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H And R Block Tax

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H And R Block Tax

H and r block tax 14. H and r block tax   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Fuels Used in FarmingBuyer of fuel, including undyed diesel fuel or undyed kerosene. H and r block tax Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). H and r block tax Custom application of fertilizer and pesticide. H and r block tax Fuel not used for farming. H and r block tax Dyed Diesel Fuel and Dyed Kerosene Fuels Used in Off-Highway Business Use Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines How To Claim a Credit or RefundCredit only. H and r block tax Claiming a Credit Claiming a Refund Including the Credit or Refund in Income Introduction You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. H and r block tax You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return. H and r block tax Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. H and r block tax The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following. H and r block tax Use on a farm for farming purposes. H and r block tax Off-highway business use. H and r block tax Uses other than as a fuel in a propulsion engine, such as home use. H and r block tax Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. H and r block tax See Publication 510, Excise Taxes, for more information. H and r block tax Topics - This chapter discusses: Fuels used in farming Dyed diesel fuel and dyed kerosene Fuels used in off-highway business use Fuels used for household purposes How to claim a credit or refund Including the credit or refund in income Useful Items - You may want to see: Publication 510 Excise Taxes Form (and Instructions) 720 Quarterly Federal Excise Tax Return 4136 Credit for Federal Tax Paid on Fuels 8849 Claim for Refund of Excise Taxes See chapter 16 for information about getting publications and forms. H and r block tax Fuels Used in Farming Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. H and r block tax See Table 14-1 for a list of available fuel tax credits and refunds. H and r block tax Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. H and r block tax Farm. H and r block tax   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. H and r block tax It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. H and r block tax A fish farm is an area where fish are grown or raised and not merely caught or harvested. H and r block tax Table 14-1. H and r block tax Fuel Tax Credits and Refunds at a Glance Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed. H and r block tax Fuel Used On a Farm for Farming Purposes Off-Highway Business Use Household Use or Use Other Than as a Fuel1 Gasoline Credit only Credit or refund None Aviation gasoline Credit only None None Undyed diesel fuel and undyed kerosene Credit or refund Credit or refund2 Credit or refund2 Kerosene for use in aviation Credit or refund None None Dyed diesel fuel and dyed kerosene None None None Other Fuels (including alternative fuels)3 Credit or refund Credit or refund None 1For a use other than as fuel in a propulsion engine. H and r block tax 2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. H and r block tax See Reg. H and r block tax 48. H and r block tax 6427-10 (b)(1) for the definition of a blocked pump. H and r block tax 3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. H and r block tax It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass. H and r block tax Farming purposes. H and r block tax   As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways. H and r block tax To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. H and r block tax To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. H and r block tax To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. H and r block tax To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. H and r block tax For this use to qualify, you must have produced more than half the commodity so treated during the tax year. H and r block tax The more-than-one-half test applies separately to each commodity. H and r block tax Commodity means a single raw product. H and r block tax For example, apples and peaches are two separate commodities. H and r block tax To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. H and r block tax Your tree operations are incidental only if they are minor in nature when compared to the total farming operations. H and r block tax   If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list items (1) or (2), above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. H and r block tax Therefore, you can still claim the credit or refund for the fuel so used. H and r block tax However, see Custom application of fertilizer and pesticide, later. H and r block tax If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services. H and r block tax Buyer of fuel, including undyed diesel fuel or undyed kerosene. H and r block tax   If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. H and r block tax For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used. H and r block tax Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). H and r block tax   Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. H and r block tax However, see Custom application of fertilizer and pesticide, next. H and r block tax Also see Dyed Diesel Fuel and Dyed Kerosene, later. H and r block tax Example. H and r block tax Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. H and r block tax Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. H and r block tax In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. H and r block tax Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. H and r block tax Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. H and r block tax No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above. H and r block tax In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks. H and r block tax Custom application of fertilizer and pesticide. H and r block tax   Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. H and r block tax Generally, the applicator is treated as having used the fuel on a farm for farming purposes. H and r block tax For applicators using highway vehicles, only the fuel used on the farm is exempt. H and r block tax Fuel used traveling on the highway to and from the farm is taxable. H and r block tax Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. H and r block tax For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. H and r block tax For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. H and r block tax A sample waiver is included as Model Waiver L in the appendix of Publication 510. H and r block tax A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. H and r block tax To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. H and r block tax However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes. H and r block tax Fuel not used for farming. H and r block tax   You do not use fuel on a farm for farming purposes when you use it in any of the following ways. H and r block tax Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment. H and r block tax For personal use, such as lawn mowing. H and r block tax In processing, packaging, freezing, or canning operations. H and r block tax In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. H and r block tax All-terrain vehicles (ATVs). H and r block tax   Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. H and r block tax Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. H and r block tax If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund. H and r block tax Dyed Diesel Fuel and Dyed Kerosene