2008
Instructions for Form 1120-REIT
U.S. Income Tax Return for Real Estate Investment Trusts
Section references are to the Internal Revenue Code unless otherwise noted. Contents Page What's New . . . . . . . . . . . . . . . . . . . . 1 Photographs of Missing Children . . . . 1 Unresolved Tax Issues . . . . . . . . . . . . 1 How To Get Forms and Publications . . . . . . . . . . . . . . . . . . 1 General Instructions . . . . . . . . . . . . . 2 Purpose of Form . . . . . . . . . . . . . . . . 2 Who Must File . . . . . . . . . . . . . . . . . . 2 General Requirements to Qualify as a REIT . . . . . . . . . . . . . . . . . . . . 2 Other Requirements . . . . . . . . . . . . . . 2 Termination of Election . . . . . . . . . . . . 2 Where To File . . . . . . . . . . . . . . . . . . 2 Taxable REIT Subsidiaries (TRS) . . . . . . . . . . . . . . . . . . . . . . . 3 When To File . . . . . . . . . . . . . . . . . . . 3 Who Must Sign . . . . . . . . . . . . . . . . . 3 Paid Preparer Authorization . . . . . . . . 3 Assembling the Return . . . . . . . . . . . . 3 Depository Methods of Tax Payment . . . . . . . . . . . . . . . . . . . . 3 Estimated Tax Payments . . . . . . . . . . 4 Interest and Penalties . . . . . . . . . . . . . 4 Accounting Methods . . . . . . . . . . . . . . 4 Accounting Period . . . . . . . . . . . . . . . 5 Rounding Off to Whole Dollars . . . . . . 5 Recordkeeping . . . . . . . . . . . . . . . . . . 5 Other Forms That May Be Required . . . . . . . . . . . . . . . . . . . . 5 Statements . . . . . . . . . . . . . . . . . . . . 6 Specific Instructions . . . . . . . . . . . . 6 Period Covered . . . . . . . . . . . . . . . . . 6 Name and Address . . . . . . . . . . . . . . 7 100%-owned Subsidiaries and Personal Holding Companies . . . . . . 7 Employer Identification Number (EIN) . . . . . . . . . . . . . . . . . . . . . . . 7 Date REIT Established . . . . . . . . . . . . 7 Total Assets . . . . . . . . . . . . . . . . . . . 7 Final Return, Name Change, Address Change, or Amended Return . . . . . . . . . . . . . . . . . . . . . . 7 Type of REIT . . . . . . . . . . . . . . . . . . . 7 PBA Code . . . . . . . . . . . . . . . . . . . . . 7 Part I -- Real Estate Investment Trust Taxable Income . . . . . . . . . 7-12 Part II -- Tax on Net Income From Foreclosure Property . . . . . . 12 Part III -- Tax for Failure To Meet Certain Source-of-Income Requirements . . . . . . . . . . . . . . . . 12 Part IV -- Tax on Net Income From Prohibited Transactions . . . 12 Schedule A . . . . . . . . . . . . . . . . . . . 12 Contents Schedule J . . Schedule K . . Schedule L . . Schedule M-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 13-15 . . 15 . . 16 . . 16
Department of the Treasury Internal Revenue Service
What's New
whose principal business office or agency is located in Georgia and Tennessee has changed. See Where To File on page 2. · 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 REIT 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 8 of the instructions. · A REIT 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 24g on page 11. · For tax years ending after May 22, 2008, and beginning before May 23, 2009, a maximum 15% alternative tax will apply to the REIT'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 2a, on page 13. · 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, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas.
Missing and Exploited Children. 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.
· The filing address for certain REITs
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 REIT 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 REIT is eligible for assistance. · Call or write the REIT'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 REIT's behalf. For more information, go to www.irs. gov/advocate.
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 Publication 1796, IRS Tax Products DVD, and obtain:
Photographs of Missing Children
The Internal Revenue Service is a proud partner with the National Center for
Cat. No. 64243J
· Current year forms, instructions, and
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-CDFORMS (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.
Where To File
File the REIT's return at the applicable IRS address listed below.
If the REIT's principal And the total assets at business, office, or agency the end of the tax year is located in: are: Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, 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 Less than $10 million Use the following address:
Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999-0012
$10 million or more
Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012
Any amount
Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012
General Instructions
Purpose of Form
Use Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, to report the income, gains, losses, deductions, credits, and certain penalties, to figure the income tax liability of a REIT.
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.
Who Must File
A corporation, trust, or association that meets certain conditions (discussed below) must file Form 1120-REIT if it elects to be treated as a REIT for the tax year (or has made that election for a prior tax year and the election has not been terminated or revoked). The election is made by figuring taxable income as a REIT on Form 1120-REIT.
· Cannot be closely held, as defined in section 856(h). (The REIT does not have to meet this requirement until its 2nd tax year). If a REIT meets the requirement for ascertaining actual ownership (see Regulations section 1.857-8 for details), and did not know (after exercising reasonable diligence), or have reason to know, that it was closely held, it will be treated as meeting the requirement that it is not closely held.
General Requirements To Qualify as a REIT
To qualify as a REIT, an organization: · Must be a corporation, trust, or association. · Must be managed by one or more trustees or directors. · Must have beneficial ownership: (a) evidenced by transferable shares, or by transferable certificates of beneficial interest; and (b) held by 100 or more persons. (The REIT does not have to meet this requirement until its 2nd tax year.) · Would otherwise be taxed as a domestic corporation. · Must be neither a financial institution (referred to in section 582(c)(2)), nor a subchapter L insurance company.
Other Requirements
The gross income and diversification of investment requirements of section 856(c) must be met. The organization must: · Have been treated as a REIT for all tax years beginning after February 28, 1986, or · Had, at the end of the tax year, no accumulated earnings and profits from any tax year that it was not a REIT. For this purpose, distributions are treated as made from the earliest earnings and profits accumulated in any non-REIT tax year. See section 857(d)(3). · The organization must adopt a calendar tax year unless it first qualified for REIT status before October 5, 1976.
· The deduction for dividends paid (excluding net capital gain dividends, if any) must equal or exceed: 1. 90% of the REIT's taxable income (excluding the deduction for dividends paid and any net capital gain); plus 2. 90% of the excess of the REIT's net income from foreclosure property over the tax imposed on that income by section 857(b)(4)(A); less 3. Any excess noncash income as determined under section 857(e). See sections 856 and 857, and the related regulations for details and exceptions.
Termination of Election
The election to be treated as a REIT remains in effect until terminated, revoked, or the REIT has failed to meet the requirements of the statutory relief provisions. It terminates automatically for any tax year in which the corporation, trust, or association is not a qualified REIT. The organization may revoke the election for any tax year after the 1st tax year the election is effective by filing a statement with the service center where it files its income tax return. The statement must be filed on or before the 90th day after the 1st day of the tax year for which
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the revocation is to be effective. The statement must include the following: · The name, address, and employer identification number of the organization; · The tax year for which the election was made; · A statement that the organization (according to section 856(g)(2)) revokes its election under section 856(c)(1) to be a REIT; and · The signature of an official authorized to sign the income tax return of the organization. The organization may not make a new election to be taxed as a REIT during the 4 years following the 1st year for which the termination or revocation is effective. See section 856(g)(4) for exceptions.
Private delivery services
REITs 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.
mechanical device, or computer software program.
