531120 Lessors of Nonresidential Buildings (except Miniwarehouses) (including equity REITs) 531130 Lessors of Miniwarehouses & Self-Storage Units (including equity REITs)

Transportation and Warehousing
Air, Rail, and Water Transportation 481000 Air Transportation 482110 Rail Transportation 483000 Water Transportation

Instructions for Form 1120

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Principal Business Activity Codes (continued)
Code 531190 Lessors of Other Real Estate Property (including equity REITs) 531210 Offices of Real Estate Agents & Brokers 531310 Real Estate Property Managers 531320 Offices of Real Estate Appraisers 531390 Other Activities Related to Real Estate Rental and Leasing Services 532100 Automotive Equipment Rental & Leasing 532210 Consumer Electronics & Appliances Rental 532220 Formal Wear & Costume Rental 532230 Video Tape & Disc Rental 532290 Other Consumer Goods Rental 532310 General Rental Centers 532400 Commercial & Industrial Machinery & Equipment Rental & Leasing Lessors of Nonfinancial Intangible Assets (except copyrighted works) 533110 Lessors of Nonfinancial Intangible Assets (except copyrighted works) Code 541920 Photographic Services 541930 Translation & Interpretation Services 541940 Veterinary Services 541990 All Other Professional, Scientific, & Technical Services Code 621391 Offices of Podiatrists 621399 Offices of All Other Miscellaneous Health Practitioners Outpatient Care Centers 621410 Family Planning Centers 621420 Outpatient Mental Health & Substance Abuse Centers 621491 HMO Medical Centers 621492 Kidney Dialysis Centers 621493 Freestanding Ambulatory Surgical & Emergency Centers 621498 All Other Outpatient Care Centers Medical and Diagnostic Laboratories 621510 Medical & Diagnostic Laboratories Home Health Care Services 621610 Home Health Care Services Other Ambulatory Health Care Services 621900 Other Ambulatory Health Care Services (including ambulance services & blood & organ banks) Hospitals 622000 Hospitals Nursing and Residential Care Facilities 623000 Nursing & Residential Care Facilities Social Assistance 624100 Individual & Family Services 624200 Community Food & Housing, & Emergency & Other Relief Services 624310 Vocational Rehabilitation Services 624410 Child Day Care Services Code 721120 Casino Hotels 721191 Bed & Breakfast Inns 721199 All Other Traveler Accommodation 721210 RV (Recreational Vehicle) Parks & Recreational Camps 721310 Rooming & Boarding Houses Food Services and Drinking Places 722110 Full-Service Restaurants 722210 Limited-Service Eating Places 722300 Special Food Services (including food service contractors & caterers) 722410 Drinking Places (Alcoholic Beverages)

Management of Companies (Holding Companies)
551111 Offices of Bank Holding Companies 551112 Offices of Other Holding Companies

Administrative and Support and Waste Management and Remediation Services
Administrative and Support Services 561110 Office Administrative Services 561210 Facilities Support Services 561300 Employment Services 561410 Document Preparation Services 561420 Telephone Call Centers 561430 Business Service Centers (including private mail centers & copy shops) 561440 Collection Agencies 561450 Credit Bureaus 561490 Other Business Support Services (including repossession services, court reporting, & stenotype services) 561500 Travel Arrangement & Reservation Services 561600 Investigation & Security Services 561710 Exterminating & Pest Control Services 561720 Janitorial Services 561730 Landscaping Services 561740 Carpet & Upholstery Cleaning Services 561790 Other Services to Buildings & Dwellings 561900 Other Support Services (including packaging & labeling services, & convention & trade show organizers) Waste Management and Remediation Services 562000 Waste Management & Remediation Services

Other Services
Repair and Maintenance 811110 Automotive Mechanical & Electrical Repair & Maintenance 811120 Automotive Body, Paint, Interior, & Glass Repair 811190 Other Automotive Repair & Maintenance (including oil change & lubrication shops & car washes) 811210 Electronic & Precision Equipment Repair & Maintenance 811310 Commercial & Industrial Machinery & Equipment (except Automotive & Electronic) Repair & Maintenance 811410 Home & Garden Equipment & Appliance Repair & Maintenance 811420 Reupholstery & Furniture Repair 811430 Footwear & Leather Goods Repair 811490 Other Personal & Household Goods Repair & Maintenance Personal and Laundry Services 812111 Barber Shops 812112 Beauty Salons 812113 Nail Salons 812190 Other Personal Care Services (including diet & weight reducing centers) 812210 Funeral Homes & Funeral Services 812220 Cemeteries & Crematories 812310 Coin-Operated Laundries & Drycleaners 812320 Drycleaning & Laundry Services (except Coin-Operated) 812330 Linen & Uniform Supply 812910 Pet Care (except Veterinary) Services 812920 Photofinishing 812930 Parking Lots & Garages 812990 All Other Personal Services Religious, Grantmaking, Civic, Professional, and Similar Organizations 813000 Religious, Grantmaking, Civic, Professional, & Similar Organizations (including condominium and homeowners associations)