If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. H and r block tax For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. H and r block tax Excise tax applies to the fuel used by the truck on the highways. H and r block tax In this situation, undyed (taxed) fuel should be purchased for the truck. H and r block tax You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. H and r block tax You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes. H and r block tax Penalty. H and r block tax   A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. H and r block tax The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. H and r block tax After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. H and r block tax For more information on this penalty, see Publication 510. H and r block tax Fuels Used in Off-Highway Business Use You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use. H and r block tax Off-highway business use. H and r block tax   This is any use of fuel in a trade or business or in an income-producing activity. H and r block tax The use must not be in a highway vehicle registered or required to be registered for use on public highways. H and r block tax Off-highway business use generally does not include any use in a recreational motorboat. H and r block tax Examples. H and r block tax   Off-highway business use includes the use of fuels in a trade or business in any of the following ways. H and r block tax In stationary machines such as generators, compressors, power saws, and similar equipment; For cleaning ; and In forklift trucks, bulldozers, and earthmovers. H and r block tax   Off-highway nonbusiness (taxable) use of fuel includes: use in minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. H and r block tax For more information, see Publication 510. H and r block tax Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. H and r block tax This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. H and r block tax Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use. H and r block tax How To Claim a Credit or Refund You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. H and r block tax The basic rules for claiming credits and refunds are listed in Table 14-2 . H and r block tax Table 14-2. H and r block tax Claiming a Credit or Refund of Excise Taxes This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use. H and r block tax   Credit Refund Which form to use Form 4136, Credit for Federal Tax Paid on Fuels Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels Type of form Annual Quarterly When to file With your income tax return By the last day of the quarter following the last quarter included in the claim Amount of tax Any amount $750 or more1 1You may carry over an amount less than $750 to the next quarter. H and r block tax Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. H and r block tax You do not have to use any special form, but the records should establish the following information. H and r block tax The total number of gallons bought and used during the period covered by your claim. H and r block tax The dates of the purchases. H and r block tax The names and addresses of suppliers and amounts bought from each during the period covered by your claim. H and r block tax The nontaxable use for which you used the fuel. H and r block tax The number of gallons used for each nontaxable use. H and r block tax It is important that your records separately show the number of gallons used for each nontaxable use that qualifies as a claim. H and r block tax For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records. H and r block tax Credit or refund. H and r block tax   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. H and r block tax If you meet certain requirements, you may claim a refund during the year instead of waiting until you file your income tax return. H and r block tax Credit only. H and r block tax   You can claim the following taxes only as a credit on your income tax return. H and r block tax Tax on gasoline and aviation gasoline you used on a farm for farming purposes. H and r block tax Tax on fuels (including undyed diesel fuel or undyed kerosene) you used for nontaxable uses if the total for the tax year is less than $750. H and r block tax Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year. H and r block tax Claiming a Credit You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. H and r block tax Do not claim a credit for any excise tax for which you have filed a refund claim. H and r block tax How to claim a credit. H and r block tax   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, trust, or farmers' cooperative association. H and r block tax Individuals. H and r block tax   You claim the credit on the “Credit for federal tax on fuels” line of your Form 1040. H and r block tax If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. H and r block tax Partnership. H and r block tax   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. H and r block tax , showing each partner's share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. H and r block tax Each partner claims the credit on his or her income tax return for the partner's share of the fuel used by the partnership. H and r block tax An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U. H and r block tax S. H and r block tax Return of Income for Electing Large Partnerships. H and r block tax Other entities. H and r block tax   Corporations, S corporations, farmers' cooperative associations, and trusts make the claim on the appropriate line of their income tax return. H and r block tax When to claim a credit. H and r block tax   You can claim a fuel tax credit on your income tax return for the year you used the fuel. H and r block tax You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. H and r block tax A claim for credit or refund of an overpayment must generally be filed within the later of: Three years from the date the original return was filed, or Two years from the date the tax was paid. H and r block tax Claiming a Refund Generally, you may claim a refund of excise taxes on Form 8849. H and r block tax Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). H and r block tax The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. H and r block tax If you file Form 720, you can use its Schedule C for your refund claims for the quarter. H and r block tax See the Instructions for Form 720. H and r block tax Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136. H and r block tax You may file a claim for refund for any quarter of your tax year for which you can claim $750 or more. H and r block tax This amount is the excise tax on all fuels used for a nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year. H and r block tax If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. H and r block tax If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return using Form 4136. H and r block tax Only one claim can be filed for a quarter. H and r block tax You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. H and r block tax You must claim a credit on your income tax return for the tax. H and r block tax How to file a quarterly claim. H and r block tax   File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. H and r block tax Send it to the address shown in the instructions. H and r block tax If you file Form 720, you can use its Schedule C for your refund claims. H and r block tax See the Instructions for Form 720. H and r block tax When to file a quarterly claim. H and r block tax   You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. H and r block tax If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier. H and r block tax    In most situations, the amount claimed as a