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Free federal tax forms Publication 537 - Additional Material Prev  Up  Next   Home   More Online Publications
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Understanding your 2800C Letter

We sent you this letter because we believe your employee may have filed an incorrect Form W-4, Employee's Withholding Allowance Certificate.  

What you need to do

Begin withholding income tax from this employee's wages based on the following withholding rates, effective 60 days from the date of this letter:  

  • Withholding rate (marital status): single
  • Withholding allowances:  0000   

You may want to…

  • Search keyword "withholding compliance" for more information on income tax withholding
  • Download the following materials:
    • Publication 15 (Circular E), Employer's Tax Guide  
    • Publication 51 (Circular A), Agricultural Employer's Tax Guide

Answers to Common Questions

If the IRS determines that an employee doesn’t have enough federal income tax withheld, what will you ask an employer to do?
If we determine that an employee doesn’t have enough withholding, we’ll send you a lock-in letter that specifies the maximum number of withholding allowances permitted for the employee. You must withhold tax as indicated in the lock-in letter by the date specified unless we notify you otherwise. This date is 60 days after the date of the lock-in letter. Once a lock-in rate is effective, an employer can’t decrease withholding unless the IRS approves it.
 

You’ll also receive a copy of the letter to give to the employee. If the employee no longer works for you, you don’t need to do anything. However, if the employee returns to work within 12 months, you should begin withholding income tax from the employee’s wages based on the withholding rate in the letter.

The letter will explain how the employee can provide additional information to help us determine the appropriate number of withholding exemptions. We’ll give the employee some time before the lock-in rate is effective to submit a new Form W-4 and a statement that supports the claims made on it. The employee must send the Form W-4 and the statement to the IRS address as shown on this webpage.

If an employer no longer has to submit Forms W-4 claiming complete exemption from withholding or claiming more than 10 allowances, how does the IRS determine adequate withholding?
We‘re more effectively using information in our records and reported on Form W-2 wage statements to ensure that employees have enough federal income tax withheld.

After I lock in withholding on an employee, what do I do if I receive a revised Form W-4 from the employee?
You must disregard any Form W-4 that decreases the amount of withholding. The employee must submit for IRS approval any new Form W-4 and a statement that supports his or her request to decrease federal income tax withholding. The employee should send the Form W-4 and statement to the address on the lock-in letter. We’ll notify you if we approve the employee’s request. However, if the employee submits a Form W-4 that claims fewer withholding allowances than the maximum number specified in the lock-in letter, you must increase withholding based on that Form W-4.

As an employer who has received a modification letter (Letter 2808C) from the Withholding Compliance Program, do I wait for another 60 days to change the marital status or number of allowances as indicated in the modification letter?
The changes to the marital status or number of allowances become effective immediately upon receipt of the Letter 2808C.

Our employees can submit or change their Forms W-4 on line. How can I prevent them from changing their Forms W-4 after the IRS has locked them in?
You’ll need to block employees who have been locked-in from using an on-line Form W-4 system to decrease their withholding.

How to get help

  • Call toll free 1-855-839-2235 weekdays between 8:00 a.m. and 8:00 p.m.
  • Send a fax to 1-855-202-8300
  • Write to:

    Internal Revenue Service
    Compliance Services
    Withholding Compliance Unit
    P.O. Box 9047, Stop 837
    Andover, MA 01810-0947
Page Last Reviewed or Updated: 10-Jan-2014

