Form 1120, U.S. Corp. Income Tax Return, Schedule D, Capital Gains and Losses, Schedule H, Section 280H Limitations for a Personal Service Corporation (PSC), Schedule N, Foreign .........

07i1120_ap1

Form 1120, U.S. Corp. Income Tax Return, Schedule D, Capital Gains and Losses, Schedule H, Section 280H Limitations for a Personal Service Corporation (PSC), Schedule N, Foreign .........

OMB: 1545-0123

⚠️ Notice: This form may be outdated. More recent filings and information on OMB 1545-0123 can be found here:

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Instructions for Form 1120

❏ Draft
(Init. & date)

❏

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CUMULATIVE CHANGES

2007

All references to Form 1120-A have
been deleted because it is obsolete for
tax year 2007.

Instructions for Form 1120
U.S. Corporation Income Tax Return
Section references are to the Internal
Revenue Code unless otherwise noted.
Contents
Page
Photographs of Missing Children . . . . 1
Unresolved Tax Issues . . . . . . . . . . . . 1
Direct Deposit of Refund . . . . . . . . . . . 1
How To Make a Contribution To
Reduce Debt Held by the
Public . . . . . . . . . . . . . . . . . . . . . . 2
How To Get Forms and
A
Publications . . . . . . . . . . . . . . . . . . 2
General Instructions . . . . . . . . . . . . . 2
Purpose of Form . . . . . . . . . . . . . . . . 2
Who Must File . . . . . . . . . . . . . . . . . . 2
Electronic Filing . . . . . . . . . . . . . . . . . 2
When To File . . . . . . . . . . . . . . . . . . . 3
Where To File . . . . . . . . . . . . . . . . . . 3
Who Must Sign . . . . . . . . . . . . . . . . . 3
Paid Preparer Authorization . . . . . . . . 3
Assembling the Return . . . . . . . . . . . . 4
Depository Methods of Tax
Payment . . . . . . . . . . . . . . . . . . . . 4
Estimated Tax Payments . . . . . . . . . . 4
Interest and Penalties . . . . . . . . . . . . . 4
Accounting Methods . . . . . . . . . . . . . . 5
Accounting Period . . . . . . . . . . . . . . . 5
Rounding Off To Whole Dollars . . . . . . 5
Recordkeeping . . . . . . . . . . . . . . . . . . 5
Other Forms and Statements
That May Be Required . . . . . . . . . . 5
Specific Instructions . . . . . . . . . . . . 6
Period Covered . . . . . . . . . . . . . . . . . 6
Name and Address . . . . . . . . . . . . . . 6
Identifying Information . . . . . . . . . . . . 6
Employer Identification Number
(EIN) . . . . . . . . . . . . . . . . . . . . . . . 7
Total Assets . . . . . . . . . . . . . . . . . . . 7
Initial Return, Final Return,
Name Change, Address
Change . . . . . . . . . . . . . . . . . . . . . 7
Income . . . . . . . . . . . . . . . . . . . . . . . 7
Deductions . . . . . . . . . . . . . . . . . . . . 8
Tax and Payments . . . . . . . . . . . . . . 13
Schedule A. Cost of Goods Sold . . . 13
Schedule C. Dividends and
Special Deductions . . . . . . . . . . . . 14
Worksheet for Schedule C . . . . . . . . 15
Schedule J. Tax Computation . . . . . . 16
Schedule K. Other Information . . . . . 18
Schedule L. Balance Sheets per
Books . . . . . . . . . . . . . . . . . . . . . 18
Schedule M-1. Reconciliation of
Income . . . . . . . . . . . . . . . . . . . . . 19
Principal Business Activity
Codes . . . . . . . . . . . . . . . . . . . . . 20
Index . . . . . . . . . . . . . . . . . . . . . . . . 23

Department of the Treasury
Internal Revenue Service

must file new Form 8925,
Report of Employer-Owned
Life Insurance Contracts

What’s New
• Form 1120-A is obsolete for tax years

beginning in 2007. All domestic
corporations must file Form 1120, unless
they are required to file one of the special
returns listed under Special Returns for
Certain Corporations on page 2.
• New Form 8925, Employer-Owned Life
Insurance Contracts, must be filed by a
corporation that is a policyholder owning
one or more employer-owned life
insurance contracts issued after August
17, 2006.
• The extraterritorial income exclusion
does not apply to transactions that begin
in 2007. However, income from certain
transactions may still qualify for the
exclusion. See the instructions for Form
8873 for details.
I
• The larger deduction for contributions
of “apparently wholesome foods” and
contributions of qualified book inventory
do not apply to contributions made after
December 31, 2007.
• The increased reforestation expense
for small timber producers do not apply to
expenses paid or incurred after
December 31, 2007.
• The election to deduct GO Zone
clean-up costs does not apply to costs
paid or incurred after December 31, 2007.
• Changes have been made to the list of
principal business activity codes. See the
list beginning on page 20.

Photographs of
Missing Children

does

The Internal Revenue Service is a proud
partner with the National Center for
Missing and Exploited Children.
Photographs of missing children selected
by the Center may appear in instructions
on pages that would otherwise be blank.
You can help bring these children home
by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

generally

that resulted from previous contacts and
ensure that the corporation’s case is
given a complete and impartial review.
The corporation’s assigned personal
advocate will listen to its point of view and
will work with the corporation to address
its concerns. The corporation can expect
the advocate to provide:
impartial
and
look at your
• AAn
“fresh
look”
at independent
a new or ongoing
problem,
problem.
• Timely acknowledgment,
• The name and phone number of the
individual assigned to its case,
• Updates on progress,
• Time frames for action,
• Speedy resolution, and
• Courteous service.
be eligible
When contacting the Taxpayer
Advocate, the corporation should be
prepared to provide the following
information.
• The corporation’s name, address, and
employer identification number.
• The name and telephone number of an
authorized contact person and the hours
he or she can be reached.
• The type of tax return and year(s)
involved.
• A detailed description of the problem.
• Previous attempts to solve the problem
and the office that was contacted.
• A description of the hardship the
corporation is facing and supporting
documentation (if applicable).
The corporation can contact a
Taxpayer Advocate as follows.
• Call the Taxpayer Advocate’s toll-free
number: 1-877-777-4778.
• Call, write, or fax the Taxpayer
Advocate office in its area (see Pub. 1546
for addresses and phone numbers).
• TTY/TDD help is available by calling
1-800-829-4059.
• Visit the website at www.irs.gov/
advocate.

Direct Deposit of Refund
To request a direct deposit of the
corporation’s income tax refund into an
account at a U.S. bank or other financial
institution, attach Form 8050, Direct
Deposit of Corporate Tax Refund. See
the instructions for line 36 on page 13.

deduction for qualified
reforestation expenses

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Instructions for Form 1120

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

• Current year forms, instructions, and
publications;

• Prior year forms, instructions, and

publications;
• Bonus: Historical Tax Products DVD –
Ships with the final release;
• Tax Map: an electronic research tool
and finding aid;
• Tax law frequently asked questions
(FAQs);
• Tax Topics from the IRS telephone
response system;
• Fill-in, print, and save features for most
tax forms;
• Internal Revenue Bulletins; and
• Toll-free and email technical support.
The CD/DVD is released twice during
the year. The first release will be shipped
at the beginning of January and the final
release will be shipped at the beginning of
March.
Buy the CD/DVD from the National
Technical Information Service (NTIS) at
www.irs.gov/cdorders for $35 (no
handling fee) or call 1-877-CDFORMS
(1-877-233-6767) toll free to buy the CD/
DVD for $35 (plus a $5 handling fee).
Price is subject to change.
By phone and in person. You can
order forms and publications by calling
1-800-TAX-FORM (1-800-829-3676). You
can also get most forms and publications
at your local IRS office.

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

Who Must File
Unless exempt under section 501, all
domestic corporations (including
corporations in bankruptcy) must file an
income tax return whether or not they
have taxable income. Domestic
corporations must file Form 1120 unless
they are required to file a special return.
See Special Returns for Certain
Organizations below.
Limited liability companies. If an entity
with more than one owner was formed as
a limited liability company (LLC) under
state law, it generally is treated as a
partnership for federal income tax
purposes and files Form 1065, U.S.
Return of Partnership Income. Generally,
a single-member LLC is disregarded as
an entity separate from its owner and
reports its income and deductions on its
owner’s federal income tax return. The
LLC can file a Form 1120 only if it has
filed Form 8832, Entity Classification
Election, to elect to be treated as an
association taxable as a corporation. For
more information about LLCs, see Pub.
3402, Tax Issues for Limited Liability
Companies.
Corporations engaged in farming. A
corporation (other than a corporation that
is a subchapter T cooperative) that
engages in farming should use Form
1120 to report the income (loss) from
such activities. Enter the income and
deductions of the corporation according to
the instructions for lines 1 through 10 and
12 through 29.
Ownership interest in a Financial
Asset Securitization Investment Trust
(FASIT). Special rules apply to a FASIT
in existence on October 22, 2004, to the
extent that regular interests issued by the
FASIT before October 22, 2004, continue
to remain outstanding in accordance with
their original terms.
If a corporation holds an ownership
interest in a FASIT to which these special
rules apply, it must report all items of
income, gain, deductions, losses, and
credits on the corporation’s income tax
return (except as provided in section
860H). Show a breakdown of the items on
an attached schedule. For more
information, see sections 860H and 860L.

Electronic Filing
Corporations can generally electronically
file (e-file) Form 1120, related forms,
schedules, and attachments, Form 7004,
Form 940 and 941 employment tax
returns. If there is a balance due, the
corporation can authorize an electronic
funds withdrawal while e-filing. Form 1099

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and other information returns can also be
electronically filed.
However, the option to e-file does not
apply to certain returns, including:
• Returns with precomputed penalty and
interest,
• Returns with reasonable cause for
failing to file timely,
• Returns with reasonable cause for
failing to pay timely, and
• Returns with request for overpayment
to be applied to another account.
Required filers. Certain corporations
with total assets of $10 million or more
that file at least 250 returns a year are
required to e-file Form 1120. See
Temporary Regulations section
301.6011-5T. However, these
corporations can request a waiver of the
electronic filing requirements. See Notice
2005-88, 2005-48 I.R.B. 1060.
Visit www.irs.gov/efile for details.

Special Returns for
Certain Organizations
Instead of filing Form 1120, certain
organizations, as shown below, have to
file special returns.
If the organization is a:

File Form

Exempt organization with
unrelated trade or business
income

990-T

Religious or apostolic
organization exempt under
section 501(d)

1065

Entity formed as a limited
liability company under state
law and treated as a
partnership for federal
income tax purposes

1065

Subchapter T cooperative
association (including a
farmers’ cooperative)
Entity that elects to be treated
as a real estate mortgage
investment conduit (REMIC)
under section 860D
Interest charge domestic
international sales
corporation (section 992)
Foreign corporation (other
than life and property and
casualty insurance company
filing Form 1120-L or Form
1120-PC)
Foreign sales corporation
(section 922)

1120-C

1066

1120-IC-DISC

1120-F

1120-FSC

Instructions for Form 1120

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Instructions for Form 1120

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Condominium management,
residential real estate
management, or timeshare
association that elects to be
treated as a homeowners
association under section 528

1120-H

Extension of Time To File

Life insurance company
(section 801)

1120-L

Fund set up to pay for
nuclear decommissioning
costs (section 468A)

1120-ND

Property and casualty
insurance company
(section 831)

1120-PC

Political organization
(section 527)

1120-POL

Real estate investment trust
(section 856)

1120-REIT

Regulated investment
company (section 851)

Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service
to mail any item to an IRS P.O. box
address.

1120-RIC

S corporation (section 1361)
Settlement fund
(section 468B)

1120S
1120-SF

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

Who Must Sign
The return must be signed and dated by:
• The president, vice president,
treasurer, assistant treasurer, chief
accounting officer; or
• Any other corporate officer (such as tax
officer) authorized to sign.
If a return is filed on behalf of a
corporation by a receiver, trustee, or
assignee, the fiduciary must sign the
return, instead of the corporate officer.
Returns and forms signed by a receiver or
trustee in bankruptcy on behalf of a
corporation must be accompanied by a
copy of the order or instructions of the
court authorizing signing of the return or
form.

If an employee of the corporation
completes Form 1120, the paid preparer’s
space should remain blank. Anyone who
prepares Form 1120 but does not charge
the corporation should not complete that
section. Generally, anyone who is paid to
prepare the return must sign it and fill in
the “Paid Preparer’s Use Only” area.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer’s signature.
• Give a copy of the return to the
taxpayer.
Note. A paid preparer may sign original
or amended returns by rubber stamp,
mechanical device, or computer software
program.