Paid Preparer Authorization
If the REIT wants to allow the IRS to discuss its 2008 tax return with the paid preparer who signed it, check the "Yes" 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 REIT's return. It does not apply to the firm, if any, shown in that section. If the "Yes" box is checked, the REIT is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The REIT 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 REIT is not authorizing the paid preparer to receive any refund check, bind the REIT 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 (without regard to extensions) for filing the REIT's 2009 tax return. If the REIT wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.
Taxable REIT Subsidiaries (TRS)
A REIT may own up to 100% of the stock in one or more taxable REIT subsidiaries (TRS). A TRS must be a corporation (other than a REIT or a qualified REIT subsidiary) and may provide services to the REIT's tenants without disqualifying the rent received by the REIT. See section 856(l) for details, including certain restrictions on the type of business activities a TRS may perform. Also, not more than 20% of the fair market value (FMV) of a REIT's total assets (25% for tax years beginning after July 30, 2008) may be securities of one or more TRSs (see section 856(c)(4) for details). Transactions between a TRS and its associated REIT must be at arm's length. A REIT may be subject to a 100% tax to the extent it improperly allocates income and deductions between the REIT and the TRS (see section 857(b)(7) for details). Additional limitations on transactions between a TRS and its associated REIT include: · Limitations on income from a TRS that may be treated as rents from real property by the REIT (see section 856(d)(8)). · Limitations on a TRS's deduction for interest paid to its associated REIT (see section 163(j)). To elect to have an eligible corporation treated as a TRS, the corporation and the REIT must jointly file Form 8875, Taxable REIT Subsidiary Election.
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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, file Form 7004 by the regular due date of the REIT's income tax return.
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. If a return is filed on behalf of a REIT 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 REIT 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 REIT completes Form 1120-REIT, the paid preparer's space should remain blank. Anyone who prepares Form 1120-REIT but does not charge the REIT 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; and · Give a copy of the return to the taxpayer. Note. A paid preparer may sign original or amended returns by rubber stamp,
Assembling the Return
To ensure that the REIT's tax return is correctly processed, attach all schedules and other forms after page 4, Form 1120-REIT, and in the following order. 1. Schedule N (Form 1120). 2. Schedule O (Form 1120). 3. Form 4626. 4. Form 4136. 5. Additional schedules in alphabetical order. 6. Additional forms in numerical order. Complete every applicable entry space on Form 1120-REIT. 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 REIT's name and EIN on each supporting statement or attachment.
When To File
Generally, a REIT must file its income tax return by the 15th day of the 3rd month after the end of its tax year. A new REIT filing a short period return must generally file by the 15th day of the 3rd month after the short period ends. A REIT 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 REIT can file on the next business day.
Depository Methods of Tax Payment
The REIT must pay the tax due in full no later than the 15th day of the 3rd month
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after the end of the tax year. Generally, this date falls on March 15th after the close of the REIT's tax year, unless the REIT has maintained a fiscal year. The two methods of depositing REIT income taxes, including the capital gains tax, are discussed below.
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 REIT owes tax when it files Form 1120-REIT, do not include CAUTION the payment with the tax return. Instead, mail or deliver the payment with Form 8109 to an authorized depositary or use EFTPS, if applicable.
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Electronic Deposit Requirement
The REIT must make electronic deposits of all depository taxes (such as employment tax, excise tax, and REIT 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 REIT was required to use EFTPS in 2008. If the REIT is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If the REIT is not required to use EFTPS, it may participate voluntarily. To enroll in or receive 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 REIT 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 REIT's payments of estimated tax. · The REIT 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 REIT does not use EFTPS, use the deposit coupons (Forms 8109) to make deposits of estimated tax. · If the REIT overpaid its estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund of Overpaid Estimated Tax. The overpayment must be at least 10% of the REIT's expected income tax liability and at least $500. For more information, including penalties, see the Line 25. Estimated Tax Penalty instructions.
Deposits With Form 8109
If the REIT does not use EFTPS, deposit REIT income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit Coupon. If the REIT does 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 by visiting an IRS taxpayer assistance center. Have the REIT's EIN ready when you call or visit. Do not send deposits directly to an IRS office; otherwise, the REIT 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 REIT 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 REIT's EIN; · the tax period to which the deposit applies; and · "Form 1120-REIT" 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.
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, and substantial understatements of tax 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 REIT 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 REIT can show that the failure to file on time was due to reasonable cause. REITs that file late must attach a statement explaining the reasonable cause. Late payment of tax. A REIT 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 REIT 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 Annual Federal Tax Return for Agricultural Employees; or · Form 945, Annual Return of Withheld Federal Income Tax. 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, or Publication 15 (Circular E), Employer's Tax Guide, for details, including the definition of responsible persons. Failure to ascertain ownership. If the REIT fails to comply with Regulations section 1.857-8 for ascertaining ownership and maintaining factual ownership records for a tax year, it must pay a $25,000 penalty ($50,000 for intentional disregard) upon notice and demand by the IRS. If the REIT can show that the failure was due to reasonable cause, the penalty may not be imposed. For more information, see section 857(f). Failures to satisfy certain REIT qualification provisions. If the REIT is required to pay the $50,000 penalty under section 856(g)(5)(C) for each failure to satisfy a REIT qualification provision of sections 856 859 (other than section 856(c)(2), 856(c)(3), or section 856(c)(4)) due to reasonable cause and not willful neglect, see the instructions for Schedule J, line 2f, on page 13. 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 Methods
Figure taxable income using the method of accounting regularly used in keeping the REIT's books and records. In all cases, the method used must clearly show taxable income. Generally, permissible methods include: · Cash, · Accrual, or · Any other method authorized by the Internal Revenue Code. Accrual method. Generally, a REIT must use the accrual method of accounting if its average annual gross receipts exceed $5 million. See section 448(c).
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Under the accrual method, an amount is includible in income when: 1. All the events have occurred that fix the right to receive the income, which is the earliest of the date: a. the required performance takes place, b. payment is due, or c. payment is received, and 2. The amount can be determined with reasonable accuracy. See Regulations section 1.451-1(a) for details and Publication 538, Accounting Periods and Methods. Change in accounting method. Generally, the REIT 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 REIT 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 REIT 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. Section 481(a) adjustment. The REIT may have to make an adjustment under section 481(a) to prevent amounts of income or expenses from being duplicated or omitted. This is referred to as a "section 481(a) adjustment." 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 REIT 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 REIT must complete the appropriate lines of Form 3115 to make the election. Also, under certain other conditions, the REIT 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. Note. Include any net positive section 481(a) adjustment on page 1, line 7. Report any negative adjustment on page 1, line 18.
must receive consent from the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, upon electing to be taxed as a REIT, an entity that has not engaged in any active trade or business may change its tax year to a calendar year without obtaining the consent. See the Instructions for Form 1128 and Pub. 538 for more information on accounting periods and tax years.
Rounding Off to Whole Dollars
The REIT can round off cents to whole dollars on its returns and schedules. If the REIT 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.
Recordkeeping
Keep the REIT'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 REIT's basis in property for as long as they are needed to figure the basis of the original or replacement property. The REIT should also keep copies of all filed returns. They help in preparing future and amended returns.