credit or refund will be less than the amount deducted as fuel tax expense because the Leaking Underground Storage Tank (LUST) tax of $0. H and r block tax 001 per gallon is generally not subject to credit or refund. H and r block tax Including the Credit or Refund in Income Include any credit or refund of excise taxes on fuels in your gross income if you claimed the total cost of the fuel (including the excise taxes) as an expense deduction that reduced your income tax liability. H and r block tax Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting. H and r block tax Cash method. H and r block tax   If you use the cash method and file a claim for refund, include the refund amount in gross income for the tax year in which you receive the refund. H and r block tax If you claim a credit on your income tax return, include the credit amount in gross income for the tax year in which you file Form 4136. H and r block tax If you file an amended return and claim a credit, include the credit amount in gross income for the tax year in which you receive the credit. H and r block tax Example. H and r block tax Sharon Brown, a farmer who uses the cash method, filed her 2012 Form 1040 on March 3, 2013. H and r block tax On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. H and r block tax Then, on Form 4136, she claimed the $110 as a credit. H and r block tax Sharon reports the $110 as other income on line 8b of her 2013 Schedule F. H and r block tax Accrual method. H and r block tax   If you use an accrual method, include the amount of credit or refund in gross income for the tax year in which you used the fuels. H and r block tax It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit. H and r block tax Example. H and r block tax Patty Green, a farmer who uses the accrual method, files her 2012 Form 1040 on April 15, 2013. H and r block tax On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2012. H and r block tax On Form 4136, Patty claims the $155 as a credit. H and r block tax She reports the $155 as other income on line 8b of her 2012 Schedule F. H and r block tax Prev  Up  Next   Home   More Online Publications
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The Alcohol and Tobacco Tax and Trade Bureau collects taxes and enforces regulations on alcohol, tobacco, firearms, and ammunition.

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The H And R Block Tax

H and r block tax Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. H and r block tax Employee-owners. H and r block tax Other rules. H and r block tax Other rules. H and r block tax Property Exchanged for StockNonqualified preferred stock. H and r block tax Liabilities. H and r block tax Election to reduce basis. H and r block tax Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. H and r block tax S. H and r block tax Real Property Interest Accounting MethodsSection 481(a) adjustment. H and r block tax Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. H and r block tax Business formed before 1997. H and r block tax   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. H and r block tax Business formed after 1996. H and r block tax   The following businesses formed after 1996 are taxed as corporations. H and r block tax A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. H and r block tax A business formed under a state law that refers to it as a joint-stock company or joint-stock association. H and r block tax An insurance company. H and r block tax Certain banks. H and r block tax A business wholly owned by a state or local government. H and r block tax A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). H and r block tax Certain foreign businesses. H and r block tax Any other business that elects to be taxed as a corporation. H and r block tax For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. H and r block tax For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. H and r block tax S corporations. H and r block tax   Some corporations may meet the qualifications for electing to be S corporations. H and r block tax For information on S corporations, see the instructions for Form 1120S, U. H and r block tax S. H and r block tax Income Tax Return for an S Corporation. H and r block tax Personal service corporations. H and r block tax   A corporation is a personal service corporation if it meets all of the following requirements. H and r block tax Its principal activity during the “testing period” is performing personal services (defined later). H and r block tax Generally, the testing period for any tax year is the prior tax year. H and r block tax If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. H and r block tax Its employee-owners substantially perform the services in (1), above. H and r block tax This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. H and r block tax Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. H and r block tax Personal services. H and r block tax   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. H and r block tax Employee-owners. H and r block tax   A person is an employee-owner of a personal service corporation if both of the following apply. H and r block tax He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. H and r block tax He or she owns any stock in the corporation at any time during the testing period. H and r block tax Other rules. H and r block tax   For other rules that apply to personal service corporations see Accounting Periods, later. H and r block tax Closely held corporations. H and r block tax   A corporation is closely held if all of the following apply. H and r block tax It is not a personal service corporation. H and r block tax At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. H and r block tax “Individual” includes certain trusts and private foundations. H and r block tax Other rules. H and r block tax   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. H and r block tax Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. H and r block tax This rule applies both to individuals and to groups who transfer property to a corporation. H and r block tax It also applies whether the corporation is being formed or is already operating. H and r block tax It does not apply in the following situations. H and r block tax The corporation is an investment company. H and r block tax You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. H and r block tax The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. H and r block tax Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. H and r block tax For more information, see section 1. H and r block tax 351-3 of the Regulations. H and r block tax Control of a corporation. H and r block tax   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. H and r block tax Example 1. H and r block tax You and Bill Jones buy property for $100,000. H and r block tax You both organize a corporation when the property has a fair market value of $300,000. H and r block tax You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. H and r block tax No gain is recognized by you, Bill, or the corporation. H and r block tax Example 2. H and r block tax 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. H and r block tax This represents only 75% of each class of stock of the corporation. H and r block tax The other 25% was already issued to someone else. H and r block tax You and Bill recognize a taxable gain of $200,000 on the transaction. H and r block tax Services rendered. H and r block tax   The term property does not include services rendered or to be rendered to the issuing corporation. H and r block tax The value of stock received for services is income to the recipient. H and r block tax Example. H and r block tax