Paid Preparer
Authorization
If the corporation wants to allow the IRS
to discuss its 2007 tax return with the paid
preparer who signed it, check the “Yes”
box in the signature area of the return.
This authorization applies only to the
individual whose signature appears in the
“Paid Preparer’s Use Only” section of the
return. It does not apply to the firm, if any,
shown in that section.
If the “Yes” box is checked, the
corporation is authorizing the IRS to call
the paid preparer to answer any

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

Private Delivery Services
Corporations can use certain private
delivery services designated by the IRS to
meet the “timely mailing as timely filing/
paying” rule for tax returns and payments.
These private delivery services include
only the following.
• DHL Express (DHL): DHL Same Day
Service, DHL Next Day 10:30 am, DHL
Next Day 12:00 pm, DHL Next Day 3:00
pm, and DHL 2nd Day Service.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx
International Priority, and FedEx
International First.
• United Parcel Service (UPS): UPS Next
Day Air, UPS Next Day Air Saver, UPS
2nd Day Air, UPS 2nd Day Air A.M., UPS
Worldwide Express Plus, and UPS
Worldwide Express.
The private delivery service can tell
you how to get written proof of the mailing
date.
Instructions for Form 1120

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

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

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

Any amount

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

Any amount

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

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

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Instructions for Form 1120

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questions that may arise during the
processing of its return. The corporation
is also authorizing the paid preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The corporation is not authorizing the
paid preparer to receive any refund
check, bind the corporation to anything
(including any additional tax liability), or
otherwise represent the corporation
before the IRS.
The authorization will automatically
end no later than the due date (excluding
extensions) for filing the corporation’s
2008 tax return. If the corporation wants
to expand the paid preparer’s
authorization or revoke the authorization
before it ends, see Pub. 947, Practice
Before the IRS and Power of Attorney.

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

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

• The corporation was required to use
EFTPS in 2007.
If the corporation is required to use
EFTPS and fails to do so, it may be
subject to a 10% penalty. If the
corporation is not required to use EFTPS,
it can participate voluntarily. To enroll in
or get more information about EFTPS,
call 1-800-555-4477. To enroll online, visit
www.eftps.gov.
Depositing on time. For EFTPS
deposits to be made timely, the
corporation must initiate the transaction at
least 1 business day before the date the
deposit is due.

Deposits With Form 8109
If the corporation does not use EFTPS,
deposit corporation income tax payments
(and estimated tax payments) with Form
8109, Federal Tax Deposit Coupon. If you
do not have a preprinted Form 8109, use
Form 8109-B to make deposits. You can
get this form by calling 1-800-829-4933 or
visiting an IRS taxpayer assistance
center. Have your EIN ready when you
call or visit.
Do not send deposits directly to an
IRS office; otherwise, the corporation may
have to pay a penalty. Mail or deliver the
completed Form 8109 with the payment
to an authorized depositary (a commercial
bank or other financial institution
authorized to accept federal tax deposits).
Make checks or money orders payable to
the depositary.
If the corporation prefers, it can mail
the coupon and payment to: Financial
Agent, Federal Tax Deposit Processing,
P.O. Box 970030, St. Louis, MO 63197.
Make the check or money order payable
to “Financial Agent.”
To help ensure proper crediting, enter
the corporation’s EIN, the tax period to
which the deposit applies, and “Form
1120” on the check or money order.
Darken the “1120” box under “Type of
Tax” and the appropriate “Quarter” box
under “Tax Period” on the coupon.
Records of these deposits will be sent to
the IRS. For more information, see
“Marking the Proper Tax Period” in the
instructions for Form 8109.
For more information on deposits, see
the instructions in the coupon booklet
(Form 8109) and Pub. 583, Starting a
Business and Keeping Records.
If the corporation owes tax when it
files Form 1120, do not include the
CAUTION payment with the tax return.
Instead, mail or deliver the payment with
Form 8109 to an authorized depositary, or
use EFTPS, if applicable.

Electronic Deposit Requirement

Estimated Tax Payments

The corporation must make electronic
deposits of all depository taxes (such as
employment tax, excise tax, and
corporate income tax) using the
Electronic Federal Tax Payment System
(EFTPS) in 2008 if:
• The total deposits of such taxes in
2006 were more than $200,000 or

-4-

of the tax year. If any date falls on a
Saturday, Sunday, or legal holiday, the
installment is due on the next regular
business day.
• Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to compute
estimated tax.
• If the corporation does not use EFTPS,
use the deposit coupons (Forms 8109) to
make deposits of estimated tax.
• If the corporation overpaid estimated
tax, it may be able to get a quick refund
by filing Form 4466, Corporation
Application for Quick Refund of
Overpayment of Estimated Tax.
See the instructions for lines 32b and
32c.
Estimated tax penalty. A corporation
that does not make estimated tax
payments when due may be subject to an
underpayment penalty for the period of
underpayment. Generally, a corporation is
subject to the penalty if its tax liability is
$500 or more and it did not timely pay the
smaller of:
• Its tax liability for 2007 or
• Its prior year’s tax.
See section 6655 for details and
exceptions, including special rules for
large corporations.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to see if
the corporation owes a penalty and to
figure the amount of the penalty.
Generally, the corporation does not have
to file this form because the IRS can
figure the amount of any penalty and bill
the corporation for it. However, even if the
corporation does not owe the penalty,
complete and attach Form 2220 if:
• The annualized income or adjusted
seasonal installment method is used, or
• The corporation is a large corporation
computing its first required installment
based on the prior year’s tax. See the
Instructions for Form 2220 for the
definition of a large corporation.
Also, see the instructions for line 33.

Interest and Penalties
Interest. Interest is charged on taxes
paid late even if an extension of time to
file is granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements from the due
date (including extensions) to the date of
payment. The interest charge is figured at
a rate determined under section 6621.
Late filing of return. A corporation that
does not file its tax return by the due date,
including extensions, may be penalized
5% of the unpaid tax for each month or
part of a month the return is late, up to a
maximum of 25% of the unpaid tax. The
minimum penalty for a return that is over
60 days late is the smaller of the tax due
or $100. The penalty will not be imposed
if the corporation can show that the failure
to file on time was due to reasonable
cause. Corporations that file late should
Instructions for Form 1120

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5. Certain transactions resulting in a
tax credit of more than $250,000, if
the corporation held an asset
generating the credit for 45 days or
less.

Generally, the corporation
must get IRS consent to
To do so, the corporation
generally

attach a statement explaining the
reasonable cause.
Late payment of tax. A corporation that
does not pay the tax when due generally
may be penalized 1/2 of 1% of the unpaid
tax for each month or part of a month the
tax is not paid, up to a maximum of 25%
of the unpaid tax. The penalty will not be
imposed if the corporation can show that
the failure to pay on time was due to
reasonable cause.
Trust fund recovery penalty. This
penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
are not collected or withheld, or these
taxes are not paid. These taxes are
generally reported on:
• Form 720, Quarterly Federal Excise
Tax Return;
• Form 941, Employer’s QUARTERLY
Federal Tax Return;
• Form 943, Employer’s Annual Federal
Tax Return for Agricultural Employees; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may
be imposed on all persons who are
determined by the IRS to have been
responsible for collecting, accounting for,
and paying over these taxes, and who
acted willfully in not doing so. The penalty
is equal to the unpaid trust fund tax. See
the Instructions for Form 720, Pub. 15
(Circular E), Employer’s Tax Guide, or
Pub. 51 (Circular A), Agricultural
Employer’s Tax Guide, for details,
including the definition of responsible
persons.
Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

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

• 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. However, see Nonaccrual
experience method on page 7.
• Unless it is a qualifying taxpayer or a
qualifying small business taxpayer, a
corporation must use the accrual method
for sales and purchases of inventory
items. See Schedule A. Cost of Goods
Sold on page 13.
• A corporation engaged in farming must
use the accrual method. For exceptions,
see section 447.
• Special rules apply to long-term
contracts. See section 460.
Instructions for Form 1120

• Dealers in securities must use the
mark-to-market accounting method.
Dealers in commodities and traders in
securities and commodities can elect to
use the mark-to-market accounting
method. See section 475.
Change in accounting method. To
change the method of accounting used to
report taxable income (for income as a
whole or for the treatment of any material
item), the corporation must file Form
3115, Application for Change in
Accounting Method.
See Form 3115 and Pub. 538,
Accounting Periods and Methods, for
more information on accounting methods.

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

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

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

Penalties also apply under
section 6707A if the
corporation fails

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Material advisors to any reportable transaction
must disclose certain information about the
reportable transaction by filing Form 8918,
Material Advisor Disclosure Statement, with the
IRS. Form 8918 replaces Form 8264, which was
previously used by material advisors for
disclosure.

Other Forms and
Statements That May Be
Required
Amended return. Use Form 1120X,
Amended U.S. Corporation Income Tax
Return, to correct a previously filed Form
1120.
Reportable transaction disclosure
statement. Disclose information for each
reportable transaction in which the
corporation participated. Form 8886,
Reportable Transaction Disclosure
Statement, must be filed for each tax year
that the federal income tax liability of the
corporation is affected by its participation
in the transaction. The corporation may
have to pay a penalty if it is required to
file Form 8886 and does not do so. The
following are reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to tax avoidance
transactions identified by the IRS.
2. Any transaction offered under
conditions of confidentiality for which the
corporation paid an advisor a fee of at
least $250,000.
3. Certain transactions for which the
corporation has contractual protection
against disallowance of the tax benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single
year or $20 million in any combination of
years.
65. Any transaction identified by the
IRS in published guidance as a
“transaction of interest” (a transaction that
the IRS believes has a potential for tax
avoidance or evasion, but has not yet
been identified as a listed transaction).
Penalties. The corporation may have
to pay a penalty if it is required to disclose
a reportable transaction under section
6011 and fails to properly complete and
file Form 8886. The penalty is $50,000
($200,000 if the reportable transaction is
a listed transaction) for each failure to file
Form 8886 with its corporate return or for
failure to provide a copy of Form 8886 to
the Office of Tax Shelter Analysis
(OTSA). Other penalties, such as an
accuracy-related penalty under section , fails
6662A, may also apply. See the
Instructions for Form 8886 for details on
these and other penalties.
Reportable transactions by material
advisors. Material advisors who provide
material aid, assistance, or advice with
respect to any reportable transaction,
must file Form 8918, Material Advisor
Disclosure Statement, to disclose
reportable transactions. See Regulations
section 301.6111-3. Form 8264, which
was previously used to disclose this
information, is obsolete.
Transfers to a corporation controlled
by the transferor. If a person receives
stock of a corporation in exchange for
property, and no gain or loss is
recognized under section 351, the person
(transferor) and the corporation

, or files a form that fails to include all the
information required (or includes incorrect
information.

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(transferee) must each attach to their tax
returns the statements required by
Regulations section 1.351-3.
Dual consolidated losses. If a
domestic corporation incurs a dual
consolidated loss (as defined in
Regulations section 1.1503-2(c)(5)), the
corporation (or consolidated group) may
need to attach an elective relief
agreement and/or an annual certification
as provided in Regulations section
1.1503-2(g)(2).
Election to reduce basis under section
362(e)(2)(C). The transferor and
transferee in certain section 351
transactions can make a joint election
under section 362(e)(2)(C) to limit the
transferor’s basis in the stock received
instead of the transferee’s basis in the
transferred property. The transferor and
transferee may make the election by
attaching the statement as provided in
Notice 2005-70, 2005-41 I.R.B. 694, to
their tax returns filed by the due date
(including extensions) for the tax year in
which the transaction occurred. Once
made, the election is irrevocable. See
section 362(e)(2)(C) and Notice 2005-70.
Other forms and statements. See Pub.
542 for a list of other forms and
statements a corporation may need to file
in addition to the forms and statements
discussed throughout these instructions.

Specific Instructions
Period Covered
File the 2007 return for calendar year
2007 and fiscal years that begin in 2007
and end in 2008. For a fiscal or short tax
year return, fill in the tax year space at the
top of the form.
The 2007 Form 1120 can also be
used if:
• The corporation has a tax year of less
than 12 months that begins and ends in
2008, and
• The 2008 Form 1120 is not available at
the time the corporation is required to file
its return.
The corporation must show its 2008
tax year on the 2007 Form 1120 and take
into account any tax law changes that are
effective for tax years beginning after
December 31, 2007.

Name and Address
Enter the corporation’s true name (as set
forth in the charter or other legal
document creating it), address, and EIN
on the appropriate lines. Enter the
address of the corporation’s principal
office or place of business. Include the
suite, room, or other unit number after the
street address. If the post office does not
deliver mail to the street address and the
corporation has a P.O. box, show the box
number instead.
Note. Do not use the address of the
registered agent for the state in which the
corporation is incorporated. For example,

if a business is incorporated in Delaware
or Nevada and the corporation’s principal
office is located in Little Rock, AR, the
corporation should enter the Little Rock
address.
If the corporation receives its mail in
care of a third party (such as an
accountant or an attorney), enter on the
street address line “C/O” followed by the
third party’s name and street address or
P.O. box.
If the corporation received a Form
1120 tax package, use the preprinted
label. Cross out any errors and print the
correct information on the label.

Item A. Identifying
Information
Consolidated Return
Corporations filing a consolidated return
must attach Form 851, Affiliations
Schedule, and other supporting
statements to the return. Also, for the first
year a subsidiary corporation is being
included in a consolidated return, attach
Form 1122, Authorization and Consent of
Subsidiary Corporation To Be Included in
a Consolidated Income Tax Return, to the
parent’s consolidated return. Attach a
separate Form 1122 for each subsidiary
being included in the consolidated return.
File supporting statements for each
corporation included in the consolidated
return. Do not use Form 1120 as a
supporting statement. On the supporting
statement, use columns to show the
following, both before and after
adjustments.
1. Items of gross income and
deductions.
2. A computation of taxable income.
3. Balance sheets as of the beginning
and end of the tax year.
4. A reconciliation of income per
books with income per return.
5. A reconciliation of retained
earnings.
Enter on Form 1120 the totals for each
item of income, gain, loss, expense, or
deduction, net of eliminating entries for
intercompany transactions between
corporations within the consolidated
group. Attach consolidated balance
sheets and a reconciliation of
consolidated retained earnings.
The corporation does not have to
TIP complete lines 3, 4, and 5 above,
if its total receipts (line 1a plus
lines 4 through 10 on page 1 of the
return) and its total assets at the end of
the tax year are less than $250,000.
For more information on consolidated
returns, see the regulations under section
1502.