The Free Federal Tax Forms

Free federal tax forms Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Free federal tax forms Employee-owners. Free federal tax forms Other rules. Free federal tax forms Other rules. Free federal tax forms Property Exchanged for StockNonqualified preferred stock. Free federal tax forms Liabilities. Free federal tax forms Election to reduce basis. Free federal tax forms Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Free federal tax forms S. Free federal tax forms Real Property Interest Accounting MethodsSection 481(a) adjustment. 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Free federal tax forms 351-3 of the Regulations. Free federal tax forms Control of a corporation. Free federal tax forms   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Free federal tax forms Example 1. Free federal tax forms You and Bill Jones buy property for $100,000. Free federal tax forms You both organize a corporation when the property has a fair market value of $300,000. Free federal tax forms You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Free federal tax forms No gain is recognized by you, Bill, or the corporation. Free federal tax forms Example 2. Free federal tax forms You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Free federal tax forms This represents only 75% of each class of stock of the corporation. Free federal tax forms The other 25% was already issued to someone else. Free federal tax forms You and Bill recognize a taxable gain of $200,000 on the transaction. Free federal tax forms Services rendered. Free federal tax forms   The term property does not include services rendered or to be rendered to the issuing corporation. Free federal tax forms The value of stock received for services is income to the recipient. Free federal tax forms Example. Free federal tax forms You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Free federal tax forms Right after the exchange, you own 85% of the outstanding stock. 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Free federal tax forms The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Free federal tax forms If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Free federal tax forms See chapter 3 of Publication 544. Free federal tax forms No loss is recognized. Free federal tax forms Nonqualified preferred stock. Free federal tax forms   Nonqualified preferred stock is treated as property other than stock. Free federal tax forms Generally, it is preferred stock with any of the following features. Free federal tax forms The holder has the right to require the issuer or a related person to redeem or buy the stock. Free federal tax forms The issuer or a related person is required to redeem or buy the stock. Free federal tax forms The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Free federal tax forms The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Free federal tax forms For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Free federal tax forms Liabilities. Free federal tax forms   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Free federal tax forms There are two exceptions to this treatment. Free federal tax forms If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Free federal tax forms However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Free federal tax forms If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Free federal tax forms For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Free federal tax forms Example. Free federal tax forms You transfer property to a corporation for stock. Free federal tax forms Immediately after the transfer, you control the corporation. Free federal tax forms You also receive $10,000 in the exchange. Free federal tax forms Your adjusted basis in the transferred property is $20,000. Free federal tax forms The stock you receive has a fair market value (FMV) of $16,000. 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Free federal tax forms   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Free federal tax forms Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Free federal tax forms Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Free federal tax forms Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Free federal tax forms    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. 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Free federal tax forms   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Free federal tax forms The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Free federal tax forms However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Free federal tax forms R. Free federal tax forms B. Free federal tax forms 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Free federal tax forms    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Free federal tax forms Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Free federal tax forms Paid-in capital. Free federal tax forms   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Free federal tax forms These contributions are not taxable to the corporation. Free federal tax forms Basis. Free federal tax forms   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Free federal tax forms However, the increase for the gain recognized may be limited. Free federal tax forms For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Free federal tax forms   The basis of property contributed to capital by a person other than a shareholder is zero. Free federal tax forms   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Free federal tax forms If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Free federal tax forms Depreciable property. Free federal tax forms Amortizable property. Free federal tax forms Property subject to cost depletion but not to percentage depletion. Free federal tax forms All other remaining properties. Free federal tax forms   Reduce the basis of property in each category to zero before going on to the next category. Free federal tax forms   There may be more than one piece of property in each category. Free federal tax forms Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Free federal tax forms The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Free federal tax forms Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Free federal tax forms A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Free federal tax forms After the end of the year, the corporation must file an income tax return. Free federal tax forms This section will help you determine when and how to pay and file corporate income taxes. Free federal tax forms For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Free federal tax forms The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Free federal tax forms For more information, visit www. Free federal tax forms irs. Free federal tax forms gov/newsroom/article/0,,id=108362. Free federal tax forms 00. Free federal tax forms Income Tax Return This section will help you determine when and how to report a corporation's income tax. Free federal tax forms Who must file. Free federal tax forms   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Free federal tax forms Which form to file. Free federal tax forms   A corporation generally must file Form 1120, U. Free federal tax forms S. Free federal tax forms Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Free federal tax forms Certain organizations and entities must file special returns. Free federal tax forms For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Free federal tax forms Electronic filing. Free federal tax forms   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. 