Other Forms That May Be Required
In addition to Form 1120-REIT, the REIT may have to file some of the following forms. Also see Pub. 542, Corporations, for an expanded list of forms the REIT may be required to file. Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is filed to report certain transfers to foreign corporations under section 6038B. Form 966, Corporate Dissolution or Liquidation, is used to report the adoption of a resolution or plan to dissolve the corporation or liquidate any of its stock. Form 976, Claim for Deficiency Dividends Deductions by a Personal Holding Company, Regulated Investment Company, or a Real Estate Investment Trust, is used to claim a deduction for deficiency dividends. See section 860 and the related regulations. Forms 1042,1042-S, and 1042-T, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, Form 1042-S, Foreign Person's U.S. Source
Accounting Period
A REIT must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a REIT uses to keep its records and report its income and expenses. A REIT adopts a tax year when it files its first income tax return. It must adopt a tax year by the due date (not including extensions) of its initial income tax return. Note. A REIT must adopt a calendar year unless it first qualified for REIT status before October 5, 1976. Change of tax year. A REIT may not change its tax year to any tax year other than the calendar year. Generally, a REIT
Income Subject to Withholding, and Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Use these forms to report and send withheld tax on payments or distributions made to nonresident alien individuals, foreign partnerships, or foreign corporations to the extent these payments constitute gross income from sources within the United States (see sections 861 through 865). Also, see sections 1441 and 1442, and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Form 1099-DIV, Dividends and Distributions. Use this form to report certain dividends and distributions. Form 2438, Undistributed Capital Gains Tax Return, must be filed by the REIT if it designates undistributed net long-term capital gains under section 857(b)(3)(D). Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, must be completed and a copy given to each shareholder for whom the REIT paid tax on undistributed net long-term capital gains under section 857(b)(3)(D). Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, is required either if the REIT received a distribution from a foreign trust or if the REIT was a grantor of, transferor of, or transferor to a foreign trust that existed during the tax year. See Question 5 of Schedule N (Form 1120). Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is required if the REIT controls a foreign corporation; acquires, disposes of, or owns 10% or more in value or vote of the outstanding stock of a foreign corporation; or had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation. See Question 4 of Schedule N (Form 1120). Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. This form is filed if the REIT is 25% or more foreign owned. See the instructions for Question 5, Schedule K, on page 15. Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement, are used to disclose items or positions taken on a tax return that are not otherwise adequately disclosed on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties). Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Use this form to report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions. Form 8612, Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts, is filed if the REIT is liable for the 4% excise tax on
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undistributed income imposed under section 4981. Form 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. Use this form to make certain elections by shareholders in a passive foreign investment company and to figure certain deferred taxes. Form 8865, Return of U.S. Persons With Respect To Certain Foreign Partnerships. A REIT may have to file Form 8865 if it: 1. Controlled a foreign partnership (i.e., owned more than a 50% direct or indirect interest in the partnership). 2. Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership. 3. Had an acquisition, disposition, or change in proportional interest in a foreign partnership that: · Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less than 10%. · Changed its direct interest by at least a 10% interest. 4. Contributed property to a foreign partnership in exchange for a partnership interest if: · Immediately after the contribution, the REIT owned, directly or indirectly, at least a 10% interest in the foreign partnership; or · The FMV of the property the REIT contributed to the foreign partnership in exchange for a partnership interest, when added to other contributions of property made to the foreign partnership during the preceding 12-month period, exceeds $100,000. Also, the REIT may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that foreign partnership if it was a partner at the time of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions. Form 8875, Taxable REIT Subsidiary Election, is filed jointly by a corporation and a REIT to have the corporation treated as a taxable REIT subsidiary.
3. Certain transactions for which the REIT 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 REIT 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 REIT fails to file Form 8886 with its Form 1120-REIT, 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 REIT 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 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. Determination under section 860(e)(4). For purposes of section 860, and the related regulations, a REIT that makes a determination under section 860(e)(4) is required to attach its statement to its amendment, or supplement, to its tax return for the relevant tax year. 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.
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 year return, fill in the tax year space at the top of the form. Note. The 2008 Form 1120-REIT can also be used if: · The REIT has a tax year of less than 12 months that begins and ends in 2009; and · The 2009 Form 1120-REIT is not available at the time the REIT is required to file its return. The REIT must show its 2009 tax year on the 2008 Form 1120-REIT and take into account any tax law changes that are effective for tax years beginning after December 31, 2008.
Statements
Reportable transaction disclosure statement. Disclose information for each reportable transaction in which the REIT participated. Form 8886, Reportable Transaction Disclosure Statement, must be filed for each tax year that the federal income tax liability of the REIT 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 REIT paid an advisor a fee of at least $250,000.
Name and Address
Enter the REIT's true name (as set forth in the charter or other legal document creating it), address, and EIN on the appropriate lines. Include the suite, room, or other unit number after the street address. Enter the address of the REIT's
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principal office or place of business. If the Post Office does not deliver mail to the street address and the REIT 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 REIT 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.
Item E. Total Assets
Enter the REIT's total assets (as determined by the accounting method regularly used in keeping its books and records) at the end of the tax year. If there are no assets at the end of the tax year, enter -0-.
REIT is a partner, and the deductions attributable to the gross income items. See Regulations section 1.856-3(g). Real estate investment trust taxable income does not include the following: · Gross income, gains, losses, and deductions from foreclosure property (defined in section 856(e)). If the aggregate of such amounts results in net income, report these amounts in Part II. · Income or deductions from any prohibited transaction (defined in section 857(b)(6)) resulting in a gain. Report these amounts in Part IV.
Item F. Final Return, Name Change, Address Change, or Amended Return
will no longer exist, check the "Final return" box. See the instructions for Termination of Election. · If the REIT has changed its name since it last filed a return, check the box for "Name change." Generally, a REIT also must have amended its articles of incorporation and filed the amendment with the state in which it was incorporated. · If the REIT has changed its address since it last filed a return (including a change to an "in care of" address), check the box for "Address change." 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. · If the REIT is amending its return, check the box for "Amended Return," complete the entire return, correct the appropriate lines with the new information, and refigure the REIT's tax liability. Attach a statement that explains the reason for the amendments and identifies the lines being changed on the amended return.
· If this is the REIT's final return, and it
Income
Line 1. Dividends. Enter the total amount of dividends received during the tax year. Line 2. 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 Form 1120-REIT, Schedule K, item 8. Also, if required, include the same amount on Schedule M-1, line 7. Line 3. Gross rents. Include the following: · Charges for customary services that may qualify as rents from real property are described in Regulations section 1.856-4(b)(1). For tax years beginning after October 22, 2004, the customary services exception under section 857(b)(7)(B)(ii) was eliminated and replaced with an existing "safe harbor." Services customarily furnished to tenants of a REIT include parking facilities. See Rev. Rul. 2004-24, which is on page 550 of I.R.B. 2004-10, for guidance to determine whether amounts received by a REIT that provides parking facilities at its rental real properties qualify as rents from real property. · Rent from personal property leased under or with a lease of real property (but only if the rent from the personal property does not exceed 15% of the total rent for the tax year charged for both the real and personal property under such lease). Figure the percentage of rents from personal property by comparing the FMV of the personal rental property to the FMV of the total rental property. See section 856(d)(1) for details. · Rent from a taxable REIT subsidiary (TRS) either: (a) where at least 90% of the space at issue is leased to third parties at rents comparable to the rent paid by the other tenants of the REIT for comparable space; or (b) for certain lodging facilities or health care property operated by an eligible independent contractor. For more information, including definitions and additional requirements, see sections 856(d)(8) and 856(d)(9). Also, see Rev. Proc. 2003-66 for the special rules on rents paid to a
Item B. 100%-owned Subsidiaries and Personal Holding Companies
REITs with 100%-owned Subsidiaries
Check this box if this return is filed for a REIT with 100%-owned REIT subsidiaries under section 856(i). These subsidiaries are not treated as separate corporations. Do not check this box for a taxable REIT subsidiary. See the instructions for Taxable REIT Subsidiaries.