Life-Nonlife Consolidated
Return
If the corporation is the common parent of
a consolidated group that includes a
life-nonlife insurance company, check box

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1b of Item A. See Temporary Regulations
section 1.1502-47T(s).

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

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

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

Item B. Employer
Identification Number (EIN)

Enter the corporation’s EIN. If the
corporation does not have an EIN, it must
apply for one. An EIN can be applied for:
• Online — Click on the EIN link at www.
irs.gov/businesses/small. The EIN is
issued immediately once the application
information is validated.
• By telephone at 1-800-829-4933 from
7:00 a.m. to 10:00 p.m. in the
corporation’s local time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the corporation has not received its
EIN by the time the return is due, enter
“Applied for” and the date you applied in
the space for the EIN. For more details,
see the instructions for Form SS-4.
Note. The online application process is
not yet available for corporations with
addresses in foreign countries or Puerto
Rico.

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

Item E. Initial Return, Final
Return, Name Change, or
Address Change
• If this is the corporation’s first return,
check the “Initial return” box.

• If this is the corporation’s final return

and it will no longer exist, check the “Final
return” box.
• If the corporation changed its name
since it last filed a return, check “Name
change” box. Generally, a corporation
also must have amended its articles of
incorporation and filed the amendment
with the state in which it was
incorporated.
• If the corporation has changed its
address since it last filed a return
(including a change to an “in care of”
address), check the “Address change”
box.
Note. If a change in address occurs after
the return is filed, use Form 8822,
Change of Address, to notify the IRS of
the new address.

Income
Except as otherwise provided in the
Internal Revenue Code, gross income
Instructions for Form 1120

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

Line 1. Gross Receipts or Sales
Enter gross receipts or sales from all
business operations except those that
must be reported on lines 4 through 10. In
general, advance payments are reported
in the year of receipt. To report income
from long-term contracts, see section
460. For special rules for reporting certain
advance payments for goods and
long-term contracts, see Regulations
section 1.451-5. For permissible methods
for reporting advance payments for
services and certain goods by an accrual
method corporation, see Rev. Proc.
2004-34, 2004-22 I.R.B. 991.
Installment sales. Generally, the
installment method cannot be used for
dealer dispositions of property. A “dealer
disposition” is any disposition of: (a)
personal property by a person who
regularly sells or otherwise disposes of
personal property of the same type on the
installment plan or (b) real property held
for sale to customers in the ordinary
course of the taxpayer’s trade or
business.
These restrictions on using the
installment method do not apply to
dispositions of property used or produced
in a farming business or sales of
timeshares and residential lots for which
the corporation elects to pay interest
under section 453(l)(3).
For sales of timeshares and residential
lots reported under the installment
method, the corporation’s income tax is
increased by the interest payable under
section 453(l)(3). Report this addition to
the tax on line 9, Schedule J.
Enter on line 1 (and carry to line 3), the
gross profit on collections from installment
sales for any of the following.
• Dealer dispositions of property before
March 1, 1986.
• Dispositions of property used or
produced in the trade or business of
farming.
• Certain dispositions of timeshares and
residential lots reported under the
installment method.
Attach a schedule showing the
following information for the current and

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the 3 preceding years: (a) gross sales, (b)
cost of goods sold, (c) gross profits, (d)
percentage of gross profits to gross sales,
(e) amount collected, and (f) gross profit
on the amount collected.
Nonaccrual experience method.
Accrual method corporations are not
required to accrue certain amounts to be
received from the performance of
services that, on the basis of their
experience, will not be collected, if:
• The services are in the fields of health,
law, engineering, architecture,
accounting, actuarial science, performing
arts, or consulting, or
• The corporation’s average annual
gross receipts for the 3 prior tax years
does not exceed $5 million.
This provision does not apply to any
amount if interest is required to be paid
on the amount or if there is any penalty
for failure to timely pay the amount. For
more information, see Regulations
section 1.448-2.
Corporations that qualify to use the
nonaccrual experience method should
attach a schedule showing total gross
receipts, the amount not accrued as a
result of the application of section
448(d)(5), and the net amount accrued.
Enter the net amount on line 1a.

Line 2. Cost of Goods Sold
Enter the cost of goods sold on line 2,
page 1. Before making this entry,
complete Schedule A on page 2 of Form
1120. See the Schedule A instructions on
page 13.

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

Line 5. Interest
Enter taxable interest on U.S. obligations
and on loans, notes, mortgages, bonds,
bank deposits, corporate bonds, tax
refunds, etc. Do not offset interest
expense against interest income. Special
rules apply to interest income from certain
below-market-rate loans. See section
7872 for details.
Note. Report tax-exempt interest income
on Schedule K, item 9. Also, if required,
include the same amount on Schedule
M-1, line 7, or Schedule M-3 (Form 1120),
Part II, line 13, if applicable.

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

Line 10. Other Income
Enter any other taxable income not
reported on lines 1 through 9. List the

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this election. Also, under certain other conditions, the corporation can
modify the period for taking into account a net positive section 481
adjustment. See Rev. Proc. 2007-67, 2007-48 I.R.B. 1072.

type and amount of income on an
attached schedule. If the corporation has
only one item of other income, describe it
in parentheses on line 10.
Examples of other income to report on
line 10 include the following.
1. Recoveries of bad debts deducted
in prior years under the specific
charge-off method.
2. The amount included in income
from Form 6478, Credit for Alcohol Used
as Fuel.
3. The amount included in income
from Form 8864, Biodiesel and
Renewable Diesel Fuels Credit.
4. Refunds of taxes deducted in prior
years to the extent they reduced income
subject to tax in the year deducted (see
section 111). Do not offset current year
taxes against tax refunds.
5. Any recapture amount under
section 179A for certain clean-fuel vehicle
property (or clean-fuel vehicle refueling
property) that ceases to qualify. See
Regulations section 1.179A-1 for details.
6. Ordinary income from trade or
business activities of a partnership (from
Schedule K-1 (Form 1065 or 1065-B)). Do
not offset ordinary losses against ordinary
income. Instead, include the losses on
line 26. Show the partnership’s name,
address, and EIN on a separate
statement attached to this return. If the
amount entered is from more than one
partnership, identify the amount from
each partnership.
7. Any LIFO recapture amount under
section 1363(d). The corporation may
have to include a LIFO recapture amount
in income if it:
a. Used the LIFO inventory method
for its last tax year before the first tax year
for which it elected to become an S
corporation or
b. Transferred LIFO inventory assets
to an S corporation in a nonrecognition
transaction in which those assets were
transferred basis property.
The LIFO recapture amount is the
amount by which the C corporation’s
inventory under the FIFO method
exceeds the inventory amount under the
LIFO method at the close of the
corporation’s last tax year as a C
corporation (or for the year of the transfer,
if (b) above applies). For more
information, see Regulations section
1.1363-2 and Rev. Proc. 94-61, 1994-2
C.B. 775. Also see the instructions for
Schedule J, line 10.
8. Any net positive section 481(a)
adjustment. The corporation may have to
make an adjustment under section 481(a)
to prevent amounts of income or expense
from being duplicated or omitted. The
section 481(a) adjustment period is
generally 1 year for a net negative
adjustment and 4 years for a net positive
adjustment. However, a corporation can
elect to use a 1-year adjustment period if
the net section 481(a) adjustment for the
change is less than $25,000. The
corporation must complete the
appropriate lines of Form 3115 to make

the election. If the net section 481(a)
adjustment is negative, report it on line
26.
9. Part or all of the proceeds received
from certain corporate-owned life
insurance contracts issued after August
17, 2006. See section 101(j) for details.

Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A generally require
corporations to capitalize, or include in
inventory, certain costs incurred in
connection with:
• The production of real property and
tangible personal property held in
inventory or held for sale in the ordinary
course of business.
• Real property or personal property
(tangible and intangible) acquired for
resale.
• The production of real property and
tangible personal property by a
corporation for use in its trade or business
or in an activity engaged in for profit.
Tangible personal property produced
by a corporation includes a film, sound
recording, videotape, book, or similar
property.
Corporations subject to the section
263A uniform capitalization rules are
required to capitalize:
1. Direct costs and
2. An allocable part of most indirect
costs (including taxes) that (a) benefit the
assets produced or acquired for resale or
(b) are incurred because of the
performance of production or resale
activities.
For inventory, some of the indirect
expenses that must be capitalized are:
• Administration expenses;
• Taxes;
• Depreciation;
• Insurance;
• Compensation paid to officers
attributable to services;
• Rework labor; and
• Contributions to pension, stock bonus,
and certain profit-sharing, annuity, or
deferred compensation plans.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate to
production or resale activities that must
be capitalized and those that may be
currently deductible.
Interest expense paid or incurred
during the production period of
designated property must be capitalized
and is governed by special rules. For
more details, see Regulations sections
1.263A-8 through 1.263A-15.
The costs required to be capitalized
under section 263A are not deductible
until the property (to which the costs
relate) is sold, used, or otherwise
disposed of by the corporation.

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Exceptions. Section 263A does not
apply to the following.
• Personal property acquired for resale if
the corporation’s (or any predecessors)
average annual gross receipts for the 3
prior tax years were $10 million or less.
• Timber.
• Most property produced under a
long-term contract.
• Certain property produced in a farming
business.
• Research and experimental costs
under section 174.
• Geological and geophysical costs
amortized under section 167(h).
• Capital costs incurred to comply with
EPA sulfur regulations.
• Intangible drilling costs for oil, gas, and
geothermal property.
• Mining exploration and development
costs.
• Inventoriable items accounted for in the
same manner as materials and supplies
that are not incidental. See Cost of Goods
Sold on page 13.
For more details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3. See
Regulations section 1.263A-4 for rules for
property produced in a farming business.
Transactions between related
taxpayers. Generally, an accrual basis
taxpayer can only deduct business
expenses and interest owed to a related
party in the year the payment is included
in the income of the related party. See
sections 163(e)(3),163(j), and 267 for
limitations on deductions for unpaid
interest and expenses.
Section 291 limitations. Corporations
may be required to adjust deductions for
depletion of iron ore and coal, intangible
drilling and exploration and development
costs, certain deductions for financial
institutions, and the amortizable basis of
pollution control facilities. See section 291
to determine the amount of the
adjustment. Also see section 43.
Golden parachute payments. A portion
of the payments made by a corporation to
key personnel that exceeds their usual
compensation may not be deductible.
This occurs when the corporation has an
agreement (golden parachute) with these
key employees to pay them these excess
amounts if control of the corporation
changes. See section 280G and
Regulations section 1.280G-1.
Business start-up and organizational
costs. Business start-up and
organizational costs must be capitalized
unless an election is made to deduct or
amortize them. The following rules apply
separately to each category of costs.
• The corporation can elect to deduct up
to $5,000 of such costs for the year the
corporation begins business operations.
• The $5,000 deduction is reduced (but
not below zero) by the amount the total
costs exceed $50,000. If the total costs
are $55,000 or more, the deduction is
reduced to zero.
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Also see Notice 2007-49,
207-25 I.R.B. 1429.

• If the election is made, any costs that
are not deducted must be amortized
ratably over a 180-month period.
For costs paid or incurred before
October 23, 2004, the corporation can
elect to amortize the costs over a period
of 60 months or more.
In all cases, the amortization period
begins the month the corporation begins
business operations. For more details on
the election for business start-up and
organizational costs, see Pub. 535.
Attach any statement required by
Regulations sections 1.195-1(b) or
1.248-1(c). Report the deductible amount
of these costs and any amortization on
line 26. For amortization that begins
during the 2007 tax year, complete and
attach Form 4562.
Passive activity limitations. Limitations
on passive activity losses and credits
under section 469 apply to personal
service corporations (defined on page 6)
and closely held corporations (defined
below).
Generally, the two kinds of passive
activities are:
• Trade or business activities in which
the corporation did not materially
participate for the tax year; and
• Rental activities, regardless of its
participation.
For exceptions, see Form 8810,
Corporate Passive Activity Loss and
Credit Limitations.
Corporations subject to the passive
activity limitations must complete Form
8810 to compute their allowable passive
activity loss and credit. Before completing
Form 8810, see Temporary Regulations
section 1.163-8T, which provides rules for
allocating interest expense among
activities. If a passive activity is also
subject to the earnings stripping rules of
section 163(j), the at-risk rules of section
465, or the tax-exempt use loss rules of
section 470, those rules apply before the
passive loss rules.
For more information, see section 469,
the related regulations, and Pub. 925,
Passive Activity and At-Risk Rules.
Closely held corporations. A
corporation is a closely held corporation
if:
• At any time during the last half of the
tax year more than 50% in value of its
outstanding stock is directly or indirectly
owned by or for not more than five
individuals, and
• The corporation is not a personal
service corporation.
Certain organizations are treated as
individuals for purposes of this test. See
section 542(a)(2). For rules for
determining stock ownership, see section
544 (as modified by section 465(a)(3)).
Reducing certain expenses for which
credits are allowable. If the corporation
claims any of the following credits, it may
need to reduce the otherwise allowable
deductions for expenses used to figure
the credit.
Instructions for Form 1120

• Employment credits. See the
instructions for line 13.
• Research credit.
• Orphan drug credit.
• Disabled access credit.
• Employer credit for social security and
Medicare taxes paid on certain employee
tips.
• Credit for small employer pension plan
startup costs.
• Credit for employer-provided childcare
facilities and services.
• Low sulfur diesel fuel production credit.
• Mine rescue team training credit.
If the corporation has any of these
credits, figure each current year credit
before figuring the deduction for
expenses on which the credit is based.
See the instructions for the form used to
figure the applicable credit.
Limitations on deductions related to
property leased to tax-exempt entities.
If a corporation leases property to a
governmental or other tax-exempt entity,
the corporation cannot claim deductions
related to the property to the extent that
they exceed the corporation’s income
from the lease payments (tax-exempt use
loss). Amounts disallowed may be carried
over to the next tax year and treated as a
deduction with respect to the property for
that tax year. See section 470 for more
details and exceptions.