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Free federal tax forms   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Free federal tax forms You will generally use one of the following two methods to figure each required installment. Free federal tax forms You should use the method that yields the smallest installment payments. Free federal tax forms Note. Free federal tax forms In these discussions, “return” generally refers to the corporation's original return. Free federal tax forms However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Free federal tax forms Method 1. Free federal tax forms   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Free federal tax forms Method 2. Free federal tax forms   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Free federal tax forms   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Free federal tax forms Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Free federal tax forms   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Free federal tax forms Other methods. Free federal tax forms   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Free federal tax forms The annualized income installment method. Free federal tax forms The adjusted seasonal installment method. Free federal tax forms Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Free federal tax forms Refiguring required installments. Free federal tax forms   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Free federal tax forms An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Free federal tax forms Underpayment penalty. Free federal tax forms   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Free federal tax forms The penalty is figured separately for each installment due date. Free federal tax forms The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Free federal tax forms This is true even if the corporation is due a refund when its return is filed. Free federal tax forms Form 2220. Free federal tax forms   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Free federal tax forms   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Free federal tax forms The amount of the underpayment. Free federal tax forms The period during which the underpayment was due and unpaid. Free federal tax forms The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Free federal tax forms   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Free federal tax forms However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Free federal tax forms The annualized income installment method was used to figure any required installment. Free federal tax forms The adjusted seasonal installment method was used to figure any required installment. Free federal tax forms The corporation is a large corporation figuring its first required installment based on the prior year's tax. Free federal tax forms How to pay estimated tax. Free federal tax forms   A corporation is generally required to use EFTPS to pay its taxes. Free federal tax forms See Electronic Federal Tax Payment System (EFTPS), earlier. Free federal tax forms Also see the Instructions for Form 1120-W. Free federal tax forms Quick refund of overpayments. Free federal tax forms   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Free federal tax forms Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Free federal tax forms A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Free federal tax forms Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Free federal tax forms File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Free federal tax forms Do not file Form 4466 before the end of the corporation's tax year. Free federal tax forms An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Free federal tax forms The IRS will act on the form within 45 days from the date you file it. Free federal tax forms U. Free federal tax forms S. Free federal tax forms Real Property Interest If a domestic corporation acquires a U. Free federal tax forms S. Free federal tax forms real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Free federal tax forms The amount paid includes cash, the fair market value of other property, and any assumed liability. Free federal tax forms If a domestic corporation distributes a U. Free federal tax forms S. Free federal tax forms real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Free federal tax forms A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Free federal tax forms For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Free federal tax forms S. Free federal tax forms Withholding Tax Return for Dispositions by Foreign Persons of U. Free federal tax forms S. Free federal tax forms Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Free federal tax forms S. Free federal tax forms Real Property Interests. Free federal tax forms Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Free federal tax forms Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Free federal tax forms In all cases, the method used must clearly show taxable income. Free federal tax forms Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Free federal tax forms Accrual method. Free federal tax forms   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Free federal tax forms A corporation engaged in farming operations also must use the accrual method. Free federal tax forms   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Free federal tax forms However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Free federal tax forms   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Free federal tax forms   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Free federal tax forms   There are exceptions to the economic performance rule for certain items, including recurring expenses. Free federal tax forms See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Free federal tax forms Nonaccrual experience method. Free federal tax forms   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Free federal tax forms   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Free federal tax forms Percentage of completion method. Free federal tax forms   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Free federal tax forms Mark-to-market accounting method. Free federal tax forms   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Free federal tax forms Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Free federal tax forms Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Free federal tax forms Any gain or loss must be taken into account in determining gross income. Free federal tax forms The gain or loss taken into account is treated as ordinary gain or loss. Free federal tax forms   