You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. H and r block tax Right after the exchange, you own 85% of the outstanding stock. H and r block tax No gain is recognized on the exchange of property. H and r block tax However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. H and r block tax Property of relatively small value. H and r block tax   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. H and r block tax   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. H and r block tax Stock received in disproportion to property transferred. H and r block tax   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. H and r block tax If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. H and r block tax It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. H and r block tax Money or other property received. H and r block tax   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. H and r block tax You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. H and r block tax 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. H and r block tax If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. H and r block tax See chapter 3 of Publication 544. H and r block tax No loss is recognized. H and r block tax Nonqualified preferred stock. H and r block tax   Nonqualified preferred stock is treated as property other than stock. H and r block tax Generally, it is preferred stock with any of the following features. H and r block tax The holder has the right to require the issuer or a related person to redeem or buy the stock. H and r block tax The issuer or a related person is required to redeem or buy the stock. H and r block tax 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. H and r block tax The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. H and r block tax For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. H and r block tax Liabilities. H and r block tax   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. H and r block tax There are two exceptions to this treatment. H and r block tax If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. H and r block tax However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. H and r block tax 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. H and r block tax For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. H and r block tax Example. H and r block tax You transfer property to a corporation for stock. H and r block tax Immediately after the transfer, you control the corporation. H and r block tax You also receive $10,000 in the exchange. H and r block tax Your adjusted basis in the transferred property is $20,000. H and r block tax The stock you receive has a fair market value (FMV) of $16,000. H and r block tax The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. H and r block tax Gain is realized as follows. H and r block tax FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. H and r block tax The recognized gain is limited to $10,000, the cash received. H and r block tax Loss on exchange. H and r block tax   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. H and r block tax For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H and r block tax Basis of stock or other property received. H and r block tax   The basis of the stock you receive is generally the adjusted basis of the property you transfer. H and r block tax Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. H and r block tax 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. H and r block tax 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. H and r block tax    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. H and r block tax This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. H and r block tax The basis of any other property you receive is its fair market value on the date of the trade. H and r block tax Basis of property transferred. H and r block tax   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. H and r block tax However, the increase for the gain recognized may be limited. H and r block tax For more information, see section 362 of the Internal Revenue Code. H and r block tax Election to reduce basis. H and r block tax   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. H and r block tax 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. H and r block tax However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. H and r block tax R. H and r block tax B. H and r block tax 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. H and r block tax    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. H and r block tax Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. H and r block tax Paid-in capital. H and r block tax   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. H and r block tax These contributions are not taxable to the corporation. H and r block tax Basis. H and r block tax   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. H and r block tax However, the increase for the gain recognized may be limited. H and r block tax For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. H and r block tax   The basis of property contributed to capital by a person other than a shareholder is zero. H and r block tax   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. H and r block tax 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. H and r block tax Depreciable property. H and r block tax Amortizable property. H and r block tax Property subject to cost depletion but not to percentage depletion. H and r block tax All other remaining properties. H and r block tax   Reduce the basis of property in each category to zero before going on to the next category. H and r block tax   There may be more than one piece of property in each category. H and r block tax 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. H and r block tax The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. H and r block tax Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. H and r block tax A corporation generally must make estimated tax payments as it earns or receives income during its tax year. H and r block tax After the end of the year, the corporation must file an income tax return. H and r block tax This section will help you determine when and how to pay and file corporate income taxes. H and r block tax 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. H and r block tax The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. H and r block tax For more information, visit www. H and r block tax irs. H and r block tax gov/newsroom/article/0,,id=108362. H and r block tax 00. H and r block tax Income Tax Return This section will help you determine when and how to report a corporation's income tax. H and r block tax Who must file. H and r block tax   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. H and r block tax Which form to file. H and r block tax   A corporation generally must file Form 1120, U. H and r block tax S. H and r block tax Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. H and r block tax Certain organizations and entities must file special returns. H and r block tax For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. H and r block tax Electronic filing. H and r block tax   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. H and r block tax Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. H and r block tax However, in certain instances, these corporations can request a waiver. H and r block tax For more information regarding electronic filing, visit www. H and r block tax irs. H and r block tax gov/efile. H and r block tax When to file. H and r block tax   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. H and r block tax A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. H