Line 12. Compensation of
Officers
Enter deductible officers’ compensation
on line 12. See Employment credits in the
instructions for line 13 for a list of
employment credits that may reduce your
deduction for officers’ compensation. Do
not include compensation deductible
elsewhere on the return, such as amounts
included in cost of goods sold, elective
contributions to a section 401(k) cash or
deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan.
Complete Schedule E if the total
receipts (line 1a, plus lines 4 through 10)
are $500,000 or more. Include only the
deductible part of each officer’s
compensation on Schedule E. See
Disallowance of deduction for employee
compensation in excess of $1 million
below. Complete Schedule E, line 1,
columns (a) through (f), for all officers.
The corporation determines who is an
officer under the laws of the state where it
is incorporated.
If a consolidated return is filed, each
member of an affiliated group must
furnish this information.
Disallowance of deduction for
employee compensation in excess of
$1 million. Publicly held corporations
cannot deduct compensation to a
“covered employee” to the extent that the
compensation exceeds $1 million.
Generally, a covered employee is:
• The principal executive officer of the
corporation (or an individual acting in that
capacity) as of the end of the tax year or

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• An employee whose total
compensation must be reported to
shareholders under the Securities
Exchange Act of 1934 because the
employee is among the three highest
compensated officers for that tax year
(other than the principal executive officer).
For this purpose, compensation does
not include the following.
• Income from certain employee trusts,
annuity plans, or pensions.
• Any benefit paid to an employee that is
excluded from the employee’s income.
The deduction limit does not apply to:
• Commissions based on individual
performance,
• Qualified performance-based
compensation, and
• Income payable under a written,
binding contract in effect on February 17,
1993.
The $1 million limit is reduced by
amounts disallowed as excess parachute
payments under section 280G.
For details, see section 162(m) and
Regulations section 1.162-27.

Line 13. Salaries and Wages
Enter the total salaries and wages paid
for the tax year. Do not include salaries
and wages deductible elsewhere on the
return, such as amounts included in
officers’ compensation, cost of goods
sold, elective contributions to a section
401(k) cash or deferred arrangement, or
amounts contributed under a salary
reduction SEP agreement or a SIMPLE
IRA plan.
If the corporation provided taxable
fringe benefits to its employees,
CAUTION such as personal use of a car, do
not deduct as wages the amount
allocated for depreciation and other
expenses claimed on lines 20 and 26.
Employment credits. If the corporation
claims a credit on any of the following
forms, it may need to reduce its deduction
for officer’s compensation and salaries
and wages. See the applicable form for
details.
• Form 5884, Work Opportunity Credit;
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit;
• Form 8845, Indian Employment Credit;
and
• Form 8861, Welfare-to-Work Credit.

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

Line 15. Bad Debts
Enter the total debts that became
worthless in whole or in part during the
tax year. A small bank or thrift institution
using the reserve method of section 585

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Instructions for Form 1120

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should attach a schedule showing how it
figured the current year’s provision. A
cash basis taxpayer cannot claim a bad
debt deduction unless the amount was
previously included in income.

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

The lease term began:

And the
vehicle’s
FMV on
the first
day of
the lease
exceeded:

After 12/31/06 but before 1/1/08 . . $15,500
After 12/31/04 but before 1/1/07 . . $15,200
After 12/31/03 but before 1/1/05 . . $17,500
If the lease term began before January 1, 2004, see
Pub. 463, Travel, Entertainment, Gift, and Car
Expenses, to find out if the corporation has an
inclusion amount. The inclusion amount for lease
terms beginning in 2008 will be published in the
Internal Revenue Bulletin in early 2008.

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

Line 17. Taxes and Licenses
Enter taxes paid or accrued during the tax
year, but do not include the following.
• Federal income taxes.
• Foreign or U.S. possession income
taxes if a foreign tax credit is claimed.
• Taxes not imposed on the corporation.
• Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes must
be treated as a part of the cost of the
acquired property or, in the case of a
disposition, as a reduction in the amount
realized on the disposition).
• Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
• Taxes deducted elsewhere on the
return, such as those reflected in cost of
goods sold.
See section 164(d) for apportionment
of taxes on real property between seller
and purchaser.

Line 18. Interest
Note. Do not offset interest income
against interest expense.
The corporation must make an interest
allocation if the proceeds of a loan were
used for more than one purpose (for
example, to purchase a portfolio
investment and to acquire an interest in a
passive activity). See Temporary

Regulations section 1.163-8T for the
interest allocation rules.
Mutual savings banks, building and
loan associations, and cooperative banks
can deduct the amounts paid or credited
to the accounts of depositors as
dividends, interest, or earnings. See
section 591.
Do not deduct the following interest.
• Interest on indebtedness incurred or
continued to purchase or carry obligations
if the interest is wholly exempt from
income tax. For exceptions, see section
265(b).
• For cash basis taxpayers, prepaid
interest allocable to years following the
current tax year. For example, a cash
basis calendar year taxpayer who in 2007
prepaid interest allocable to any period
after 2007 can deduct only the amount
allocable to 2007.
• Interest and carrying charges on
straddles. Generally, these amounts must
be capitalized. See section 263(g).
• Interest on debt allocable to the
production of designated property by a
corporation for its own use or for sale.
The corporation must capitalize this
interest. Also capitalize any interest on
debt allocable to an asset used to
produce the property. See section 263A(f)
and Regulations sections 1.263A-8
through 1.263A-15 for definitions and
more information.
• Interest paid or incurred on any portion
of an underpayment of tax that is
attributable to an understatement arising
from an undisclosed listed transaction or
an undisclosed reportable avoidance
transaction (other than a listed
transaction) entered into in tax years
beginning after October 22, 2004.
Special rules apply to:
• Interest on which no tax is imposed
(see section 163(j)). A corporation that
owns an interest in a partnership, directly
or indirectly, must treat its distributive
share of the partnership liabilities, interest
income, and interest expense as
liabilities, income, and expenses of the
corporation for purposes of applying the
earnings stripping rules. For more details,
see section 163(j)(8).
• Foregone interest on certain
below-market-rate loans (see section
7872).
• Original issue discount on certain
high-yield discount obligations. (See
section 163(e) to figure the disqualified
portion.)
• Interest which is allocable to
unborrowed policy cash values of life
insurance, endowment, or annuity
contracts issued after June 8, 1997. See
section 264(f). Attach a statement
showing the computation of the
deduction.

Line 19. Charitable
Contributions
Enter contributions or gifts actually paid
within the tax year to or for the use of
charitable and governmental
organizations described in section 170(c)

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and any unused contributions carried over
from prior years. Special rules and limits
apply to contributions to organizations
conducting lobbying activities. See
section 170(f)(9).
Corporations reporting taxable income
on the accrual method can elect to treat
as paid during the tax year any
contributions paid by the 15th day of the
3rd month after the end of the tax year if
the contributions were authorized by the
board of directors during the tax year.
Attach a declaration to the return stating
that the resolution authorizing the
contributions was adopted by the board of
directors during the tax year. The
declaration must include the date the
resolution was adopted. See Regulations
section 1.170A-11.
Limitation on deduction. The total
amount claimed cannot be more than
10% of taxable income (line 30)
computed without regard to the following.
• Any deduction for contributions.
• The special deductions on line 29b.
• The deduction allowed under section
249.
• The domestic production activities
deduction under section 199.
• Any net operating loss (NOL) carryback
to the tax year under section 172.
• Any capital loss carryback to the tax
year under section 1212(a)(1).
Suspension of 10% limitation for
farmers and ranchers. A corporation
that is a qualified farmer or rancher (as
defined in section 170(b)(1)(E)) that does
not have publicly traded stock, can deduct
contributions of qualified conservation
property without regard to the general
10% limit. The total amount of the
contribution claimed for the qualified
conservation property cannot exceed
100% of the excess of the corporation’s
taxable income (as computed above
substituting “100%” for “10%”) over all
other allowable charitable contributions.
Any excess qualified conservation
contributions can be carried over to the
next 15 years subject to the 100%
limitation. See section 170(b)(2)(B).
For contributions made after August
17, 2006, contributed conservation
property that is used in agriculture or
livestock production must remain
available for such production.
Carryover. Charitable contributions over
the 10% limitation cannot be deducted for
the tax year but can be carried over to the
next 5 tax years.
Special rules apply if the corporation
has an NOL carryover to the tax year. In
figuring the charitable contributions
deduction for the current tax year, the
10% limit is applied using the taxable
income after taking into account any
deduction for the NOL.
To figure the amount of any remaining
NOL carryover to later years, taxable
income must be modified (see section
172(b)). To the extent that contributions
are used to reduce taxable income for this
purpose and increase an NOL carryover,
Instructions for Form 1120

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Instructions for Form 1120

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that the corporation elects to
deduct

see

a contributions carryover is not allowed.
See section 170(d)(2)(B).
Cash contributions. For contributions
of cash, check, or other monetary gifts
(regardless of the amount), the
corporation must maintain a bank record,
or a receipt, letter, or other written
communication from the donee
organization indicating the name of the
organization, the date of the contribution,
and the amount of the contribution.
Contributions of $250 or more.
Generally, no deduction is allowed for any
contribution of $250 or more unless the
corporation gets a written
acknowledgment from the donee
organization that shows the amount of
cash contributed, describes any property
contributed, and, either gives a
description and a good faith estimate of
the value of any goods or services
provided in return for the contribution or
states that no goods or services were
provided in return for the contribution. The
acknowledgment must be obtained by the
due date (including extensions) of the
corporation’s return, or, if earlier, the date
the return is filed. Do not attach the
acknowledgment to the tax return, but
keep it with the corporation’s records.
Contributions of property other than
cash. If a corporation (other than a
closely held or personal service
corporation) contributes property other
than cash and claims over a $500
deduction for the property, it must attach
a schedule to the return describing the
kind of property contributed and the
method used to determine its fair market
value (FMV). Closely held corporations
and personal service corporations must
complete Form 8283, Noncash Charitable
Contributions, and attach it to their
returns. All other corporations generally
must complete and attach Form 8283 to
their returns for contributions of property
(other than money) if the total claimed
deduction for all property contributed was
more than $5,000. Special rules apply to
the contribution of certain property. See
the Instructions for Form 8283.
Qualified conservation
contributions. Special rules apply to
qualified conservation contributions,
including contributions of certain
easements on buildings located in a
registered historic district. See section
170(h).
Other special rules. The corporation
must reduce its deduction for
contributions of certain capital gain
property. See sections 170(e)(1) and
170(e)(5).
A larger deduction is allowed for
certain contributions of:
• Inventory and other property to certain
organizations for use in the care of the ill,
needy, or infants (section 170(e)(3)),
including contributions of “apparently
wholesome food” (section 170(e)(3)(C))
and contributions of qualified book
inventory to public schools (section
170(e)(3)(D)) before January 1, 2008,
Instructions for Form 1120

see

• Scientific equipment used for research
to institutions of higher learning or to
certain scientific research organizations
(other than by personal holding
companies and service organizations
(section 170(e)(4)), and
• Computer technology and equipment
for educational purposes (section
170(e)(6)).

For more information on charitable
contributions, including substantiation and
recordkeeping requirements, see section
170 and the related regulations and Pub.
526, Charitable Contributions. For other
special rules that apply to corporations,
see Pub. 542.

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

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

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

-11and Pub. 526, Charitable
Contributions.

and Temporary Regulations
section 1.181-1T.