Personal Holding Companies
Personal holding companies must attach to Form 1120-REIT a Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax. See the Instructions for Schedule PH (Form 1120) for details.
Item C. Employer Item G. Type of REIT Identification Number (EIN) Check the appropriate box to indicate
Enter the REIT's EIN. If the REIT does not have an EIN, it must apply for one. An EIN may 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. Monday through Friday in the REIT's local time zone. · By mailing or faxing Form SS-4, Application for Employer Identification Number. If the REIT has not received its EIN by the time the return is due, enter "Applied for" in the space for the EIN. For more details, see the Instructions for Form SS-4. Note. Only REITs located in the United States or U.S. possessions can use the online application process.
whether you are filing a return for a "Mortgage REIT" or an "Equity REIT." If the primary source of gross receipts is derived from mortgage interest and fees, check the "Mortgage" box. Otherwise, check the "Equity" box.
Item H. PBA Code (Equity REITs Only)
Enter only one code that best reflects the principal business activity of an equity REIT from the selection below: · 531110 Lessors of Residential Buildings & Dwellings · 531114 Cooperative Housing · 531120 Lessors of Nonresidential Buildings (except Miniwarehouses) · 531130 Lessors of Miniwarehouses & Self-Storage Units · 531190 Lessors of Other Real Estate Property
Item D. Date REIT Established
If the REIT is a corporation under state or local law, enter the date incorporated. If it is a trust or association, enter the date organized.
Part I--Real Estate Investment Trust Taxable Income
Include in Part I the REIT's share of gross income from partnerships in which the
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REIT by certain joint ventures that include a TRS. See section 856(d)(2) for amounts excluded from "rents from real property." Line 4. Other gross rents. Enter the gross amount received for renting property not included on line 3. Line 5. Capital gain net income. Every sale or exchange of a capital asset must be reported in detail on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss. Line 7. Other income. Enter any other taxable income not reported on lines 1 through 6, except amounts that must be reported in Part II or IV. List the type and amount of income on an attached schedule. If the REIT has only one item of other income, describe it in parentheses on line 7. Examples of other income to report on line 7 are: · Amounts received or accrued as consideration for entering into agreements to make real property loans or to purchase or lease real property. · Recoveries of bad debts deducted in prior years under the specific charge-off method. · Refunds of taxes deducted in prior years if they reduced income subject to tax in the year deducted (see section 111). Do not offset current year taxes against tax refunds. · Any deduction previously taken under section 179A that is subject to recapture. The REIT must recapture the benefit of any allowable deduction for clean-fuel vehicle property (or clean-fuel vehicle refueling property), if the property later ceases to qualify. See Regulations section 1.179A-1 for details. · 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 18, Form 1120-REIT). 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.
Deductions
Limitations on Deductions
Section 263A uniform capitalization rules. The uniform capitalization rules of section 263A generally require REITs to capitalize certain costs directly or indirectly (including taxes) allocable to real or tangible personal property constructed or improved by the REIT. 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 may 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. Also see the Instructions for Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, with respect to section 163(j). Golden parachute payments. A portion of the payments made by a REIT to key personnel that exceeds their usual compensation may not be deductible. This occurs when the REIT has an agreement (golden parachute) with these key employees to pay them these excessive amounts if control of the REIT changes. See section 280G and Regulations section 1.280G-1. Also see the instructions for line 9. Business start-up and organizational costs. For business start-up and organizational costs paid or incurred after September 8, 2008, a REIT can deduct up to $5,000 of such cost for the year it begins business (unless the REIT 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 REIT begins business. The REIT is not required to attach a statement or specifically identify the amount deducted in order for the election to be effective. The REIT 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 organizational costs paid after October 22, 2004, and before September 9, 2008, a REIT can elect to deduct up to $5,000 of such costs for the year it begins business (otherwise the REIT must capitalize all such costs). The $5,000 deduction is reduced by the amount the total cost exceeds $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 REIT begins business. If the election is made, the REIT must attach any statement required by Regulations sections 1.195-1(b) and 1.248-1(c). However, the REIT 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 organizational costs paid or incurred before October 23, 2004, a REIT 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 18. For amortization that begins during the 2008 tax year, complete and attach Form 4562. For more details on business start-up and organizational costs, see Pub. 535. Passive activity limitations. Limitations on passive activity losses and credits (for the first tax year as a REIT) under section 469 apply to REITs that are closely held (as defined in section 856(h)). REITs 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, for rules on allocating interest expense among activities. Reducing certain expenses for which credits are allowable. For each credit listed below, the REIT must reduce the otherwise allowable deductions for expenses used to figure the credit by the amount of the current year credit. Do not reduce the amount of the allowable deduction for any portion of the credit that was passed through to the REIT from a pass-through entity on Schedule K-1. · Employment credits. See the instructions for line 10. · 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. If the REIT is eligible to claim any of these credits, figure each current year credit before figuring the deduction for expenses on which the credit is based. If the REIT 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. Line 9. Compensation of officers. Do not include compensation deductible elsewhere on the return, such as 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. Disallowance of deduction for employee compensation in excess of $1 million. Publicly held REITs 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 REIT (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).
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For this purpose, compensation does not include the following: · Income from certain employee trusts, annuity plans, or pensions and · Any benefit paid to an employee that is excluded from the employee's income. The deduction limit does not apply to: · Commissions based on individual performance, · Qualified performance-based 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. Line 10. Salaries and wages. Enter the total salaries and wages paid for the tax year, reduced by the amount claimed on: · Form 5884, Work Opportunity Credit; · Form 5884-A, Credits for Affected Midwestern Disaster Area Employers; · Form 8844, Empowerment Zone and Renewal Community Employment Credit; · Form 8845, Indian Employment Credit; and · Form 8861, Welfare-to-Work Credit. · Form 8932, Credit for Employer Differential Wage Payments. See the instructions for these forms for more information. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officer's compensation, 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 REIT provided taxable fringe benefits to its employees, such as CAUTION personal use of a car, do not deduct as wages the amounts allocated for depreciation and other expenses claimed on lines 16 and 18. Line 11. Repairs and maintenance. Enter the cost of incidental repairs and maintenance, 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. Line 12. Bad debts. Enter the total debts that became worthless in whole or in part during the tax year. A cash basis taxpayer may not claim a bad debt deduction unless the amount was previously included in income. Line 13. Rents. If the REIT 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 REIT leased a vehicle for a term of 30 days or more, the deduction for the vehicle lease expense may have to be reduced by an amount called the inclusion amount.
The REIT 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.
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See Pub. 463 for instructions on figuring the inclusion amount. Line 14. Taxes and licenses. Enter taxes paid or incurred during the tax year, but do not include the following: · Federal income taxes (except for the tax imposed on net recognized built-in gain allocable to ordinary income). · Foreign or U.S. possession income taxes if a tax credit is claimed (however, see the Instructions for Form 5735 for special rules for possession income taxes). · Taxes not imposed on the REIT. · 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). · Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.). · Taxes deducted elsewhere on the return. · Excise taxes imposed under section 4981 on undistributed REIT income. See section 164(d) for apportionment of taxes on real property between seller and purchaser. Line 15. Interest.