and r block tax A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. H and r block tax Example 1. H and r block tax A corporation's tax year ends December 31. H and r block tax It must file its income tax return by March 15th. H and r block tax Example 2. H and r block tax A corporation's tax year ends June 30. H and r block tax It must file its income tax return by September 15th. H and r block tax   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. H and r block tax Extension of time to file. H and r block tax   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. H and r block tax The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. H and r block tax   Form 7004 does not extend the time for paying the tax due on the return. H and r block tax Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. H and r block tax The interest is figured from the original due date of the return to the date of payment. H and r block tax   For more information, see the instructions for Form 7004. H and r block tax How to pay your taxes. H and r block tax   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. H and r block tax Electronic Federal Tax Payment System (EFTPS). H and r block tax   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). H and r block tax For more information on EFTPS and enrollment, visit www. H and r block tax eftps. H and r block tax gov or call 1-800-555-4477. H and r block tax Also see Publication 966, The Secure Way to Pay Your Federal Taxes. H and r block tax Note. H and r block tax Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. H and r block tax Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. H and r block tax Do not attach an explanation when the corporation's return is filed. H and r block tax See the instructions for your income tax return. H and r block tax Late filing of return. H and r block tax    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. H and r block tax If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. H and r block tax The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. H and r block tax The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. H and r block tax Late payment of tax. H and r block tax    A corporation that does not pay the tax when due may be penalized ½ 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. H and r block tax The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. H and r block tax Trust fund recovery penalty. H and r block tax   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. H and r block tax The penalty is the full amount of the unpaid trust fund tax. H and r block tax This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. H and r block tax   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. H and r block tax   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. H and r block tax A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. H and r block tax   Willfully means voluntarily, consciously, and intentionally. H and r block tax A responsible person acts willfully if the person knows the required actions are not taking place. H and r block tax   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. H and r block tax Other penalties. H and r block tax   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. H and r block tax See sections 6662, 6662A, and 6663 of the Internal Revenue Code. H and r block tax Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. H and r block tax If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. H and r block tax This section will explain how to avoid this penalty. H and r block tax When to pay estimated tax. H and r block tax   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. H and r block tax Example 1. H and r block tax Your corporation's tax year ends December 31. H and r block tax Installment payments are due on April 15, June 15, September 15, and December 15. H and r block tax Example 2. H and r block tax Your corporation's tax year ends June 30. H and r block tax Installment payments are due on October 15, December 15, March 15, and June 15. H and r block tax   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. H and r block tax How to figure each required installment. H and r block tax   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. H and r block tax You will generally use one of the following two methods to figure each required installment. H and r block tax You should use the method that yields the smallest installment payments. H and r block tax Note. H and r block tax In these discussions, “return” generally refers to the corporation's original return. H and r block tax However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. H and r block tax Method 1. H and r block tax   Each required installment is 25% of the income tax the corporation will show on its return for the current year. H and r block tax Method 2. H and r block tax   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. H and r block tax   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). H and r block tax Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. H and r block tax   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. H and r block tax Other methods. H and r block tax   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. H and r block tax The annualized income installment method. H and r block tax The adjusted seasonal installment method. H and r block tax 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. H and r block tax Refiguring required installments. H and r block tax   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. H and r block tax An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. H and r block tax Underpayment penalty. H and r block tax   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. H and r block tax The penalty is figured separately for each installment due date. H and r block tax The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. H and r block tax This is true even if the corporation is due a refund when its return is filed. H and r block tax Form 2220. H and r block tax   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. H and r block tax   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. H and r block tax The amount of the underpayment. H and r block tax The period during which the underpayment was due and unpaid. H and r block tax The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. H and r block tax   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. H and r block tax 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. H and r block tax The annualized income installment method was used to figure any required installment. H and r block tax The adjusted seasonal installment method was used to figure any required installment. H and r block tax The corporation is a large corporation figuring its first required installment based on the prior year's tax. H and r block tax How to pay estimated tax. H and r block tax   A corporation is generally required to use EFTPS to pay its taxes. H and r block tax See Electronic Federal Tax Payment System (EFTPS), earlier. H and r block tax Also see the Instructions for Form 1120-W. H and r block tax Quick refund of overpayments. H and r block tax   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. H and r block tax 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. H and r block tax A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. H and r block tax Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. H and r block tax 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. H and r block tax Do not file Form 4466 before the end of the corporation's tax year. H and r block tax An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. H