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

Line 26. Other Deductions
Attach a schedule, listing by type and
amount, all allowable deductions that are
not deductible elsewhere on Form 1120.
Enter the total on line 26.
Examples of other deductions include
the following. See Pub. 535 and Pub. 542
for details on other deductions that may
apply to corporations.
• Amortization. See Part IV of Form
4562.
• Certain costs of qualified film or
television productions. See section 181.
• Certain business start-up and
organizational costs the corporation
elects to deduct. See page 8 of these
instructions.
• Reforestation costs. The corporation
can elect to deduct up to $10,000 of
qualifying reforestation expenses for each
qualified timber property. The corporation
can elect to amortize over 84 months any
amount not deducted. See Pub. 535.
The limit for a small timber producer is
increased by the smaller of $10,000 or
the amount of qualified reforestation
expenses paid or incurred before January
1, 2008, for (a) qualified timber property
any portion of which is located in the Gulf
Opportunity Zone (GO Zone), (b) qualified
timber property any portion of which is
located in the Rita GO Zone and no
portion is located in the GO Zone, and (c)
qualified timber property any portion of
which is located in the Wilma GO Zone.
See Pub. 4492, Information for Taxpayers
Affected by Hurricanes Katrina, Rita, and
Wilma, for a list of areas included in the
GO Zone, the Rita GO Zone, and the
Wilma GO Zone.
The increased limit does not apply to
any timber producer who (a) held more
than 500 acres of qualified timber
property at any time during the tax year,
(b) is a corporation with stock publicly
traded on an established securities
market, or (c) is a real estate investment
trust. See section 1400N(i) for details.
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the
business.
• Travel, meals, and entertainment
expenses. Special rules apply (discussed
below).
• Utilities.
• Ordinary losses from trade or business
activities of a partnership (from Schedule
K-1 (Form 1065 or 1065-B)). Do not offset
ordinary income against ordinary losses.
Instead, include the income on line 10.
Show the partnership’s name, address,
and EIN on a separate statement
attached to this return. If the amount is

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Instructions for Form 1120

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after August 27, 2005, and

from more than one partnership, identify
the amount from each partnership.
• Any extraterritorial income exclusion
(from Form 8873, line 54).
• Any negative net section 481(a)
adjustment. See the instructions for line
10.
• Deduction for certain energy efficient
commercial building property. See section
179D and Notice 2006-52, 2006-26 I.R.B.
1175.
• GO Zone clean-up cost. The
corporation can elect to deduct certain
costs paid or incurred before January 1,
2008, for the removal of debris from, or
the demolition of structures on certain real
property located in the GO Zone. See
section 1400N(f).
• Dividends paid in cash on stock held by
an employee stock ownership plan.
However, a deduction can only be taken
for the dividends above if, according to
the plan, the dividends are:
1. Paid in cash directly to the plan
participants or beneficiaries;
2. Paid to the plan, which distributes
them in cash to the plan participants or
their beneficiaries no later than 90 days
after the end of the plan year in which the
dividends are paid;
3. At the election of such participants
or their beneficiaries (a) payable as
provided under 1or 2 above or (b) paid to
the plan and reinvested in qualifying
employer securities; or
4. Used to make payments on a loan
described in section 404(a)(9).
See section 404(k) for more details and
the limitation on certain dividends.
Do not deduct the following.
• Fines or penalties paid to a government
for violating any law.
• Any amount that is allocable to a class
of exempt income. See section 265(b) for
exceptions.
• Lobbying expenses. However, see
exceptions (discussed later).
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a corporation can
deduct ordinary and necessary travel,
meals, and entertainment expenses paid
or incurred in its trade or business. Also,
special rules apply to deductions for gifts,
skybox rentals, luxury water travel,
convention expenses, and entertainment
tickets. See section 274 and Pub. 463 for
details.
Travel. The corporation cannot
deduct travel expenses of any individual
accompanying a corporate officer or
employee, including a spouse or
dependent of the officer or employee,
unless:
• That individual is an employee of the
corporation, and
• His or her travel is for a bona fide
business purpose and would otherwise be
deductible by that individual.
Meals and entertainment. Generally,
the corporation can deduct only 50% of
the amount otherwise allowable for meals
and entertainment expenses paid or

incurred in its trade or business. In
addition (subject to exceptions under
section 274(k)(2)):
• Meals must not be lavish or
extravagant;
• A bona fide business discussion must
occur during, immediately before, or
immediately after the meal; and
• An employee of the corporation must
be present at the meal.
See section 274(n)(3) for a special rule
that applies to expenses for meals
consumed by individuals subject to the
hours of service limits of the Department
of Transportation.
Membership dues. The corporation
can deduct amounts paid or incurred for
membership dues in civic or public
service organizations, professional
organizations (such as bar and medical
associations), business leagues, trade
associations, chambers of commerce,
boards of trade, and real estate boards.
However, no deduction is allowed if a
principal purpose of the organization is to
entertain, or provide entertainment
facilities for, members or their guests. In
addition, corporations cannot deduct
membership dues in any club organized
for business, pleasure, recreation, or
other social purpose. This includes
country clubs, golf and athletic clubs,
airline and hotel clubs, and clubs
operated to provide meals under
conditions favorable to business
discussion.
Entertainment facilities. The
corporation cannot deduct an expense
paid or incurred for a facility (such as a
yacht or hunting lodge) used for an
activity usually considered entertainment,
amusement, or recreation.
Amounts treated as compensation.
Generally, the corporation may be able to
deduct otherwise nondeductible
entertainment, amusement, or recreation
expenses if the amounts are treated as
compensation to the recipient and
reported on Form W-2 for an employee or
on Form 1099-MISC for an independent
contractor.
However, if the recipient is an officer,
director, or beneficial owner (directly or
indirectly) of more than 10% of any class
of stock, the deductible expense is
limited. See section 274(e)(2) and Notice
2005-45, 2005-24 I.R.B. 1228.
Lobbying expenses. Generally,
lobbying expenses are not deductible.
These expenses include:
• Amounts paid or incurred in connection
with influencing federal or state legislation
(but not local legislation) or
• Amounts paid or incurred in connection
with any communication with certain
federal executive branch officials in an
attempt to influence the official actions or
positions of the officials. See Regulations
section 1.162-29 for the definition of
“influencing legislation.”
Dues and other similar amounts paid
to certain tax-exempt organizations may
not be deductible. See section 162(e)(3).

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If certain in-house lobbying expenditures
do not exceed $2,000, they are
deductible.

Line 28. Taxable Income Before
NOL Deduction and Special
Deductions
At-risk rules. Generally, special at-risk
rules under section 465 apply to closely
held corporations (see Passive activity
limitations on page 9) engaged in any
activity as a trade or business or for the
production of income. These corporations
may have to adjust the amount on line 28.
(See below.)
The at-risk rules do not apply to:
• Holding real property placed in service
by the taxpayer before 1987;
• Equipment leasing under sections
465(c)(4), (5), and (6); or
• Any qualifying business of a qualified
corporation under section 465(c)(7).
However, the at-risk rules do apply to
the holding of mineral property.
If the at-risk rules apply, adjust the
amount on this line for any section 465(d)
losses. These losses are limited to the
amount for which the corporation is at risk
for each separate activity at the close of
the tax year. If the corporation is involved
in one or more activities, any of which
incurs a loss for the year, report the
losses for each activity separately. Attach
Form 6198, At-Risk Limitations, showing
the amount at risk and gross income and
deductions for the activities with the
losses.
If the corporation sells or otherwise
disposes of an asset or its interest (either
total or partial) in an activity to which the
at-risk rules apply, determine the net
profit or loss from the activity by
combining the gain or loss on the sale or
disposition with the profit or loss from the
activity. If the corporation has a net loss, it
may be limited because of the at-risk
rules.
Treat any loss from an activity not
allowed for the tax year as a deduction
allocable to the activity in the next tax
year.

Line 29a. Net Operating Loss
Deduction
A corporation can use the NOL incurred
in one tax year to reduce its taxable
income in another tax year. Enter on line
29a the total NOL carryovers from other
tax years, but do not enter more than the
corporation’s taxable income (after
special deductions). Attach a schedule
showing the computation of the NOL
deduction. Complete item 12 on Schedule
K.
The following special rules apply.
• A personal service corporation may not
carry back an NOL to or from any tax year
to which an election under section 444 to
have a tax year other than a required tax
year applies.
• A corporate equity reduction interest
loss may not be carried back to a tax year
Instructions for Form 1120

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preceding the year of the equity reduction
transaction (see section 172(b)(1)(E)).
• If an ownership change occurs, the
amount of the taxable income of a loss
corporation that may be offset by the
pre-change NOL carryovers may be
limited. See section 382 and the related
regulations. A loss corporation must
include the information statement as
provided in Regulations section
1.382-11(a), with its income tax return for
each tax year that it is a loss corporation
in which an ownership shift, equity
structures shift, or other transaction
described in Temporary Regulations
section 1.382-2T(a)(2)(i) occur. If the
corporation makes the
closing-of-the-books election, see
Regulations section 1.382-6(b).
• If a corporation acquires control of
another corporation (or acquires its
assets in a reorganization), the amount of
pre-acquisition losses that may offset
recognized built-in gain may be limited
(see section 384).
• If a corporation elects the alternative
tax on qualifying shipping activities under
section 1354, no deduction is allowed for
an NOL attributable to the qualifying
shipping activities to the extent that the
loss is carried forward from a tax year
preceding the first tax year for which the
alternative tax election was made. See
section 1358(b)(2).
• Certain qualified GO Zone losses are
eligible for a special 5-year carryback
period. See section 1400N(k).
• A corporation may elect to treat any Go
Zone public utility casualty loss as a
specified liability loss to which the 10-year
carryback period applies. See the
Instructions for Form 1139.
For more details on the NOL
deduction, see section 172, the
Instructions for Form 1139, and Pub. 542.

Line 29b. Special Deductions
See the instructions for Schedule C on
page 14.

Tax and Payments

beginning

Line 30. Taxable Income
Minimum taxable income. The
corporation’s taxable income cannot be
less than the largest of the following
amounts.
• The inversion gain of the corporation
for the tax year, if the corporation is an
expatriated entity or a partner in an
expatriated entity. For details, see section
7874.
• The sum of the corporation’s excess
inclusions from Schedules Q (Form
1066), line 2c, and the corporation’s
taxable income determined solely with
respect to its ownership and high-yield
interests in FASITs. For details, see
sections 860E(a) and 860J.
Net operating loss (NOL). If line 30
(figured without regard to the items listed
above under minimum taxable income), is
zero or less, the corporation may have an
NOL that can be carried back or forward
Instructions for Form 1120

as a deduction to other tax years.
Generally, a corporation first carries back
an NOL 2 tax years. However, the
corporation can elect to waive the
carryback period and instead carry the
NOL forward to future tax years. To make
the election, see the instructions for
Schedule K, item 11 on page 18.
See Form 1139 for details, including
other elections that may be available,
which must be made no later than 6
months after the due date (excluding
extensions) of the corporation’s tax
return.
Merchant Marine capital construction
fund. To take a deduction for amounts
contributed to a capital construction fund
(CCF), reduce the amount that would
otherwise be entered on line 30 by the
amount of the deduction. On the dotted
line next to the entry space, enter “CCF”
and the amount of the deduction. For
more information, see section 7518.

Line 32b. Estimated Tax
Payments
Enter any estimated tax payments the
corporation made for the tax year.
Beneficiaries of trusts. If the
corporation is the beneficiary of a trust,
and the trust makes a section 643(g)
election to credit its estimated tax
payments to its beneficiaries, include the
corporation’s share of the payment in the
total for line 32b. Enter “T” and the
amount on the dotted line next to the
entry space.
Special estimated tax payments for
certain life insurance companies. If
the corporation is required to make or
apply special estimated tax payments
(SETP) under section 847 in addition to
its regular estimated tax payments, enter
on line 32b, the corporation’s total
estimated tax payments. In the margin
near line 32b, enter “Form 8816” and the
amount. Attach a schedule showing your
computation of estimated tax payments.
See sections 847(2) and 847(8) and Form
8816, Special Loss Discount Account and
Special Estimated Tax Payments for
Insurance Companies, for more
information.

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

Line 32f
Credit from Form 2439. Enter any
credit from Form 2439, Notice to
Shareholder of Undistributed Long-Term
Capital Gains, for the corporation’s share
of the tax paid by a regulated investment

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company (RIC) or a real estate
investment trust (REIT) on undistributed
long-term capital gains included in the
corporation’s income. Attach Form 2439
to Form 1120.
Credit for federal tax on fuels. Enter
any credit from Form 4136, Credit for
Federal Tax Paid on Fuels. Attach Form
4136 to Form 1120.
Credit for tax on ozone-depleting
chemicals. Include on line 32f any credit
the corporation is claiming under section
4682(g)(2) for tax on ozone-depleting
chemicals. Enter “ODC” next to the entry
space.

Line 32g. Total Payments
Add the amounts on lines 32d through 32f
and enter the total on line 32g.
Backup withholding. If the corporation
had federal income tax withheld from any
payments it received because, for
example, it failed to give the payer its
correct EIN, include the amount withheld
in the total for line 32g. Enter the amount
withheld and the words “Backup
Withholding” in the blank space above
line 32g.

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

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

Schedule A.
Cost of Goods Sold
Generally, inventories are required at the
beginning and end of each tax year if the
production, purchase, or sale of
merchandise is an income-producing
factor.
However, if the corporation is a
qualifying taxpayer or a qualifying small
business taxpayer, it can adopt or change
its accounting method to account for
inventoriable items in the same manner
as materials and supplies that are not
incidental, unless its business is a tax
shelter as defined in section 448(d)(3).
A qualifying taxpayer is a taxpayer
that, for each prior tax year ending after
December 16, 1998, has average annual
gross receipts of $1 million or less for the
3 prior tax years.
A qualifying small business taxpayer is
a taxpayer (a) that, for each prior tax year
ending on or after December 31, 2000,
has average annual gross receipts of $10
million or less for the 3 prior tax years,
and (b) whose principal business activity
is not an ineligible activity.

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Bona fide selling price means actual offering of goods during a period
ending not later than 30 days after the inventory date.