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Free federal tax forms Change in accounting method. Free federal tax forms   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Free federal tax forms The corporation must file Form 3115, Application for Change in Accounting Method. Free federal tax forms For more information, see Form 3115 and Publication 538. Free federal tax forms Section 481(a) adjustment. Free federal tax forms   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Free federal tax forms The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Free federal tax forms However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Free federal tax forms The corporation must complete the appropriate lines of Form 3115 to make the election. Free federal tax forms See the Instructions for Form 3115. Free federal tax forms Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Free federal tax forms A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Free federal tax forms Generally, corporations can use either a calendar year or a fiscal year as its tax year. Free federal tax forms Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Free federal tax forms For more information, see Publication 538. Free federal tax forms Personal service corporation. Free federal tax forms   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Free federal tax forms See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Free federal tax forms Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Free federal tax forms   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Free federal tax forms See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Free federal tax forms Change of tax year. Free federal tax forms   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Free federal tax forms However, under certain conditions, a corporation can change its tax year without getting the consent. Free federal tax forms For more information, see Form 1128 and Publication 538. Free federal tax forms Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Free federal tax forms Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Free federal tax forms Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Free federal tax forms The corporation should keep copies of all filed returns. Free federal tax forms They help in preparing future and amended returns and in the calculation of earnings and profits. Free federal tax forms Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Free federal tax forms However, the following special provisions apply only to corporations. Free federal tax forms Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Free federal tax forms However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Free federal tax forms Any costs not deducted can be amortized. Free federal tax forms Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Free federal tax forms Organizational costs are the direct costs of creating the corporation. Free federal tax forms For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Free federal tax forms Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Free federal tax forms Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Free federal tax forms Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Free federal tax forms If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Free federal tax forms These rules also deny the deduction of losses on the sale or exchange of property between related persons. Free federal tax forms Related persons. Free federal tax forms   For purposes of this rule, the following persons are related to a corporation. Free federal tax forms Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Free federal tax forms An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Free federal tax forms A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Free federal tax forms An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Free federal tax forms A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Free federal tax forms Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Free federal tax forms Ownership of stock. Free federal tax forms   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Free federal tax forms Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Free federal tax forms An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Free federal tax forms Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Free federal tax forms Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Free federal tax forms To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Free federal tax forms But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Free federal tax forms Reallocation of income and deductions. Free federal tax forms   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Free federal tax forms Complete liquidations. Free federal tax forms   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Free federal tax forms More information. Free federal tax forms   For more information about the related person rules, see Publication 544. Free federal tax forms Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Free federal tax forms If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Free federal tax forms Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Free federal tax forms A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Free federal tax forms A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Free federal tax forms For more information regarding the election, see Form 8902. Free federal tax forms Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Free federal tax forms The deduction is allowed for the year in which the property is placed in service. Free federal tax forms A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Free federal tax forms For more information, see section 179C of the Internal Revenue Code and the related Regulations. Free federal tax forms Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Free federal tax forms A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Free federal tax forms For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Free federal tax forms Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Free federal tax forms In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Free federal tax forms 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Free federal tax forms The deduction is limited to $1. Free federal tax forms 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Free federal tax forms Other rules and limitations apply. Free federal tax forms The corporation must reduce the basis of any property by any deduction taken. Free federal tax forms The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Free federal tax forms For more information, see section 179D of the Internal Revenue Code. Free federal tax forms Also see Notice 2006-52, 2006-26 I. Free federal tax forms R. Free federal tax forms B. Free federal tax forms 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Free federal tax forms R. Free federal tax forms B. Free federal tax forms 725, and any successor. Free federal tax forms Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Free federal tax forms These