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 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)); · Foregone interest on certain below-market-rate loans (see section 7872); and · Original issue discount on certain high-yield discount obligations. (See section 163(e) to figure the disqualified portion.) Line 16. Depreciation. Include on line 16 depreciation and the cost of certain property that the REIT elected to expense under section 179. See Form 4562 and its instructions. Line 18. Other deductions. Penalties or fines paid to any government agency or CAUTION instrumentality because of a violation of a law are not deductible. See Publication 535, Business Expenses, for additional information. Attach a schedule, listing by type and amount, all allowable deductions that are not deductible elsewhere on the return. Enter the total on line 18. Include amortization and organization expenses. Generally, a deduction may not be taken for any amount that is allocable to a class of exempt income. See section 265(b) for exceptions. Examples of other deductions include: · Amortization (see Form 4562). · Certain business start-up and organizational costs that the REIT elects to deduct. · Depletion. Attach Form T (Timber), Forest Activities Schedule, if a deduction for depletion of timber is taken. · Reforestation costs. The REIT can elect to deduct up to $10,000 of qualified reforestation expenses, for each qualifying timber property. The REIT can
· Interest on indebtedness incurred or
The following interest is not deductible:
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CAUTION
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Interest expense cannot be used to offset interest income.
The deduction for interest is limited when the REIT is a policyholder or beneficiary with respect to a life insurance, endowment, or annuity contract issued after June 8, 1997. For details, see section 264(f). Attach a statement showing the computation of the deduction. The REIT 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.
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elect to amortize over 84 months any amount not deducted. · Insurance premiums. · Legal and professional fees. · Supplies used and consumed in the business. · 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 7. 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. · 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. 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. REITs reporting taxable income on the accrual method may elect to treat as paid during the tax year any deductible 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. Limitation on deduction. The total amount claimed may not be more than 10% of taxable income (the sum of Part I, line 22; Part II, line 5; Part IV, line 3; and Form 2438, line 11) computed without regard to the following: · Any deduction for contributions. · The domestic production activities deduction under section 199. · The deduction allowed under section 249, relating to any premium paid or incurred upon the repurchase of a convertible bond. · 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). Temporary suspension of 10% limit for contributions to Midwestern disaster area. A REIT 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 REIT 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 REIT's taxable income (as computed under Limitation on deduction above, substituting "100%" for "10%") over the REIT'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 that exceed the 10% limitation cannot be deducted for the tax year but may be carried over to the next 5 tax years. Special rules apply if the REIT has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the 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 REIT 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 contributions of $250 or more unless the REIT receives a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed, and 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 REIT'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 REIT's records. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions. Special rules and limits apply to: · Contributions to organizations conducting lobbying activities. See section 170(f)(9). · Contributions of property other than cash. See Form 8283. · Contributions of computer technology and equipment for educational purposes. See 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 special rules that apply to corporations, see Pub 542. Pension, profit-sharing, etc., plans. Include 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 REIT 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. Travel, meals, and entertainment. Subject to limitations and restrictions discussed below, a REIT 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 more details. Travel. A REIT 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 REIT, 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 REIT 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 REIT 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 REIT can deduct amounts paid or incurred for membership dues in civic or public service organizations, professional
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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, a REIT 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. Entertainment facilities. The REIT 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 REIT may be able to deduct otherwise nondeductible meals, travel, and entertainment 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 deduction for otherwise nondeductible meals, travel, and entertainment expenses is limited to the amount treated as compensation. 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. For information on contributions to charitable organizations that conduct lobbying activities, see section 170(f)(9). For more information on other deductions that may apply to corporations, see Pub. 535. Line 20. Taxable income before NOL deduction, total deduction for dividends paid, and section 857(b)(2)(E) deduction. Generally, special at-risk rules under section 465 apply to closely held corporations engaged in any activity as a trade or business or for the production of
income. Those REITs that are closely held may have to adjust the amount on line 20.
2. The amount of the NOL of any prior tax year that may be carried over to any succeeding tax year. Carryover rules. The NOL for the current year is computed using the REIT's taxable income before it is reduced by the dividends paid deduction. After the REIT applies the NOL to the first tax year to which it may be carried, the taxable income of that year must be modified (as described by section 172(b) and the modified rules for REITs in section 172(d)(6)) to determine how much of the remaining loss may be carried to other years. Although the current year NOL is computed without regard to the dividends paid deduction, an NOL carryover from a prior year is applied to the current year using taxable income after it is reduced by the dividends paid deduction. The NOL amounts carried forward by the REIT are not reduced by subsequent year dividends paid deductions. See Example 1 in Regulations section 1.172-5(a)(4). Special NOL rules apply when: · An ownership change occurs, the amount of the taxable income of a loss REIT that may be offset by the pre-change NOL carryovers is limited (see section 382 and the related regulations). A loss REIT must file an information statement with its income tax return for each tax year that certain ownership shifts occur (see Temporary Regulations section 1.382-2T(a)(2)(ii) for details). See Regulations section 1.382-6(b) for details on how to make the closing-of-the-books election. · A REIT acquires control of another REIT (or acquires its assets in a reorganization), the amount of pre-acquisition losses that may offset recognized built-in gains is limited (see section 384).
· 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 REIT under section 465(c)(7).
The at-risk rules do not apply to:
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 REIT is at risk for each separate activity at the close of the tax year. If the REIT 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 deductions for the activities with the losses. If the REIT 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 REIT 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. Line 21a. Net operating loss deduction. A REIT can use the net operating loss (NOL) incurred in one tax year to reduce its taxable income in another tax year. Generally, a REIT may carry an NOL over to each of the 20 years (15 years for NOLs incurred in tax years beginning before August 6, 1997) following the year of loss. REITs are not permitted to carry back an NOL to any year preceding the year of the loss. In addition, an NOL from a year that is not a REIT year may not be carried back to any year that is a REIT year. Enter the total NOL carryovers from other tax years, but do not enter more than the REIT's taxable income. The REIT's taxable income for purposes of the NOL deduction is taxable income (line 20) reduced by the dividends paid deduction (line 21b) and the section 857(b)(2)(E) deduction (line 21c). If this amount is less than zero, an NOL deduction cannot be taken for the tax year. Attach a schedule showing the computation of the NOL deduction. Also complete item 9 on Schedule K. If capital gain dividends are paid during any tax year, the amount of the net capital gain for such tax year (to the extent of the capital gain dividends) is excluded in determining: 1. The NOL for the tax year; and
Tax and Payments
Line 24b. Estimated tax payments. Enter any estimated tax payments the REIT made for the tax year. Line 24f(1). Enter the credit (from Form 2439) for the REIT's share of the tax paid by a regulated investment company (RIC) or another REIT on undistributed long-term capital gains included in the REIT's income. Attach Form 2439 to Form 1120-REIT. Line 24f(2). Enter the credit from Form 4136, Credit for Federal Tax Paid on Fuels, if the REIT qualifies to claim this credit. Attach Form 4136 to Form 1120-REIT. Line 24g. Refundable Credits From Forms 3800 and 8827 The REIT 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 REIT makes the election, enter on line 24g 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;
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and Rev. Proc. 2009-16, 2009-6 I.R.B. 449. The REIT must use the refundable credits from Forms 3800 and 8827 CAUTION to reduce any built-in gains tax derived from property that it owned when it was a C corporation, before the credits can be used to reduce REIT taxable income. See the instructions for line h of the Built-in Gains Tax Worksheet Instructions beginning on page 14. Line 24h. Add the amounts on lines 24d through 24g and enter the total on line 24h. Backup withholding. If the REIT had income tax withheld from any payments it received because, for example, it failed give the payer its correct EIN, include the amount withheld in the total for line 24h. Enter the amount withheld and the words "Backup Withholding."in the blank space above line 24h. Line 25. Estimated tax penalty. A REIT that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a REIT is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of: · Its alternative minimum tax minus the credit for federal tax paid on fuels for 2008 as shown on the return or · Its prior year's tax (computed in the same manner). See section 6655 for details and exceptions, including special rules for large corporations. Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine whether the REIT owes a penalty and to figure the amount of the penalty. Generally, the REIT does not have to file this form because the IRS can figure the amount of any penalty and bill the REIT for it. However, even if it does not owe the penalty, the REIT must complete and attach Form 2220 if the annualized income or adjusted seasonal installment method is used, or the REIT 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." If Form 2220 is attached, check the box on this line and enter the amount of any penalty.