Under this accounting method,
inventory costs for raw materials
purchased for use in producing finished
goods and merchandise purchased for
resale are deductible in the year the
finished goods or merchandise are sold
(but not before the year the corporation
paid for the raw materials or
merchandise, if it is also using the cash
method). For additional guidance on this
method of accounting for inventoriable
items, see Pub. 538 and the Instructions
for Form 3115.
Enter amounts paid for all raw
materials and merchandise during the tax
year on line 2. The amount the
corporation can deduct for the tax year is
figured on line 8.
All filers not using the cash method of
accounting should see Section 263A
uniform capitalization rules on page 8
before completing Schedule A.

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

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

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

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

Lines 9a Through 9f.
Inventory Valuation Methods
Inventories can be valued at:
• Cost;
• Cost or market value (whichever is
lower); or
• Any other method approved by the IRS
that conforms to the requirements of the
applicable regulations cited below.
However, if the corporation is using the
cash method of accounting, it is required
to use cost.
Corporations that account for
inventoriable items in the same manner
as materials and supplies that are not
incidental can currently deduct
expenditures for direct labor and all
indirect costs that would otherwise be
included in inventory costs.
The average cost (rolling average)
method of valuing inventories generally
does not conform to the requirements of
the regulations. See Rev. Rul. 71-234,
1971-1 C.B. 148.
Corporations that use erroneous
valuation methods must change to a
method permitted for federal income tax
purposes. Use Form 3115 to make this
change.
On line 9a, check the method(s) used
for valuing inventories. Under lower of
cost or market, the term “market” (for
normal goods) means the current bid
price prevailing on the inventory valuation
date for the particular merchandise in the
volume usually purchased by the
taxpayer. For a manufacturer, market
applies to the basic elements of cost —
raw materials, labor, and burden. If
section 263A applies to the taxpayer, the
basic elements of cost must reflect the
current bid price of all direct costs and all
indirect costs properly allocable to goods
on hand at the inventory date.
Inventory may be valued below cost
when the merchandise is unsalable at
normal prices or unusable in the normal
way because the goods are subnormal
due to damage, imperfections, shopwear,
etc., within the meaning of Regulations
section 1.471-2(c). The goods may be
valued at the current bona fide selling
price, minus direct cost of disposition (but
not less than scrap value) if such a price
can be established.
If this is the first year the Last-in,
First-out (LIFO) inventory method was
either adopted or extended to inventory
goods not previously valued under the
LIFO method provided in section 472,

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attach Form 970, Application To Use
LIFO Inventory Method, or a statement
with the information required by Form
970. Also check the LIFO box on line 9c.
On line 9d, enter the amount or the
percent of total closing inventories
covered under section 472. Estimates are
acceptable.
If the corporation changed or extended
its inventory method to LIFO and had to
write up the opening inventory to cost in
the year of election, report the effect of
the write-up as other income (line 10,
page 1), proportionately over a 3-year
period that begins with the year of the
LIFO election (section 472(d)).
Note. Corporations using the LIFO
method that make an S corporation
election or transfer LIFO inventory to an S
corporation in a nonrecognition
transaction may be subject to an
additional tax attributable to the LIFO
recapture amount. See the instructions for
line 10, Schedule J, on page 16, and line
10, Other Income, on page 7.
For more information on inventory
valuation methods, see Pub. 538.

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

Line 1, Column (a)
Enter dividends (except those received on
debt-financed stock acquired after July
18, 1984 – see section 246A) that are:
• Received from less-than-20%-owned
domestic corporations subject to income
tax, and
• Qualified for the 70% deduction under
section 243(a)(1).
Also include on line 1 the following.
• Taxable distributions from an IC-DISC
or former DISC that are designated as
eligible for the 70% deduction and certain
dividends of Federal Home Loan Banks.
See section 246(a)(2).
• Dividends (except those received on
debt-financed stock acquired after July
18, 1984) from a regulated investment
company (RIC). The amount of dividends
eligible for the dividends-received
deduction under section 243 is limited by
section 854(b). The corporation should
receive a notice from the RIC specifying
Instructions for Form 1120

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the amount of dividends that qualify for
the deduction.
Report so-called dividends or earnings
received from mutual savings banks, etc.,
as interest. Do not treat them as
dividends.

Line 2, Column (a)
Enter on line 2:
• Dividends (except those received on
debt-financed stock acquired after July
18, 1984) that are received from
20%-or-more-owned domestic
corporations subject to income tax and
that are subject to the 80% deduction
under section 243(c), and
• Taxable distributions from an IC-DISC
or former DISC that are considered
eligible for the 80% deduction.

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

Line 3, Columns (b) and (c)
Dividends received on debt-financed
stock acquired after July 18, 1984, are not
entitled to the full 70% or 80%

dividends-received deduction. The 70%
or 80% deduction is reduced by a
percentage that is related to the amount
of debt incurred to acquire the stock. See
section 246A. Also see section 245(a)
before making this computation for an
additional limitation that applies to
dividends received from foreign
corporations. Attach a schedule to Form
1120 showing how the amount on line 3,
column (c), was figured.

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

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

Line 6, Column (a)
Enter the U.S.-source portion of dividends
that:
• Are received from
less-than-20%-owned foreign
corporations, and
• Qualify for the 70% deduction under
section 245(a). To qualify for the 70%
deduction, the corporation must own at
least 10% of the stock of the foreign
corporation by vote and value.
Also include dividends received from
a less-than-20%-owned FSC that:
• Are attributable to income treated as
effectively connected with the conduct of
a trade or business within the United
States (excluding foreign trade income),
and
• Qualify for the 70% deduction under
section 245(c)(1)(B).

Keep for Your
Records

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

Instructions for Form 1120

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1.
2.
3.
4.

Line 7, Column (a)
Enter the U.S.-source portion of dividends
that:
• Are received from 20%-or-more-owned
foreign corporations, and
• Qualify for the 80% deduction under
section 245(a).
Also include dividends received from a
20%-or-more-owned FSC that:

• Are attributable to income treated as
effectively connected with the conduct of
a trade or business within the United
States (excluding foreign trade income),
and
• Qualify for the 80% deduction under
section 245(c)(1)(B).

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

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

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

Line 11, Columns (a) and (c)
5.

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

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

Line 12, Column (a)
Enter dividends from FSCs that are
attributable to foreign trade income and

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that are eligible for the 100% deduction
provided in section 245(c)(1)(A).

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

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

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

preferred stock held for less than 91 days
during the 181-day period that began 90
days before the ex-dividend date. When
counting the number of days the
corporation held the stock, you cannot
count certain days during which the
corporation’s risk of loss was diminished.
See section 246(c)(4) and Regulations
section 1.246-5 for more details.
Preferred dividends attributable to periods
totaling less than 367 days are subject to
the 46-day holding period rule above.
c. Dividends on any share of stock to
the extent the corporation is under an
obligation (including a short sale) to make
related payments with respect to positions
in substantially similar or related property.
5. Any other taxable dividend income
not properly reported above.
If patronage dividends or per-unit
retain allocations are included on line 17,
identify the total of these amounts in a
schedule attached to Form 1120.

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

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

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

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

Line 2
If the corporation is a member of a
controlled group, enter the corporation’s
tax from Part III of Schedule O (Form
1120). Most corporations that are not
members of a controlled group and not
filing a consolidated return figure their tax
by using the Tax Rate Schedule below.
Qualified personal service corporations
should see the instructions later.

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Tax Rate Schedule
If taxable income (line 30, Form 1120) on page 1
is:

Over —

But not
over —

Tax is:

Of the
amount
over —

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

Qualified personal service corporation.
A qualified personal service corporation
is taxed at a flat rate of 35% on taxable
income. If the corporation is a qualified
personal service corporation, check the
box on line 2 even if the corporation has
no tax liability.
A corporation is a qualified personal
service corporation if it meets both of the
following tests.
1. Substantially all of the corporation’s
activities involve the performance of
services in the fields of health, law,
engineering, architecture, accounting,
actuarial science, performing arts, or
consulting.
2. At least 95% of the corporation’s
stock, by value, is directly or indirectly
owned by
a. Employees performing the
services,
b. Retired employees who had
performed the services listed above,
c. Any estate of an employee or
retiree described above, or
d. Any person who acquired the stock
of the corporation as a result of the death
of an employee or retiree (but only for the
2-year period beginning on the date of the
employee’s or retiree’s death).
Mutual savings bank conducting life
insurance business. The tax under
section 594 consists of the sum of (a) a
partial tax computed on Form 1120 on the
taxable income of the bank determined
without regard to income or deductions
allocable to the life insurance department,
and (b) a partial tax on the taxable
income computed on Form 1120-L of the
life insurance department. Enter the
combined tax on line 2. Attach Form
1120-L as a schedule (and identify it as
such), together with the annual
statements and schedules required to be
filed with Form 1120-L. See Regulations
section 1.6012-2(c)(1)(ii). An exception
applies for insurance companies that
electronically file their returns. See
Regulations section 1.6012-2(c)(4).
Deferred tax under section 1291. If the
corporation was a shareholder in a
passive foreign investment company
(PFIC) and received an excess
distribution or disposed of its investment
in the PFIC during the year, it must
include the increase in taxes due under
Instructions for Form 1120

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section 1291(c)(2) in the total for line 2.
On the dotted line next to line 2, enter
“Section 1291” and the amount.
Do not include on line 2 any interest
due under section 1291(c)(3). Instead,
show the amount of interest owed in the
bottom margin of page 1, Form 1120, and
enter “Section 1291 interest.” For details,
see Form 8621.
Additional tax under section 197(f). A
corporation that elects to pay tax on the
gain from the sale of an intangible under
the related person exception to the
anti-churning rules should include any
additional tax due under section
197(f)(9)(B) in the total for line 2. On the
dotted line next to line 2, enter “Section
197” and the amount.

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

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

Line 5b
Enter the amount of any credit from Form
5735, American Samoa Economic
Development Credit, or Form 8834,
Qualified Electric Vehicle Credit.

Line 5c
Enter on line 5c the corporation’s total
general business credit.
The corporation is required to file Form
3800, General Business Credit, to claim
certain business credits. For a list of
allowable credits, see Form 3800. Check
the “Form 3800” box on Schedule J (Form
1120) and include the allowable credit
from Part II, line 19, of Form 3800, on line
5c. Also, see the applicable credit form
and its instructions.
However, if the corporation is claiming
a credit on any of the following forms,
check the applicable box(es), and include
the allowable credit(s) on line 5c.
• Form 5884, Work Opportunity Credit,
• Form 6478, Credit for Alcohol Used as
Fuel,
Instructions for Form 1120

• Form 8835, Renewable Electricity,
Refined Coal, and Indian Coal Production
Credit, with a credit from Section B,
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit,
or
• Form 8846, Credit for Employer Social
Security and Medicare Taxes Paid on
Certain Employee Tips.
See the applicable form and its
instructions.

Line 5d
To figure the minimum tax credit and any
carryforward of that credit, use Form
8827, Credit for Prior Year Minimum
Tax — Corporations. Also see Form 8827
if any of the corporation’s 2006 qualified
electric vehicle credit was disallowed
solely because of the tentative minimum
tax limitation. See section 53(d).

Line 5e
Enter the amount of any credit from Form
8860, Qualified Zone Academy Bond
Credit, or from Form 8912, Credit for
Clean Renewable Energy and Gulf Tax
Credit Bonds. Check the applicable
box(es) and include the amount of the
credit in the total for line 5e.

Line 8
A corporation is taxed as a personal
holding company under section 542 if:
• At least 60% of its adjusted ordinary
gross income for the tax year is personal
holding company income, and
• At any time during the last half of the
tax year more than 50% in value of its
outstanding stock is directly or indirectly
owned by five or fewer individuals.
See Schedule PH (Form 1120) for
definitions and details on how to figure
the tax.

Line 9
Include any of the following taxes and
interest in the total on line 9. Check the
appropriate box(es) for the form, if any,
used to compute the total.
Recapture of investment credit. If the
corporation disposed of investment credit
property or changed its use before the
end of its useful life or recovery period, it
may owe a tax. See Form 4255,
Recapture of Investment Credit.
Recapture of low-income housing
credit. If the corporation disposed of
property (or there was a reduction in the
qualified basis of the property) for which it
took the low-income housing credit, it may
owe a tax. See Form 8611, Recapture of
Low-Income Housing Credit.
Interest due under the look-back
methods. If the corporation used the
look-back method for certain long-term
contracts, see Form 8697, Interest
Computation Under the Look-Back
Method for Completed Long-Term
Contracts, for information on figuring the
interest the corporation may have to
include.

-17-

The corporation may also have to
include interest due under the look-back
method for property depreciated under
the income forecast method. See Form
8866, Interest Computation Under the
Look-Back Method for Property
Depreciated Under the Income Forecast
Method.
Alternative tax on qualifying shipping
activities. Enter any alternative tax on
qualifying shipping activities from Form
8902. Check the box for Form 8902.
Other. Additional taxes and interest
amounts can be included in the total
entered on line 9. Check the box for
“Other” if the corporation includes any
additional taxes and interest such as the
items discussed below. See How to report
below for details on reporting these
amounts on an attached schedule.
• Recapture of qualified electric vehicle
(QEV) credit. The corporation must
recapture part of the QEV credit it claimed
in a prior year if, within 3 years of the date
the vehicle was placed in service, it
ceases to qualify for the credit. See
Regulations section 1.30-1 for details on
how to figure the recapture.
• Recapture of Indian employment credit.
Generally, if an employer terminates the
employment of a qualified employee less
than 1 year after the date of initial
employment, any Indian employment
credit allowed for a prior tax year because
of wages paid or incurred to that
employee must be recaptured. For
details, see Form 8845 and section 45A.
• Recapture of new markets credit (see
Form 8874).
• Recapture of employer-provided
childcare facilities and services credit
(see Form 8882).
• Tax and interest on a nonqualified
withdrawal from a capital construction
fund (section 7518).
• Interest on deferred tax attributable to
(a) installment sales of certain timeshares
and residential lots (section 453(l)(3)) and
(b) certain nondealer installment
obligations (section 453A(c)).
• Interest due on deferred gain (section
1260(b)).
How to report. If the corporation
checked the “Other” box, attach a
schedule showing the computation of
each item included in the total for line 9
and identify the applicable Code section
and the type of tax or interest.