items are known as corporate preference items and they include the following. Free federal tax forms Gain on the disposition of section 1250 property. Free federal tax forms For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Free federal tax forms Percentage depletion for iron ore and coal (including lignite). Free federal tax forms For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Free federal tax forms Amortization of pollution control facilities. Free federal tax forms For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Free federal tax forms Mineral exploration and development costs. Free federal tax forms For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Free federal tax forms For more information on corporate preference items, see section 291 of the Internal Revenue Code. Free federal tax forms Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Free federal tax forms This section discusses the general rules that apply. Free federal tax forms The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Free federal tax forms For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Free federal tax forms Dividends from domestic corporations. Free federal tax forms   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Free federal tax forms If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Free federal tax forms Ownership. Free federal tax forms   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Free federal tax forms Small business investment companies. Free federal tax forms   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Free federal tax forms Dividends from regulated investment companies. Free federal tax forms   Regulated investment company dividends received are subject to certain limits. Free federal tax forms Capital gain dividends received from a regulated investment company do not qualify for the deduction. Free federal tax forms For more information, see section 854 of the Internal Revenue Code. Free federal tax forms No deduction allowed for certain dividends. Free federal tax forms   Corporations cannot take a deduction for dividends received from the following entities. Free federal tax forms A real estate investment trust (REIT). Free federal tax forms A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Free federal tax forms A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Free federal tax forms Ex-dividend means the holder has no rights to the dividend. Free federal tax forms A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Free federal tax forms Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Free federal tax forms Dividends on deposits. Free federal tax forms   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Free federal tax forms They do not qualify for this deduction. Free federal tax forms Limit on deduction for dividends. Free federal tax forms   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Free federal tax forms Figuring the limit. Free federal tax forms   In figuring the limit, determine taxable income without the following items. Free federal tax forms The net operating loss deduction. Free federal tax forms The domestic production activities deduction. Free federal tax forms The deduction for dividends received. Free federal tax forms Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Free federal tax forms Any capital loss carryback to the tax year. Free federal tax forms Effect of net operating loss. Free federal tax forms   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Free federal tax forms To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Free federal tax forms Example 1. Free federal tax forms A corporation loses $25,000 from operations. Free federal tax forms It receives $100,000 in dividends from a 20%-owned corporation. Free federal tax forms Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Free federal tax forms If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Free federal tax forms Therefore, the 80% of taxable income limit does not apply. Free federal tax forms The corporation can deduct the full $80,000. Free federal tax forms Example 2. Free federal tax forms Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Free federal tax forms Its taxable income is $85,000 before the deduction for dividends received. Free federal tax forms After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Free federal tax forms Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Free federal tax forms Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Free federal tax forms The nontaxed part is any dividends-received deduction allowable for the dividends. Free federal tax forms Extraordinary dividend. Free federal tax forms   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Free federal tax forms The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Free federal tax forms Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Free federal tax forms Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Free federal tax forms Disqualified preferred stock. Free federal tax forms   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Free federal tax forms   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Free federal tax forms The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Free federal tax forms The issue price of the stock exceeds its liquidation rights or stated redemption price. Free federal tax forms The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Free federal tax forms   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Free federal tax forms More information. Free federal tax forms   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Free federal tax forms Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Free federal tax forms A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Free federal tax forms A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Free federal tax forms Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Free federal tax forms Foregone interest. Free federal tax forms   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Free federal tax forms See Below-market loans, in chapter 4 of Publication 535 for more information. Free federal tax forms Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Free federal tax forms The contribution is deductible if made to, or for the use of, a qualified organization. Free federal tax forms For more information on qualified organizations, see Publication 526, Charitable Contributions. Free federal tax forms Also see, Exempt Organizations Select Check (EO Select Check) at www. Free federal tax forms irs. Free federal tax forms gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Free federal tax forms Note. Free federal tax forms You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Free federal tax forms Cash method corporation. Free federal tax forms   A corporation using the cash method of accounting deducts contributions in the tax year paid. Free federal tax forms Accrual method corporation. Free federal tax forms   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Free federal tax forms Make the choice by reporting the contribution on the corporation's return for the tax year. Free