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treat the property as foreclosure property in the year it was acquired. The property continues to be foreclosure property until the close of the 3rd tax year following the tax year in which the REIT acquired it. For more information, see section 856(e). However, if the foreclosure property is qualified health care property, it will cease to be foreclosure property as of the close of the 2nd year following the tax year the REIT acquired it (although the REIT may request one or more extensions to this 2-year grace period not to extend beyond the 6th year). See section 856(e)(6) for details. This election must be made by the due date for filing Form 1120-REIT (including extensions). To make the election, attach a statement that: · Indicates that the election under section 856(e) is being made; · Identifies the property to which the election applies; · Includes the name, address, and EIN of the REIT, the date the property was acquired, and a brief description of how the property was acquired (including the name of the person from whom the property was acquired); and · Gives a description of the lease or debt with respect to which default occurred or was imminent. The REIT can revoke the election by filing a revocation on or before the due date (including extensions) for filing Form 1120-REIT. See section 856(e) for more details. Line 2. Gross income from foreclosure property. Do not include income that qualifies under the REIT's 75% gross income test under section 856(c)(3)(A), (B), (C), (D), (E), or (G). These amounts must be reported in Part I. Line 4. Deductions. Deduct only those expenses that have a proximate and primary relationship to earning the income shown on line 3. This includes: · Depreciation on foreclosure property; · Interest paid or accrued on debt of the REIT that is attributable to the carrying of the property; · Real estate taxes; and · Fees charged by an independent contractor to manage such property. Do not deduct general overhead and administrative expenses in Part II.
they are subject to the tax imposed under section 857(b)(5). If line 8 is zero, the tax does not apply, and the REIT does not have to complete the rest of Part III. However, if line 8 is greater than zero, the REIT is subject to this tax, and must complete the rest of Part III to determine the amount of tax. A REIT that has failed the source-of-income requirements of sections 856(c)(2) and 856(c)(3) may avoid loss of its REIT status as a result of the failure if, following identification of its failure to meet the source-of-income requirements, the REIT sets forth a description of each item of its gross income described in sections 856(c)(2) and 856(c)(3) in an attached schedule. In addition, its failure to meet the source-of-income requirements must be due to reasonable cause and not due to willful neglect. For information on the relief provisions under sections 856(c)(7) and 856(g)(5), see the Instructions for Schedule J, line 2f.
Part IV--Tax on Net Income From Prohibited Transactions
Section 857(b)(6) imposes a tax equal to 100% of the net income derived from prohibited transactions. The 100% tax is imposed to prevent a REIT from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development tract. Line 1. Gain from sale or other disposition of property. Include only gain from the sale or other disposition of property described in section 1221(a)(1) that is not foreclosure property and that does not qualify as an exception. See section 857(b)(6)(C) for information on certain sales that do not qualify as prohibited transactions. See section 856(j) for a special rule regarding a shared appreciation mortgage. Exceptions apply for certain sales of timber property by a timber REIT. See section 857(b)(6)(D). Do not net losses from prohibited transactions against gains in determining the amount to enter on line 1. Enter losses from prohibited transactions on the appropriate line in Part I. Line 2. Deductions. Deduct only those expenses that have a proximate and primary relationship to the earning of the income shown on line 1. Do not deduct general overhead and administrative expenses in Part IV.
Part III--Tax for Failure To Part II--Tax on Net Income Meet Certain From Foreclosure Property Source-of-Income Complete Part II only if the gross income, Requirements gains, losses, and deductions from
foreclosure property (defined in section 856(e)) result in net income. If an overall net loss results, report the gross income, gains, losses, and deductions from foreclosure property on the appropriate lines of Part I. Property may be treated as foreclosure property only if it meets the requirements of section 856(e) and the REIT elects to Section 856(c)(6) provides REITs with a relief provision if they have failed to satisfy the source-of-income requirements of sections 856(c)(2) and 856(c)(3). If section 856(c)(6) applies to a REIT for any taxable year, a tax is imposed on the REIT under section 857(b)(5). All REITs must complete lines 1a through 8 of Part III to determine whether
Schedule A--Deduction for Dividends Paid
Lines 1 through 5. Section 561 (taking into account sections 857(b)(8),
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857(d)(3)(B), and 858(a)) determines the deduction for dividends paid. Line 3. Dividends declared in October, November, or December and payable to shareholders of record in October, November, or December are treated by the REIT as paid on December 31 of that calendar year. The REIT is then eligible for the deduction for dividends paid for the year the dividends are declared even though they are not actually paid until January of the following calendar year. If the REIT declared dividends in any of those months and actually paid them in January, as discussed above, enter on line 3 those dividends not already included on lines 1, 2, and 4 of Schedule A. Line 6. If, for any tax year the REIT has net income from foreclosure property (as defined in section 857(b)(4)(B)), the deduction for dividends paid to be entered on line 6 (and on line 21b, page 1) is determined by multiplying the amount on line 5 by the following fraction:
REIT taxable income (determined without regard to the deduction for dividends paid) REIT taxable income (determined without regard to the deduction for dividends paid) + (Net income from foreclosure property minus the tax on net income from foreclosure property)
on Part IV of Schedule D (Form 1120). Enter on line 2a, Schedule J, the tax from line 26 of Part IV, Schedule D (Form 1120).
Line 2e
Enter the amount of the 100% REIT tax imposed on the following: · Income of a REIT for services provided to the REIT's tenants that is improperly included in rents from real property reported by the REIT instead of being reported by the TRS; · Deductions that are improperly allocated between the REIT to its TRS; and · Interest deductions of a TRS to the extent that interest payments to its REIT are in excess of a rate that is commercially reasonable. See section 857(b)(7) for details and exceptions.