Professional, Scientific, and Technical Services
Legal Services 541110 Offices of Lawyers 541190 Other Legal Services Accounting, Tax Preparation, Bookkeeping, and Payroll Services 541211 Offices of Certified Public Accountants 541213 Tax Preparation Services 541214 Payroll Services 541219 Other Accounting Services Architectural, Engineering, and Related Services 541310 Architectural Services 541320 Landscape Architecture Services 541330 Engineering Services 541340 Drafting Services 541350 Building Inspection Services 541360 Geophysical Surveying & Mapping Services 541370 Surveying & Mapping (except Geophysical) Services 541380 Testing Laboratories Specialized Design Services 541400 Specialized Design Services (including interior, industrial, graphic, & fashion design) Computer Systems Design and Related Services 541511 Custom Computer Programming Services 541512 Computer Systems Design Services 541513 Computer Facilities Management Services 541519 Other Computer Related Services Other Professional, Scientific, and Technical Services 541600 Management, Scientific, & Technical Consulting Services 541700 Scientific Research & Development Services 541800 Advertising & Related Services 541910 Marketing Research & Public Opinion Polling

Arts, Entertainment, and Recreation
Performing Arts, Spectator Sports, and Related Industries 711100 Performing Arts Companies 711210 Spectator Sports (including sports clubs & racetracks) 711300 Promoters of Performing Arts, Sports, & Similar Events 711410 Agents & Managers for Artists, Athletes, Entertainers, & Other Public Figures 711510 Independent Artists, Writers, & Performers Museums, Historical Sites, and Similar Institutions 712100 Museums, Historical Sites, & Similar Institutions Amusement, Gambling, and Recreation Industries 713100 Amusement Parks & Arcades 713200 Gambling Industries 713900 Other Amusement & Recreation Industries (including golf courses, skiing facilities, marinas, fitness centers, & bowling centers)

Educational Services
611000 Educational Services (including schools, colleges, & universities)

Health Care and Social Assistance
Offices of Physicians and Dentists 621111 Offices of Physicians (except mental health specialists) 621112 Offices of Physicians, Mental Health Specialists 621210 Offices of Dentists Offices of Other Health Practitioners 621310 Offices of Chiropractors 621320 Offices of Optometrists 621330 Offices of Mental Health Practitioners (except Physicians) 621340 Offices of Physical, Occupational & Speech Therapists, & Audiologists

Accommodation and Food Services
Accommodation 721110 Hotels (except Casino Hotels) & Motels

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Instructions for Form 1120

Index

A Accounting methods . . . . . . . . . . . 5 Accounting period (Tax Year) . . . . . . . . . . . . . . . . . . . . . . . 5 Address change . . . . . . . . . . . . . . . 7 Affiliated group . . . . . . . . . . . . . . . 18 Amended return . . . . . . . . . . . . . . . 5 Amortization . . . . . . . . . . . . . . . . . . 9 Assembling the return . . . . . . . . . 4 At-risk rules . . . . . . . . . . . . . . . . . . 13 B Backup withholding . . . . . . . . . . . 14 Bad debts . . . . . . . . . . . . . . . . . . . . 10 Balance sheets . . . . . . . . . . . . . . . 20 Business startup expenses . . . . . 9 C Capital construction fund (See Merchant Marine capital construction fund) Closely held corporations . . . . . . 9 Compensation of officers . . . . . . . 9 Consolidated return . . . . . . . . . 6, 20 Contributions to reduce debt held by the public . . . . . . . . . . . . . . . . 1 Contributions, charitable . . . . . . 11 Controlled group . . . . . . . . . . . . . 17 Cost of goods sold . . . . . . . . . . 7, 14 Credits against tax . . . . . . . . . . . . 17 D Deductions . . . . . . . . . . . . . . . . . . . . 8 Depletion . . . . . . . . . . . . . . . . . . . . 12 Depository methods of tax payment . . . . . . . . . . . . . . . . . . . . 4 Depreciation . . . . . . . . . . . . . . . . . 12 Direct deposit of refund . . . . . 1, 14 Disclosure statement . . . . . . . . . . 5 Dividend income . . . . . . . . . . . . . . 7 Dividends-received deduction . . . . . . . . . . . . . . . 15-17 Dues, membership and other . . . . . . . . . . . . . . . . . . . . . . 12 E Electronic Federal Tax Payment System (EFTPS) . . . . . . . . . . . . 4