federal tax forms A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Free federal tax forms The declaration must include the date the resolution was adopted. Free federal tax forms Limitations on deduction. Free federal tax forms   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Free federal tax forms Figure taxable income for this purpose without the following. Free federal tax forms The deduction for charitable contributions. Free federal tax forms The dividends-received deduction. Free federal tax forms The deduction allowed under section 249 of the Internal Revenue Code. Free federal tax forms The domestic production activities deduction. Free federal tax forms Any net operating loss carryback to the tax year. Free federal tax forms Any capital loss carryback to the tax year. Free federal tax forms Farmers and ranchers. Free federal tax forms    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Free federal tax forms Carryover of excess contributions. Free federal tax forms   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Free federal tax forms You lose any excess not used within that period. Free federal tax forms For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Free federal tax forms Any excess not used in 2015 is lost. Free federal tax forms Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Free federal tax forms You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Free federal tax forms Cash contributions. Free federal tax forms   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Free federal tax forms The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Free federal tax forms Keep the record of the contribution with the other corporate records. Free federal tax forms Do not attach the records to the corporation's return. Free federal tax forms For more information on cash contributions, see Publication 526. Free federal tax forms Gifts of $250 or more. Free federal tax forms   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Free federal tax forms The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Free federal tax forms The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Free federal tax forms Keep the acknowledgement with other corporate records. Free federal tax forms Do not attach the acknowledgement to the return. Free federal tax forms Contributions of property other than cash. Free federal tax forms   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Free federal tax forms In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Free federal tax forms   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Free federal tax forms For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Free federal tax forms   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Free federal tax forms A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Free federal tax forms The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Free federal tax forms   See Form 8283 for more information. Free federal tax forms Qualified conservation contributions. Free federal tax forms   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Free federal tax forms For more information, see section 170(h) of the Internal Revenue Code. Free federal tax forms Contributions of used vehicles. Free federal tax forms   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Free federal tax forms The deduction is limited, and other special rules apply. Free federal tax forms For more information, see Publication 526. Free federal tax forms Reduction for contributions of certain property. Free federal tax forms   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Free federal tax forms   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Free federal tax forms Larger deduction. Free federal tax forms   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Free federal tax forms This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Free federal tax forms Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Free federal tax forms The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Free federal tax forms Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Free federal tax forms Contributions to organizations conducting lobbying activities. Free federal tax forms   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Free federal tax forms More information. Free federal tax forms   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Free federal tax forms Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Free federal tax forms In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Free federal tax forms Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Free federal tax forms A capital loss is carried to other years in the following order. Free federal tax forms 3 years prior to the loss year. Free federal tax forms 2 years prior to the loss year. Free federal tax forms 1 year prior to the loss year. Free federal tax forms Any loss remaining is carried forward for 5 years. Free federal tax forms When you carry a net capital loss to another tax year, treat it as a short-term loss. Free federal tax forms It does not retain its original identity as long term or short term. Free federal tax forms Example. Free federal tax forms A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Free federal tax forms The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Free federal tax forms The corporation treats this $6,000 as a short-term loss when carried back or forward. Free federal tax forms The corporation carries the $6,000 short-term loss back 3 years. Free federal tax forms In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Free federal tax forms It subtracts the $6,000 short-term loss first from the net short-term gain. Free federal tax forms This results in a net capital gain for year 1 of $7,000. Free federal tax forms This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Free federal tax forms S corporation status. Free federal tax forms   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Free federal tax forms Rules for carryover and carryback. Free federal tax forms   When carrying a capital loss from one year to another, the following rules apply. Free federal tax forms When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Free federal tax forms In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Free federal tax forms If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Free federal tax forms You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Free federal tax forms Refunds. Free federal tax forms   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Free federal tax forms If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Free federal tax forms S. Free federal tax forms Corporation Income Tax Return, to apply for a refund. Free federal tax forms Form 1139. Free federal tax forms    A corporation can get a refund faster by using Form 1139. Free federal tax forms It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Free federal tax forms Form 1120X. Free federal tax forms   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Free federal tax forms The corporation must file the Form 1120X within 3 years of the due date, includin