Line 2fTaxes Imposed Under Section 856(c)(7) and Section 856(g)(5)
Enter the taxes imposed for the following relief provisions: · Section 856(c)(7) relating to failures to meet the requirements of the asset test of section 856(c)(4); and · Section 856(g)(5) relating to failures to meet certain requirements under sections 856 through 859 (other than sections 856(c)(2), 856(c)(3), and 856(c)(4)). See section 856(c)(7) and 856(g)(5) for detailed information on the requirements for these relief provisions and check the appropriate box(es) for the tax(es) imposed under them. Failures to meet the asset test requirements of section 856(c)(4) (other than de minimus failures). Under section 856(c)(7)(A), a REIT may avoid loss of its REIT status as a result of certain failures to meet the asset test requirements of section 856(c)(4) if, following identification of the failure, each of the following requirements are met: · The REIT sets forth a description of each asset that causes the REIT to fail to satisfy the requirements of the asset test at the close of a quarter in a schedule for the quarter attached to its timely filed Form 1120-REIT; · The failure must be due to reasonable cause and not due to willful neglect; and · The REIT either: (a) disposes of the assets shown on the specified schedule within 6 months after the last day of the quarter in which the REIT's identification of the failure occurred (or such other time and in the manner prescribed by regulations); or (b) the requirements of the asset test of section 856(c)(4) are otherwise met within the specified time period. In addition, if section 856(c)(7)(A) applies to a REIT for any tax year, the REIT must pay a tax which is the greater of: · $50,000 or · the amount determined (as prescribed by regulations to be promulgated by the
Secretary) by multiplying the net income generated by the assets described in the specified schedule for the quarter in which the failure occurred by 35% (the highest corporate tax rate). Note. There is no tax imposed and you are not required to attach a schedule of assets to Form 1120-REIT for the de minimus relief provision under section 856(c)(7)(B). Under section 856(c)(7)(B), a REIT may avoid loss of its REIT status as a result of certain failures to meet the asset test requirements of section 856(c)(4)(B)(iii) if: · Following its identification of the failure, the REIT disposes of assets within 6 months after the last day of the quarter in which the REIT's identification of the failure occurred (or such time period prescribed by the Secretary and in the manner prescribed by the Secretary, or · The requirements of the asset test of section 856(c)(4) are otherwise met within the specified time period. Certain REIT qualification failures of sections 856 859 (other than sections 856(c)(2, 856(c)(3) and 856(c)(4)). Under section 856(g)(5), a REIT that fails to meet the REIT qualification requirements under sections 856 859, except for section 856(c)(2), 856(c)(3),and 856(c)4), may avoid loss of its REIT status if the failure is due to reasonable cause and not due to willful neglect. In addition, the REIT must pay (as prescribed by regulations and in the same manner as tax) a penalty of $50,000 for each failure to satisfy a provision of sections 856 859. See section 856(g)(5).
Schedule J--Tax Computation
Line 1
A member of a controlled group must check the box on line 1 and complete and attach Schedule O (Form 1120). See Schedule O (Form 1120) and its instructions for more information.
Line 2gAlternative Minimum Tax (AMT)
Unless the REIT 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, Alternative Minimum Tax Corporations. The REIT must file Form 4626 if its taxable income (loss) combined with these adjustments and tax preference items is more than the smaller of: · $40,000 or · The REIT's allowable exemption amount (from Form 4626). For this purpose, taxable income does not include the NOL deduction. See Form 4626 for details. Exemption for small corporations. A REIT is treated as a small corporation exempt from the AMT for its tax year beginning in 2008 if that year is the REIT's first tax year in existence (regardless of its gross receipts) or: 1. It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997 and 2. Its average annual gross receipts for the 3-year tax period (or portion thereof during which the REIT was in existence) ending before its tax year
Line 2aTax on REIT Taxable Income
Most REITs figure their tax by using the Tax Rate Schedule below. A member of a controlled group must use Schedule O (Form 1120) to figure its tax. Tax Rate Schedule
If taxable income (line 22, page 1) is: But not over -- Of the amount over -- $0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 0
Over -- $0 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333
Tax is:
$50,000 15% 75,000 $ 7,500 + 25% 100,000 13,750 + 34% 335,000 22,250 + 39% 10,000,000 113,900 + 34% 15,000,000 3,400,000 + 35% 18,333,333 5,150,000 + 38% ----35%
Alternative tax for corporations with qualified timber gains. A REIT 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
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beginning in 2008 did not exceed $7.5 million ($5 million if the REIT had only 1 prior tax year). For more details, see the Instructions for Form 4626.
Line 2hIncome Tax
Deferred tax under section 1291. If the REIT 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 2h. On the dotted line to the left of line 2h, enter "Section 1291" and the amount. Do not include on line 2h any interest due under section 1291(c)(3). Instead, show the amount of interest owed in the bottom margin of page 1, Form 1120-REIT, 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 2h. On the dotted line next to line 2h, enter "Section 197" and the amount. For more information, see Pub. 535.
· 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 owned, directly or indirectly, by five or fewer individuals. See Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax, for definitions and details on how to figure the tax.
4. Recapture of employer-provided childcare facilities and services credit (see Form 8882). 5. Interest due 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)) 6. Interest due on deferred gain (section 1260(b)).
Line 6Other Taxes
Include any of the following taxes and interest in the total on line 7. Check the appropriate box(es) for the form, if any, used to compute the total. Recapture of investment credit. If the REIT 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, for details. Recapture of low-income housing credit. If the REIT 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 REIT 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 REIT may have to include. The REIT 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. Other. Additional taxes and interest amounts can be included in the total entered on line 7. Check the box for "Other" if the REIT includes any of the taxes and interest discussed below. See How to report , for the Line 7 instructions for details on reporting these amounts on an attached schedule. 1. Recapture of qualified electric vehicle (QEV) credit. The REIT 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. 2. 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. 3. Recapture of new markets credit (see Form 8874).
Built-in Gains Tax
If, on or after January 2, 2002, property of a C corporation becomes property of a REIT by either: (a) the qualification of the C corporation as a REIT; or (b) the transfer of such property to a REIT, then the REIT will be subject to the built-in gains tax under section 1374 unless the C corporation elects deemed sale treatment on the transferred property. If the C corporation does not make this election, the REIT must pay tax on the net recognized built-in gain during the 10-year period beginning on its first day as a REIT or the day it acquired the property. Recognized built-in gains and losses generally retain their character (for example, ordinary income or capital gain) and are treated the same as other gains or losses of the REIT. The REIT's tax on net recognized built-in gain is treated as a loss incurred by the REIT during the same tax year (see the instructions for line i of the Built-in Gains Tax Worksheet on page 15). See Regulations section 1.337(d)-7 for details. Different rules apply to elections to be a REIT and transfers of property in a carryover basis transaction that occurred prior to January 2, 2002. For REIT elections and property transfers before this date, the C corporation is subject to deemed sale treatment on the transferred property unless the REIT elects section 1374 treatment. See Regulations section 1.337(d)-6 for information on how to make the election and figure the tax for REIT elections and property transfers before this date. The REIT may also rely on Regulations section 1.337(d)-5 for REIT elections and property transfers that occurred before January 2, 2002.
Line 3aForeign Tax Credit
To find out when a REIT can claim the foreign tax credit for payment of income tax to a foreign country or U.S. possession, see Form 1118, Foreign Tax Credit Corporations.
Line 3bCredit from Form 8834
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.
Line 3cGeneral Business Credit
The REIT is required to file Form 3800, General Business Credit, to claim most business credits. For a list of allowable credits, see Form 3800. Enter the allowable credit from Part II, line 32, of Form 3800, on line 3c. Also, see the applicable credit form and its instructions. See Form 3800 for a complete listing of general business credits.
Built-in Gains Tax Worksheet instructions
Complete the worksheet on page 15 to figure the built-in gains tax under Regulations section 1.337(d)-7 or 1.337(d)-6. Line a. Enter the amount that would be the taxable income of the REIT for the tax year if only recognized built-in gain, recognized built-in loss, and recognized built-in gain carryover were taken into account, reduced by any portion of the REIT's recognized built-in gain from: · Net income from foreclosure property, · Amounts subject to tax for failure to meet certain source-of-income requirements under section 857(b)(5) computed in accordance with Regulations section 1.337(d)-6(c)(2),
Line 3dOther credits
Include any allowable credits not reported above, such as the Credit for Prior Year Minimum Tax Corporations (Form 8827). Attach a statement that identifies the type and amount for each credit. Attach the applicable credit form to the return.