Line 10
Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 10. See Form 8621, Part V, and How
to report, below.
Subtract the following amounts from
the total for line 10.
• Deferred tax on the corporation’s share
of undistributed earnings of a qualified
electing fund (see Form 8621, Part II).
• Deferred LIFO recapture tax (section
1363(d)). This tax is the part of the LIFO
recapture tax that will be deferred and

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paid with Form 1120S in the future. To
figure the deferred tax, first figure the total
LIFO recapture tax. Follow the steps
below to figure the total LIFO recapture
tax and the deferred amount. Also see the
instructions regarding LIFO recapture
amount under Line 10. Other Income.
Step 1. Figure the tax on the
corporation’s income including the LIFO
recapture amount. (Complete Schedule J
through line 9, but do not enter a total on
line 10 yet.)
Step 2. Using a separate worksheet,
complete Schedule J again, but do not
include the LIFO recapture amount in the
corporation’s taxable income.
Step 3. Compare the tax in Step 2 to
the tax in Step 1. (The difference between
the two is the LIFO recapture tax.)
Step 4. Multiply the amount figured in
Step 3 by 75%. (The result is the deferred
LIFO recapture tax.)
How to report. Attach a schedule
showing the computation of each item
included in, or subtracted from, the total
for line 10. On the dotted line next to line
10, specify (a) the applicable Code
section, (b) the type of tax, and (c) enter
the amount of tax. For example, if the
corporation is deferring a $100 LIFO
recapture tax, subtract this amount from
the total on line 10, then enter “Section
1363-Deferred Tax-$100” on the dotted
line next to line 10.

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

Question 4
Check the “Yes” box for question 4 if:
• The corporation is a subsidiary in an
affiliated group (defined below), but is not
filing a consolidated return for the tax year
with that group, or
• The corporation is a subsidiary in a
parent-subsidiary controlled group. For a
definition of a parent-subsidiary controlled
group, see the Instructions for Schedule
O (Form 1120).
Any corporation that meets either of
the requirements above should check the
“Yes” box. This applies even if the
corporation is a subsidiary member of one
group and the parent corporation of
another.
Note. If the corporation is an “excluded
member” of a controlled group (see
section 1563(b)(2)), it is still considered a
member of a controlled group for this
purpose.
Affiliated group. An affiliated group is
one or more chains of includible
corporations (section 1504(a)) connected
through stock ownership with a common
parent corporation. The common parent
must be an includible corporation and the
following requirements must be met.
1. The common parent must own
directly stock that represents at least 80%

of the total voting power and at least 80%
of the total value of the stock of at least
one of the other includible corporations.
2. Stock that represents at least 80%
of the total voting power and at least 80%
of the total value of the stock of each of
the other corporations (except for the
common parent) must be owned directly
by one or more of the other includible
corporations.

filing instructions and penalties for failure
to file.

For this purpose, the term “stock”
generally does not include any stock that
(a) is nonvoting, (b) is nonconvertible,
(c) is limited and preferred as to dividends
and does not participate significantly in
corporate growth, and (d) has redemption
and liquidation rights that do not exceed
the issue price of the stock (except for a
reasonable redemption or liquidation
premium). See section 1504(a)(4). See
section 1563(d)(1) for the definition of
stock for purposes of determining stock
ownership above.

Item 11

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

-18-

Item 9
Show any tax-exempt interest received or
accrued. Include any exempt-interest
dividends received as a shareholder in a
mutual fund or other RIC. Also, if
required, include the same amount on
Schedule M-1, line 7 (or Schedule M-3,
Part II, line 13, if applicable).
If the corporation has an NOL for its 2007
tax year, it can elect to waive the entire
carryback period for the NOL and instead
carry the NOL forward to future tax years.
To do so, check the box on line 11 and
file the tax return by its due date,
including extensions. Do not attach the
statement described in Temporary
Regulations section 301.9100-12T. Once
made, the election is irrevocable. See
Pub. 542 and Form 1139 for more details.
Corporations filing a consolidated
return must also attach the statement
required by Regulations section
1.1502-21(b)(3).

Item 12
Enter the amount of the NOL carryover to
the tax year from prior years, even if
some of the loss is used to offset income
on this return. The amount to enter is the
total of all NOLs generated in prior years
but not used to offset income (either as a
carryback or carryover) to a tax year prior
to 2007. Do not reduce the amount by
any NOL deduction reported on line 29a.

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

Line 1
Include certificates of deposit as cash on
this line.
Instructions for Form 1120

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Instructions for Form 1120

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

Line 26
Some examples of adjustments to report
on this line include:
• Unrealized gains and losses on
securities held “available for sale.”
• Foreign currency translation
adjustments.
• The excess of additional pension
liability over unrecognized prior service
cost.
• Guarantees of employee stock (ESOP)
debt.
• Compensation related to employee
stock award plans.

• Expenses for the use of an

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

Line 5c
If the total adjustment to be entered on
line 26 is a negative amount, enter the
amount in parentheses.

Include any of the following.
• Meal and entertainment expenses not
deductible under section 274(n).

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

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

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

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

Recordkeeping

Learning about
the law or the form

Preparing the form

Copying,
assembling,
and sending the
form to the IRS

70 hr., 47 min.
6 hr., 56 min.
5 hr., 58 min.
76 hr., 3 min.
3 hr., 49 min.
6 hr., 42 min.
15 hr., 18 min.

42 hr., 1 min.
3 hr., 55 min.
35 min.
3 hr., 40 min.
1 hr., 30 min.
2 hr., 5 min.
6 hr., 12 min.

72 hr., 56 min.
6 hr., 3 min.
43 min.
5 hr., 4 min.
4 hr., 25 min.
2 hr., 16 min.
8 hr., 35 min.

8 hr., 2 min.
32 min.
--------48 min.
----32 min.

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

Instructions for Form 1120

-19-

Page 20 of 23

Instructions for Form 1120

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

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

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

Code

Agriculture, Forestry, Fishing
and Hunting

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

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

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

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

Mining
211110
212110
212200
212310
212320

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

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

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

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

-20-

Instructions for Form 1120

Page 21 of 23

Instructions for Form 1120

8:37 - 7-NOV-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Principal Business Activity Codes (continued)
Code

Code

423500 Metal & Mineral (except
Petroleum)
423600 Electrical & Electronic Goods
423700 Hardware, & Plumbing &
Heating Equipment &
Supplies
423800 Machinery, Equipment, &
Supplies
423910 Sporting & Recreational
Goods & Supplies
423920 Toy & Hobby Goods &
Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious
Stone, & Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists’ Sundries
424300 Apparel, Piece Goods, &
Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum
Products
424800 Beer, Wine, & Distilled
Alcoholic Beverages
424910 Farm Supplies
424920 Book, Periodical, &
Newspapers
424930 Flower, Nursery Stock, &
Florists’ Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous
Nondurable Goods
Wholesale Electronic Markets and
Agents and Brokers
425110 Business to Business
Electronic Markets
425120 Wholesale Trade Agents &
Brokers

445120
445210
445220
445230
445291
445292
445299

Truck Transportation
484110 General Freight Trucking,
Local
484120 General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi Service
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground
Passenger Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for
Road Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers
492210 Local Messengers & Local
Delivery
Warehousing and Storage
493100 Warehousing & Storage
(except lessors of
miniwarehouses &
self-storage units)

Instructions for Form 1120

Convenience Stores
Meat Markets
Fish & Seafood Markets
Fruit & Vegetable Markets
Baked Goods Stores
Confectionery & Nut Stores
All Other Specialty Food
Stores
445310 Beer, Wine, & Liquor Stores
Health and Personal Care Stores
446110 Pharmacies & Drug Stores
446120 Cosmetics, Beauty Supplies,
& Perfume Stores
446130 Optical Goods Stores
446190 Other Health & Personal
Care Stores
Gasoline Stations
447100 Gasoline Stations (including
convenience stores with gas)
Clothing and Clothing Accessories
Stores
448110 Men’s Clothing Stores
448120 Women’s Clothing Stores
448130 Children’s & Infants’ Clothing
Stores
448140 Family Clothing Stores
448150 Clothing Accessories Stores
448190 Other Clothing Stores
448210 Shoe Stores
448310 Jewelry Stores
448320 Luggage & Leather Goods
Stores
Sporting Goods, Hobby, Book, and
Music Stores
451110 Sporting Goods Stores
451120 Hobby, Toy, & Game Stores
451130 Sewing, Needlework, & Piece
Goods Stores
451140 Musical Instrument &
Supplies Stores
451211 Book Stores
451212 News Dealers & Newsstands
451220 Prerecorded Tape, Compact
Disc, & Record Stores
General Merchandise Stores
452110 Department Stores
452900 Other General Merchandise
Stores
Miscellaneous Store Retailers
453110 Florists
453210 Office Supplies & Stationery
Stores
453220 Gift, Novelty, & Souvenir
Stores
453310 Used Merchandise Stores
453910 Pet & Pet Supplies Stores
453920 Art Dealers
453930 Manufactured (Mobile) Home
Dealers
453990 All Other Miscellaneous Store
Retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454110 Electronic Shopping &
Mail-Order Houses
454210 Vending Machine Operators
454311 Heating Oil Dealers
454312 Liquefied Petroleum Gas
(Bottled Gas) Dealers
454319 Other Fuel Dealers
454390 Other Direct Selling
Establishments (including
door-to-door retailing, frozen
food plan providers, party
plan merchandisers, &
coffee-break service
providers)

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

Code

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

-21-

Finance and Insurance
Depository Credit Intermediation
522110 Commercial Banking
522120 Savings Institutions
522130 Credit Unions
522190 Other Depository Credit
Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers &
originators)
522293 International Trade Financing
522294 Secondary Market Financing
522298 All Other Nondepository
Credit Intermediation
Activities Related to Credit
Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, &
money transmitting)
Securities, Commodity Contracts,
and Other Financial Investments and
Related Activities
523110 Investment Banking &
Securities Dealing
523120 Securities Brokerage
523130 Commodity Contracts
Dealing
523140 Commodity Contracts
Brokerage
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment
advice)
Insurance Carriers and Related
Activities
524140 Direct Life, Health, & Medical
Insurance & Reinsurance
Carriers
524150 Direct Insurance &
Reinsurance (except Life,
Health & Medical) Carriers
524210 Insurance Agencies &
Brokerages
524290 Other Insurance Related
Activities (including
third-party administration of
insurance and pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee
Benefit Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles
(including mortgage REITs &
closed-end investment funds)
“Offices of Bank Holding Companies”
and “Offices of Other Holding
Companies” are located under
Management of Companies (Holding
Companies) on page 22.

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

Page 22 of 23

Instructions for Form 1120

8:37 - 7-NOV-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Principal Business Activity Codes (continued)
Code

Code

531190 Lessors of Other Real Estate
Property (including equity
REITs)
531210 Offices of Real Estate Agents
& Brokers
531310 Real Estate Property
Managers
531320 Offices of Real Estate
Appraisers
531390 Other Activities Related to
Real Estate
Rental and Leasing Services
532100 Automotive Equipment Rental
& Leasing
532210 Consumer Electronics &
Appliances Rental
532220 Formal Wear & Costume
Rental
532230 Video Tape & Disc Rental
532290 Other Consumer Goods
Rental
532310 General Rental Centers
532400 Commercial & Industrial
Machinery & Equipment
Rental & Leasing
Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
533110 Lessors of Nonfinancial
Intangible Assets (except
copyrighted works)

541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional,
Scientific, & Technical
Services

621391 Offices of Podiatrists
621399 Offices of All Other
Miscellaneous Health
Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory
Surgical & Emergency
Centers
621498 All Other Outpatient Care
Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic
Laboratories
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care
Services
621900 Other Ambulatory Health
Care Services (including
ambulance services & blood
& organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care
Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing,
& Emergency & Other Relief
Services
624310 Vocational Rehabilitation
Services
624410 Child Day Care Services

721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler
Accommodation
721210 RV (Recreational Vehicle)
Parks & Recreational Camps
721310 Rooming & Boarding Houses
Food Services and Drinking Places
722110 Full-Service Restaurants
722210 Limited-Service Eating
Places
722300 Special Food Services
(including food service
contractors & caterers)
722410 Drinking Places (Alcoholic
Beverages)