Electronic filing . . . . . . . . . . . . . . . . 2 Employee benefit programs . . . . . . . . . . . . . . . . . . 12 Employer identification number (EIN) . . . . . . . . . . . . . . . . . . . . . . . 7 Estimated tax: Penalty . . . . . . . . . . . . . . . . . . 4, 14 Estimated tax payments . . . . . . . 4 Extension of time to file . . . . . . . . 3 F Farming, corporations engaged in . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Final return . . . . . . . . . . . . . . . . . . . . 7 Financial asset securitization investment trust (FASIT) . . . . . 2 Foreign person (defined) . . . . . . 20 Foreign tax credit . . . . . . . . . . . . . 17 Forms and publications, how to get . . . . . . . . . . . . . . . . . . . . . . . . . 2 G General business credit . . . . . . . 17 Golden parachute payments . . . . . . . . . . . . . . . . . . . 9 Gross receipts . . . . . . . . . . . . . . . . . 7 I Income . . . . . . . . . . . . . . . . . . . . . . . 7 Installment sales . . . . . . . . . . . . . . 7 Interest due: Late payment of tax . . . . . . . . . 4 Look-back method . . . . . . . . . . 18 Interest expense . . . . . . . . . . . . . 10 Interest expense (relating to section 263A) . . . . . . . . . . . . . . . 8 Interest income: Taxable . . . . . . . . . . . . . . . . . . . . . 7 Tax-exempt . . . . . . . . . . . . . . . . 20 Inventory: Section 263A uniform capitalization rules . . . . . 8, 14 Valuation methods . . . . . . . . . 14 L LIFO recapture: Tax on . . . . . . . . . . . . . . . . . . . . . 18 Where to report . . . . . . . . . . . . . 8

Limitations on deductions . . . . . . 8, 11 Limited liability companies . . . . . 2 Lobbying expenses, nondeductibility . . . . . . . . . . . . 13 M Merchant Marine capital construction fund: Deduction for contributions . . . . . . . . . . . . . 13 Tax on nonqualified withdrawal . . . . . . . . . . . . . . . 18 Minimum tax: Alternative . . . . . . . . . . . . . . . . . 17 Prior year, credit for . . . . . . . . 17 Mutual savings banks conducting life insurance business . . . . . 17 N Name change . . . . . . . . . . . . . . . . . 7 Net operating loss . . . . . . . . 13, 20 Nonaccrual experience method . . . . . . . . . . . . . . . . . . . . . 7 O Other deductions . . . . . . . . . . . . . 12 Other income . . . . . . . . . . . . . . . . . 8 Other taxes . . . . . . . . . . . . . . . . . . 18 Overpaid estimated tax . . . . . . . 14 P Partnership income (loss) . . . . . . 8, 12 Passive activity limitations . . . . . . 9 Penalties . . . . . . . . . . . . . . . . . . . 4, 14 Pension, profit-sharing, etc. plans . . . . . . . . . . . . . . . . . . . . . . 12 Personal holding company . . . . . 6 Personal holding company tax . . . . . . . . . . . . . . . . . . . . . . . . 17 Personal service corporation . . . . . . . . . . . . . . . . . 6 Preparer, tax return . . . . . . . . . . . . 3 Private delivery services . . . . . . . 3 Q Qualified personal service corporation . . . . . . . . . . . . . . . . 17

R Recapture taxes . . . . . . . . . . . . . . 18 Reconciliation of income . . . . . . 20 Recordkeeping . . . . . . . . . . . . . . . . 5 Refundable credits . . . . . . . . . . . 14 Related party transactions . . . . . 8 Rents (expense) . . . . . . . . . . . . . . 10 Rents (income) . . . . . . . . . . . . . . . . 8 Repairs and maintenance . . . . . 10 S Salaries and wages . . . . . . . . . . . 10 Schedule: A . . . . . . . . . . . . . . . . . . . . . . . . . . 14 C . . . . . . . . . . . . . . . . . . . . . . . . . . 15 J . . . . . . . . . . . . . . . . . . . . . . . . . . 17 K . . . . . . . . . . . . . . . . . . . . . . . . . . 18 L . . . . . . . . . . . . . . . . . . . . . . . . . . 20 M-1 . . . . . . . . . . . . . . . . . . . . . . . . 20 M-3 . . . . . . . . . . . . . . . . . . . . . . 7, 20 O . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 263A costs . . . . . . . . . 8, 14 Shareholders' equity adjustments . . . . . . . . . . . . . . . . 20 Signature . . . . . . . . . . . . . . . . . . . . . 3 Special returns for certain organizations . . . . . . . . . . . . . . . 2 T Tax issues, unresolved . . . . . . . . 1 Tax rate schedule . . . . . . . . . . . . 17 Taxes and licenses . . . . . . . . . . . 10 Tax-exempt securities . . . . . . . . 20 Travel, meals, and entertainment . . . . . . . . . . . . . . 12 W When to file . . . . . . . . . . . . . . . . . . . 3 Where to file . . . . . . . . . . . . . . . . . . 3 Who must file . . . . . . . . . . . . . . . . . 2 Who must sign . . . . . . . . . . . . . . . . 3 Worksheets . . . . . . . . . . . . . . . . . . 17 Schedule C . . . . . . . . . . . . . . . . 16



Instructions for Form 1120

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