and r block tax The IRS will act on the form within 45 days from the date you file it. H and r block tax U. H and r block tax S. H and r block tax Real Property Interest If a domestic corporation acquires a U. H and r block tax S. H and r block tax real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. H and r block tax The amount paid includes cash, the fair market value of other property, and any assumed liability. H and r block tax If a domestic corporation distributes a U. H and r block tax S. H and r block tax real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. H and r block tax A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. H and r block tax 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. H and r block tax S. H and r block tax Withholding Tax Return for Dispositions by Foreign Persons of U. H and r block tax S. H and r block tax Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. H and r block tax S. H and r block tax Real Property Interests. H and r block tax Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. H and r block tax Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. H and r block tax In all cases, the method used must clearly show taxable income. H and r block tax Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. H and r block tax Accrual method. H and r block tax   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. H and r block tax A corporation engaged in farming operations also must use the accrual method. H and r block tax   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. H and r block tax 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. H and r block tax   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. H and r block tax   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. H and r block tax   There are exceptions to the economic performance rule for certain items, including recurring expenses. H and r block tax See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. H and r block tax Nonaccrual experience method. H and r block tax   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. H and r block tax   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. H and r block tax Percentage of completion method. H and r block tax   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. H and r block tax Mark-to-market accounting method. H and r block tax   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. H and r block tax Under this method any security held by a dealer as inventory must be included in inventory at its FMV. H and r block tax 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. H and r block tax Any gain or loss must be taken into account in determining gross income. H and r block tax The gain or loss taken into account is treated as ordinary gain or loss. H and r block tax   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. H and r block tax Change in accounting method. H and r block tax   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). H and r block tax The corporation must file Form 3115, Application for Change in Accounting Method. H and r block tax For more information, see Form 3115 and Publication 538. H and r block tax Section 481(a) adjustment. H and r block tax   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. H and r block tax The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. H and r block tax 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. H and r block tax The corporation must complete the appropriate lines of Form 3115 to make the election. H and r block tax See the Instructions for Form 3115. H and r block tax Accounting Periods A corporation must figure its taxable income on the basis of a tax year. H and r block tax A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. H and r block tax Generally, corporations can use either a calendar year or a fiscal year as its tax year. H and r block tax Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. H and r block tax For more information, see Publication 538. H and r block tax Personal service corporation. H and r block tax   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. H and r block tax 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. H and r block tax Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. H and r block tax   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. H and r block tax See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. H and r block tax Change of tax year. H and r block tax   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. H and r block tax However, under certain conditions, a corporation can change its tax year without getting the consent. H and r block tax For more information, see Form 1128 and Publication 538. H and r block tax 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. H and r block tax 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. H and r block tax 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. H and r block tax The corporation should keep copies of all filed returns. H and r block tax They help in preparing future and amended returns and in the calculation of earnings and profits. H and r block tax Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. H and r block tax However, the following special provisions apply only to corporations. H and r block tax Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. H and r block tax However, a corporation can elect to deduct a limited amount of start-up or organizational costs. H and r block tax Any costs not deducted can be amortized. H and r block tax Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. H and r block tax Organizational costs are the direct costs of creating the corporation. H and r block tax For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. H and r block tax Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. H and r block tax 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. H and r block tax Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. H and r block tax 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. H and r block tax These rules also deny the deduction of losses on the sale or exchange of property between related persons. H and r block tax Related persons. H and r block tax   For purposes of this rule, the following persons are related to a corporation. H and r block tax Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). H and r block tax An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. H and r block tax 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. H and r block tax An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. H and r block tax 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. H and r block tax 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. H and r block tax Ownership of stock. H and r block tax   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. H and r block tax 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. H and r block tax An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. H and r block tax Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. H and r block tax 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. H and r block tax To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. H and r block tax 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. H and r block tax Reallocation of income and deductions. H and r block tax   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. H and r block tax Complete liquidations. H and r block tax   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. H and r block tax More information. H and r block tax   For more information about the related person rules, see Publication 544. H and r block tax 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. H