Line 5Personal Holding Company Tax
A REIT is taxed as a personal holding company under section 542 if:
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transactions under section 857(b)(6), and · Amounts subject to tax under section 857(b)(7). Line b. Add the amounts shown on: · Form 1120-REIT, page 1, line 20; · Form 1120-REIT, Part II, line 5; and · Form 2438, line 11. Subtract from the total the amount on Form 1120-REIT, line 21c. Enter the result on line b of the Built-in Gains Tax Worksheet below. Line c. The REIT's net unrealized built-in gain is the amount, if any, by which the fair market value of the assets of the REIT at the beginning of its first REIT year (or as of the date the assets were acquired, for any asset with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation) exceeds the aggregate adjusted basis of such assets at that time. Enter on line c the REIT's net unrealized built-in gain reduced by the net recognized built-in gain for prior years. See sections 1374(c)(2) and (d)(1). Line d. If the amount on line b exceeds the amount on line a, the excess is treated as a recognized built-in gain in the succeeding tax year. Line e. Enter the section 1374(b)(2) deduction. Generally, this is any net operating loss carryforward or capital loss carryforward (to the extent of the net capital gain included in recognized built-in gain for the tax year) arising in tax years for which the REIT was a C corporation. These loss carryforwards must be used to reduce recognized built-in gain for the tax year to the greatest extent possible before they can be used to reduce the REIT's taxable income. Line h. Credit carryforwards arising in tax years for which the REIT was a C corporation must be used to reduce the tax on net built-in gain for the tax year to the greatest extent possible before the credit carryforwards can be used to reduce the tax on the REIT's taxable income. Note. The REIT 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 REIT makes the election, the unused research
· Net income from prohibited
and minimum tax credits must first be used to reduce the tax on net built-in gain for the tax year to the greatest extent possible. Any remaining unused research and minimum tax credits are included on line 24g to reduce REIT taxable income. For more information, see the instructions for line 24g. Also, see the Instructions for Forms 3800 and 8827, Rev. Proc. 2008-65, 2008-44 I.R.B. 1082; and Rev. Proc. 2009-16, 2009-6 I.R.B.449. Line i. The REIT's tax on net recognized built-in gain is treated as a loss sustained by the REIT during the same tax year. Deduct the tax attributable to: · Ordinary gain as a deduction for taxes on Form 1120-REIT, line 14. · Short-term capital gain as a short-term capital loss on Schedule D (Form 1120), line 1. · Long-term capital gain as a long-term capital loss on Schedule D (Form 1120), line 6.
Schedule K--Other Information
Be sure to answer all the lines that apply to the REIT.
Question 3
Check the "Yes" box if the REIT is a subsidiary in a parent-subsidiary controlled group (defined below), even if the REIT is a subsidiary member of one group and the parent corporation of another. Note. If the REIT 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. Parent-subsidiary controlled group. The term "parent-subsidiary controlled group" means one or more chains of corporations connected through stock ownership (section 1563(a)(1)). Both of the following requirements must be met: 1. At least 80% of the total combined voting power of all classes of voting stock entitled to vote or at least 80% of the total value of all classes of stock of each corporation in the group (except the parent) must be owned by one or more of the other corporations in the group and 2. The common parent must own at least 80% of the total combined voting power of all classes of stock entitled to vote or at least 80% of the total value of all classes of stock of one or more of the other corporations in the group. Stock owned directly by other members of the group is not counted when computing the voting power or value. See section 1563(d)(1) for the definition of "stock" for purposes of determining stock ownership above.
How to Report
If the REIT checked the "Other" box, attach a schedule showing the computation of each item included in the total for line 6, Schedule J. In addition, identify: (a) the applicable Code section; (b) the type of taxes or interest; and (c) enter the amount of tax or interest.
Line 7Total Tax
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 7. See Form 8621, Part V, and How to report, below. Subtract from the total for line 7 the deferred tax on the REIT's share of the undistributed earnings of a qualified electing fund (see Form 8621, Part II).
Question 5
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 REIT entitled to vote, or (b) the total value of all classes of stock of the REIT. The constructive ownership rules of section 318 apply in determining if a REIT is foreign owned. See section 6038A(c)(5) and the related regulations.
How to report
Attach a schedule showing the computation of each item included in, or subtracted from, the total for line 7. On the dotted line next to line 7, enter the amount of tax or interest, identify it as tax or interest, and specify the Code section that applies.
Built-in Gains Tax Worksheet (keep for your records)
a. b. c. d. e. f. g. h. i. Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . . Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . . Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation years (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax. Subtract line h from line g ( if zero or less, enter -0-). Enter here and include on line 6 of Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a. b. c. d. e. f. g. h. i.
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Enter on line 5a the percentage owned by the foreign person specified in line 5. On line 5b, enter the name of the owner's country. Note. If there is more than one 25%-or-more foreign owner, complete lines 5a and 5b 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). · A foreign government (or one of its agencies or instrumentalities) if 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 REIT checked "Yes" to line 5, it may have to file Form 5472. 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.
Line 1. Cash. Include certificates of deposits as cash on line 1. Line 4. Tax-exempt securities. 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 REIT. Line 24. Adjustments to shareholders' equity. Examples of adjustments to report on this line include: · Unrealized gains and losses on securities held "available for sale." · Foreign currency translation adjustments. · 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 24 is a negative number, enter the amount in parentheses.
For more information, see Pub. 542, Corporations. Line 7. Tax-exempt interest. Include as interest any exempt-interest dividends received by the REIT as a shareholder in a mutual fund or other RIC. Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form 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 this form will vary depending on individual circumstances. The estimated average time is: Recordkeeping . . . . . . . 59 hr., 33 min. Learning about the law or the form . . . . . . . . . . 24 hr., 18 min. Preparing the form . . . . Copying, assembling, and sending the form to the IRS . . . . . . . . . . . . . 43 hr., 5 min.
Schedule M-1
Reconciliation of Income (Loss) per Books With Income per Return
Line 5c. Travel and entertainment. Include any of the following: · Meals and entertainment 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 not deductible under section 274(m). · Expenses for travel as a form of education. · Other nondeductible travel and entertainment expenses.
Item 8
Tax-exempt interest. Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other RIC.
4 hr., 49 min.
Item 9
Enter the amount of the net operating loss (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 in a tax year prior to 2008. Do not reduce the amount by any NOL deduction reported on line 21a.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the 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 office. Instead, see the Where To File instructions.
Schedule LBalance Sheets per Books
The balance sheets should agree with the REIT's books and records.
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Free 2008 Instruction 1120-REIT - Federal
| File Size: | 129.0 kB |
| Pages: | 16 |
| File Format: | |
| State: | Federal |
| Category: | Tax Forms |
| Author: | W:CAR:MP:FP |
| Word Count: | 18,723 Words, 115,158 Characters |
| Page Size: | Letter (8 1/2" x 11") |
| URL |
http://www.irs.gov/pub/irs-pdf/i1120rei.pdf |
| Download 2008 Instruction 1120-REIT ( 129.0 kB) |
Preview 2008 Instruction 1120-REIT
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