and r block tax If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. H and r block tax Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. H and r block tax A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. H and r block tax A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. H and r block tax For more information regarding the election, see Form 8902. H and r block tax 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. H and r block tax The deduction is allowed for the year in which the property is placed in service. H and r block tax 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. H and r block tax For more information, see section 179C of the Internal Revenue Code and the related Regulations. H and r block tax 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). H and r block tax 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. H and r block tax For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. H and r block tax 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. H and r block tax In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. H and r block tax 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. H and r block tax The deduction is limited to $1. H and r block tax 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. H and r block tax Other rules and limitations apply. H and r block tax The corporation must reduce the basis of any property by any deduction taken. H and r block tax The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. H and r block tax For more information, see section 179D of the Internal Revenue Code. H and r block tax Also see Notice 2006-52, 2006-26 I. H and r block tax R. H and r block tax B. H and r block tax 1175, clarified and amplified by Notice 2008-40, 2008-14 I. H and r block tax R. H and r block tax B. H and r block tax 725, and any successor. H and r block tax Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. H and r block tax These items are known as corporate preference items and they include the following. H and r block tax Gain on the disposition of section 1250 property. H and r block tax For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. H and r block tax Percentage depletion for iron ore and coal (including lignite). H and r block tax For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. H and r block tax Amortization of pollution control facilities. H and r block tax For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. H and r block tax Mineral exploration and development costs. H and r block tax For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. H and r block tax For more information on corporate preference items, see section 291 of the Internal Revenue Code. H and r block tax Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. H and r block tax This section discusses the general rules that apply. H and r block tax The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. H and r block tax For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. H and r block tax Dividends from domestic corporations. H and r block tax   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. H and r block tax 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. H and r block tax Ownership. H and r block tax   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. H and r block tax Small business investment companies. H and r block tax   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. H and r block tax Dividends from regulated investment companies. H and r block tax   Regulated investment company dividends received are subject to certain limits. H and r block tax Capital gain dividends received from a regulated investment company do not qualify for the deduction. H and r block tax For more information, see section 854 of the Internal Revenue Code. H and r block tax No deduction allowed for certain dividends. H and r block tax   Corporations cannot take a deduction for dividends received from the following entities. H and r block tax A real estate investment trust (REIT). H and r block tax 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. H and r block tax 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. H and r block tax Ex-dividend means the holder has no rights to the dividend. H and r block tax 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. H and r block tax 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. H and r block tax Dividends on deposits. H and r block tax   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. H and r block tax They do not qualify for this deduction. H and r block tax Limit on deduction for dividends. H and r block tax   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). H and r block tax Figuring the limit. H and r block tax   In figuring the limit, determine taxable income without the following items. H and r block tax The net operating loss deduction. H and r block tax The domestic production activities deduction. H and r block tax The deduction for dividends received. H and r block tax Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). H and r block tax Any capital loss carryback to the tax year. H and r block tax Effect of net operating loss. H and r block tax   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. H and r block tax To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. H and r block tax Example 1. H and r block tax A corporation loses $25,000 from operations. H and r block tax It receives $100,000 in dividends from a 20%-owned corporation. H and r block tax Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. H and r block tax 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). H and r block tax Therefore, the 80% of taxable income limit does not apply. H and r block tax The corporation can deduct the full $80,000. H and r block tax Example 2. H and r block tax Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. H and r block tax Its taxable income is $85,000 before the deduction for dividends received. H and r block tax After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. H and r block tax 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%). H and r block tax 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. H and r block tax The nontaxed part is any dividends-received deduction allowable for the dividends. H and r block tax Extraordinary dividend. H and r block tax   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. H and r block tax The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. H and r block tax Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. H and r block tax 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. H and r block tax Disqualified preferred stock. H and r block tax   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. H and r block tax   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. H and r block tax The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. H and r block tax The issue price of the stock exceeds its liquidation rights or stated redemption price. H and r block tax 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. H and r block tax   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. H and r block tax More information. H and r block tax   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. H and r block tax 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. H and r block tax 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. H and r block tax 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. H and r block tax Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. H and r block tax Foregone interest. H and r block tax   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. H and r block tax See Below-market loans, in chapter 4 of Publication 535 for more information. H and r block tax Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. H and r block tax The contribution is deductible if made to, or for the use of, a qualified organization. H and r block tax For more information on qualified organizations, see Publication 526, Charitable Contributions. H and r block tax Also see, Exempt Organizations Select Check (EO Select Check) at www. H and r block tax irs. H and r block tax gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. H and r block tax Note. H and r block tax You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. H and r block tax Cash method corporation. H and r block tax   A corporation using the cash method of accounting deducts contributions in the tax year paid. H and r block tax Accrual method corporation. H and r block tax   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. H and r block tax Make the choice by reporting the contribution on the corporation's return for the tax year. H and r block tax A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. H and r block tax The declaration must include the date the resolution was adopted. H and r block tax Limitations on deduction. H and r block tax   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. H and r block tax Figure taxable income for this purpose without the following. H and r block tax The deduction for charitable contributions. H and r block tax The dividends-received deduction. H and r block tax The deduction allowed under section 249 of the Internal Revenue Code. H and r block tax The domestic production activities deduction. H and r block tax Any net operating loss carryback to the tax year. H and r block tax Any capital loss carryback to the tax year. H and r block tax Farmers and ranchers. H and r block tax    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. H and r block tax Carryover of excess contributions. H and r block tax   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. H and r block tax You lose any excess not used within that period. H and r block tax 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. H and r block tax Any excess not used in 2015 is lost. H and r block tax 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). H and r block tax You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. H and r block tax Cash contributions. H and r block tax   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. H and r block tax 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. H and r block tax Keep the record of the contribution with the other corporate records. H and r block tax Do not attach the records to the corporation's return. H and r block tax For more information on cash contributions, see Publication 526. H and r block tax Gifts of $250 or more. H and r block tax   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. H and r block tax 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. H and r block tax The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. H and r block tax Keep the acknowledgement with other corporate records. H and r block tax Do not attach the acknowledgement to the return. H and r block tax Contributions of property other than cash. H and r block tax   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. H and r block tax 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. H and r block tax   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. H and r block tax 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. H and r block tax   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. H and r block tax 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. H and r block tax 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. H and r block tax   See Form 8283 for more information. H and r block tax Qualified conservation contributions. H and r block tax   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. H and r block tax For more information, see section 170(h) of the Internal Revenue Code. H and r block tax Contributions of used vehicles. H and r block tax   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. H and r block tax The deduction is limited, and other special rules apply. H and r block tax For more information, see Publication 526. H and r block tax Reduction for contributions of certain property. H and r block tax   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. H and r block tax   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. H and r block tax Larger deduction. H and r block tax   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. H and r block tax 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. H and r block tax 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. H and r block tax 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. H and r block tax 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. H and r block tax Contributions to organizations conducting lobbying activities. H and r block tax   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. H and r block tax More information. H and r block tax   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. H and r block tax Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. H and r block tax In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. H and r block tax Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. H and r block tax A capital loss is carried to other years in the following order. H and r block tax 3 years prior to the loss year. H and r block tax 2 years prior to the loss year. H and r block tax 1 year prior to the loss year. H and r block tax Any loss remaining is carried forward for 5 years. H and r block tax When you carry a net capital loss to another tax year, treat it as a short-term loss. H and r block tax It does not retain its original identity as long term or short term. H and r block tax Example. H and r block tax A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. H and r block tax The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. H and r block tax The corporation treats this $6,000 as a short-term loss when carried back or forward. H and r block tax The corporation carries the $6,000 short-term loss back 3 years. H and r block tax 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. H and r block tax It subtracts the $6,000 short-term loss first from the net short-term gain. H and r block tax This results in a net capital gain for year 1 of $7,000. H and r block tax 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. H and r block tax S corporation status. H and r block tax   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. H and r block tax Rules for carryover and carryback. H and r block tax   When carrying a capital loss from one year to another, the following rules apply. H and r block tax When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. H and r block tax In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. H and r block tax If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. H and r block tax 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. H and r block tax Refunds. H and r block tax   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. H and r block tax 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. H and r block tax S. H and r block tax Corporation Income Tax Return, to apply for a refund. H and r block tax Form 1139. H and r block tax    A corporation can get a refund faster by using Form 1139. H and r block tax 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. H and r block tax Form 1120X. H and r block tax   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. H and r block tax The corporation must file the Form 1120X within 3 years of the due date, includin