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

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

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

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

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

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

-22-

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

Instructions for Form 1120

Page 23 of 23

Instructions for Form 1120

8:37 - 7-NOV-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index

A
Accounting methods . . . . . . . . . . . 5
Accounting period (Tax
Year) . . . . . . . . . . . . . . . . . . . . . . . 5
Address change . . . . . . . . . . . . . . . 7
Affiliated group . . . . . . . . . . . . . . . 18
Amended return . . . . . . . . . . . . . . . 5
Amortization . . . . . . . . . . . . . . . . . . 8
Assembling the return . . . . . . . . . 4
At-risk rules . . . . . . . . . . . . . . . . . . 12
B
Backup withholding . . . . . . . . . . . 13
Bad debts . . . . . . . . . . . . . . . . . . . . . 9
Balance sheets . . . . . . . . . . . . . . . 18
Business startup expenses . . . . . 8
C
Capital construction fund (See
Merchant Marine capital
construction fund)
Closely held corporations . . . . . . 9
Compensation of officers . . . . . . . 9
Consolidated return . . . . . . . . . 6, 18
Contributions to reduce debt held
by the public . . . . . . . . . . . . . . . . 2
Contributions, charitable . . . . . . 10
Controlled group . . . . . . . . . . . . . 16
Cost of goods sold . . . . . . . . . . 7, 13
Credits against tax . . . . . . . . . . . . 17
D
Deductions . . . . . . . . . . . . . . . . . . . . 8
Depletion . . . . . . . . . . . . . . . . . . . . 11
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . . . 4
Depreciation . . . . . . . . . . . . . . . . . 11
Direct deposit of refund . . . . . 1, 13
Disclosure statement . . . . . . . . . . 5
Dividend income . . . . . . . . . . . . . . 7
Dividends-received
deduction . . . . . . . . . . . . . . . 14-16
Dues, membership and
other . . . . . . . . . . . . . . . . . . . . . . 12
E
Electronic Federal Tax Payment
System (EFTPS) . . . . . . . . . . . . 4

Instructions for Form 1120

Electronic filing . . . . . . . . . . . . . . . . 2
Employee benefit
programs . . . . . . . . . . . . . . . . . . 11
Employer identification number
(EIN) . . . . . . . . . . . . . . . . . . . . . . . 7
Estimated tax:
Penalty . . . . . . . . . . . . . . . . . . 4, 13
Estimated tax payments . . . . . . . 4
Extension of time to file . . . . . . . . 3
F
Farming, corporations engaged
in . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Final return . . . . . . . . . . . . . . . . . . . . 7
Financial asset securitization
investment trust (FASIT) . . . . . 2
Foreign person (defined) . . . . . . 18
Foreign tax credit . . . . . . . . . . . . . 17
Forms and publications, how to
get . . . . . . . . . . . . . . . . . . . . . . . . . 2
G
General business credit . . . . . . . 17
Golden parachute
payments . . . . . . . . . . . . . . . . . . . 8
Gross receipts . . . . . . . . . . . . . . . . . 7
I
Income . . . . . . . . . . . . . . . . . . . . . . . 7
Installment sales . . . . . . . . . . . . . . 7
Interest due:
Late payment of tax . . . . . . . . . 4
Look-back method . . . . . . . . . . 17
Interest expense . . . . . . . . . . . . . 10
Interest expense (relating to
section 263A) . . . . . . . . . . . . . . . 8
Interest income:
Taxable . . . . . . . . . . . . . . . . . . . . . 7
Tax-exempt . . . . . . . . . . . . 18, 19
Inventory:
Section 263A uniform
capitalization rules . . . . . 8, 14
Valuation methods . . . . . . . . . 14
L
LIFO recapture:
Tax on . . . . . . . . . . . . . . . . . . . . . 17
Where to report . . . . . . . . . . . . . 8

Limitations on deductions . . . . . . 8,
10
Limited liability companies . . . . . 2
Lobbying expenses,
nondeductibility . . . . . . . . . . . . 12
M
Merchant Marine capital
construction fund:
Deduction for
contributions . . . . . . . . . . . . . 13
Tax on nonqualified
withdrawal . . . . . . . . . . . . . . . 17
Minimum tax:
Alternative . . . . . . . . . . . . . . . . . 17
Prior year, credit for . . . . . . . . 17
Mutual savings banks conducting
life insurance business . . . . . 16
N
Name change . . . . . . . . . . . . . . . . . 7
Net operating loss . . . . . . . . 12, 18
Nonaccrual experience
method . . . . . . . . . . . . . . . . . . . . . 7
O
Other deductions . . . . . . . . . . . . . 11
Other income . . . . . . . . . . . . . . . . . 7
Other taxes . . . . . . . . . . . . . . . . . . 17
Overpaid estimated tax . . . . . . . 13
P
Partnership income (loss) . . . . . . 8,
12
Passive activity limitations . . . . . . 9
Penalties . . . . . . . . . . . . . . . . . . . 4, 13
Pension, profit-sharing, etc.
plans . . . . . . . . . . . . . . . . . . . . . . 11
Personal holding company . . . . . 6
Personal holding company
tax . . . . . . . . . . . . . . . . . . . . . . . . 17
Personal service
corporation . . . . . . . . . . . . . . . . . 6
Preparer, tax return . . . . . . . . . . . . 3
Private delivery services . . . . . . . 3
Q
Qualified personal service
corporation . . . . . . . . . . . . . . . . 16

-23-

R
Recapture taxes . . . . . . . . . . . . . . 17
Reconciliation of income . . . . . . 19
Recordkeeping . . . . . . . . . . . . . . . . 5
Related party transactions . . . . . 8
Rents (expense) . . . . . . . . . . . . . . 10
Rents (income) . . . . . . . . . . . . . . . . 7
Repairs and maintenance . . . . . . 9
S
Salaries and wages . . . . . . . . . . . . 9
Schedule:
A . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C . . . . . . . . . . . . . . . . . . . . . . . . . . 14
J . . . . . . . . . . . . . . . . . . . . . . . . . . 16
K . . . . . . . . . . . . . . . . . . . . . . . . . . 18
L . . . . . . . . . . . . . . . . . . . . . . . . . . 18
M-1 . . . . . . . . . . . . . . . . . . . . . . . . 19
M-3 . . . . . . . . . . . . . . . . . . . . . . 6, 19
O . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 263A costs . . . . . . . . . 8, 14
Shareholders’ equity
adjustments . . . . . . . . . . . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . . . 3
Special returns for certain
organizations . . . . . . . . . . . . . . . 2
T
Tax issues, unresolved . . . . . . . . 1
Tax rate schedule . . . . . . . . . . . . 16
Taxes and licenses . . . . . . . . . . . 10
Tax-exempt securities . . . . . . . . 19
Travel, meals, and
entertainment . . . . . . . . . . . . . . 12
W
When to file . . . . . . . . . . . . . . . . . . . 3
Where to file . . . . . . . . . . . . . . . . . . 3
Who must file . . . . . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . . . . 3
Worksheets . . . . . . . . . . . . . . . . . . 16
Schedule C . . . . . . . . . . . . . . . . 16

■

PAGER/SGML
Page 1 of 22

Userid: ________
DTD INSTR04
Leading adjust: -5%
Fileid: I1120_A.SGM (27-Dec-2006)

Instructions for Forms 1120 and 1120-A

❏ Draft
(Init. & date)

❏

Ok to Print

15:00 - 27-DEC-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

PRIOR VERSION

2006

Department of the Treasury
Internal Revenue Service

Deletions

Instructions for
Forms 1120 and 1120-A
• The filing address for corporations whose

Section references are to the Internal
Revenue Code unless otherwise noted.
Contents
Photographs of Missing Children . .
Unresolved Tax Issues . . . . . . . .
Direct Deposit of Refund . . . . . . .
How To Make a Contribution To
Reduce Debt Held by the Public
How To Get Forms and
Publications . . . . . . . . . . . . . .
General Instructions . . . . . . . . .
Purpose of Form . . . . . . . . . . . . .
Who Must File . . . . . . . . . . . . . .
Electronic Filing . . . . . . . . . . . . .
When To File . . . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . . . .
Paid Preparer Authorization . . . . .
Assembling the Return . . . . . . . .
Depository Methods of Tax
Payment . . . . . . . . . . . . . . . . .
Estimated Tax Payments . . . . . . .
Interest and Penalties . . . . . . . . .
Accounting Methods . . . . . . . . . .
Accounting Period . . . . . . . . . . . .
Rounding Off to Whole Dollars . . .
Recordkeeping . . . . . . . . . . . . . .
Other Forms and Statements That
May Be Required . . . . . . . . . . .
Specific Instructions . . . . . . . . .
Period Covered . . . . . . . . . . . . .
Name and Address . . . . . . . . . . .
Identifying Information . . . . . . . . .
Employer Identification Number
(EIN) . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . .
Initial Return, Final Return, Name
Change, Address Change . . . . .
Income . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . .
Tax and Payments . . . . . . . . . . .
Schedule A . . . . . . . . . . . . . . . .
Cost of Goods Sold Worksheet . . .
Schedule C . . . . . . . . . . . . . . . .
Worksheet for Schedule C . . . . . .
Schedule J . . . . . . . . . . . . . . . . .
Schedule K . . . . . . . . . . . . . . . .
Schedule L . . . . . . . . . . . . . . . . .
Schedule M-1 . . . . . . . . . . . . . . .
Principal Business Activity Codes .
Index . . . . . . . . . . . . . . . . . . . . .

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What’s New
• For tax years ending on or after
December 31, 2006, certain corporations
with total assets of $10 million or more at
the end of the corporation’s tax year, must
electronically file Form 1120. See Electronic
Filing (Form 1120 Only) on page 2.
• Subchapter T cooperatives should file
Form 1120-C, U. S. Income Tax Return for
Cooperative Associations, instead of Form
1120 or Form 1120-A. See Form 1120-C
and its instructions.

principal business, office, or agency is
located in a foreign country or U.S.
possession has changed. See Where To
File on page 3.
• Corporations must include in income part
or all of the proceeds received from certain
corporate-owned life insurance contracts
issued after August 17, 2006. See section
101(j) for details.
• Certain corporate farmers and ranchers
may have an increased contribution limit
and carryover period for donations of
conservation property. See Suspension of
10% limitation for farmers and ranchers on
page 9.
• Cash contributions made in tax years
beginning after August 17, 2006, must be
supported by a dated bank record or receipt.
See Substantiation requirements on page
10.
• New rules and restrictions apply to certain
contributions of real property interests
located in a registered historic district. Also,
a $500 filing fee may apply to certain
deductions over $10,000. See Special rules
for contributions of certain easements in
registered historic districts on page 10.
• The larger deductions for contributions of
certain food inventory and qualified book
contributions to certain schools have been
extended through December 31, 2007. See
Other special rules on page 10.
• Corporations that paid the federal
telephone excise tax on long distance or
bundled service may be able to request a
credit. See the instructions for line 32g on
page 12.
• Controlled groups must complete new
Schedule O (Form 1120), Consent Plan and
Apportionment Schedule for a Controlled
Group, before completing Schedule J. See
the Instructions for Schedule O.
• The possessions tax credit under section
936 or section 30A has expired for most
corporations for tax years beginning in 2006.
For guidance on certain issues that may
arise depending on the manner in which the
business of the corporation continues to be
conducted after 2005, see Notice 2005-21,
2005-11 I.R.B. 727.
• For tax years beginning in 2006, a
corporation that is an existing credit claimant
with respect to American Samoa, may be
able to claim the American Samoa
economic development credit. See the
Instructions for Form 5735.

Photographs of
Missing Children
The Internal Revenue Service is a proud
partner with the National Center for Missing
and Exploited Children. Photographs of
missing children selected by the Center may
appear in instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
Cat. No. 11455T

photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.

Unresolved Tax Issues
If the corporation has attempted to deal with
an IRS problem unsuccessfully, it should
contact the Taxpayer Advocate. The
Taxpayer Advocate independently
represents the corporation’s interests and
concerns within the IRS by protecting its
rights and resolving problems that have not
been fixed through normal channels.
While Taxpayer Advocates cannot
change the tax law or make a technical tax
decision, they can clear up problems that
resulted from previous contacts and ensure
that the corporation’s case is given a
complete and impartial review.
The corporation’s assigned personal
advocate will listen to its point of view and
will work with the corporation to address its
concerns. The corporation can expect the
advocate to provide:
• A “fresh look” at a new or ongoing
problem,
• Timely acknowledgment,
• The name and phone number of the
individual assigned to its case,
• Updates on progress,
• Timeframes for action,
• Speedy resolution, and
• Courteous service.
When contacting the Taxpayer Advocate,
the corporation should be prepared to
provide the following information.
• The corporation’s name, address, and
employer identification number.
• The name and telephone number of an
authorized contact person and the hours he
or she can be reached.
• The type of tax return and year(s)
involved.
• A detailed description of the problem.
• Previous attempts to solve the problem
and the office that was contacted.
• A description of the hardship the
corporation is facing and supporting
documentation (if applicable).
The corporation can contact a Taxpayer
Advocate as follows.
• Call the Taxpayer Advocate’s toll-free
number: 1-877-777-4778.
• Call, write, or fax the Taxpayer Advocate
office in its area (see Pub. 1546 for
addresses and phone numbers).
• TTY/TDD help is available by calling
1-800-829-4059.
• Visit the website at www.irs.gov/advocate.

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Instructions for Forms 1120 and 1120-A

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

How To Get Forms
and Publications
Internet. You can access the IRS website
24 hours a day, 7 days a week, at www.irs.
gov to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword; and
• Sign up to receive local and national tax
news by email.
IRS Tax Products CD. You can order Pub.
1796, IRS Tax Products CD, and obtain:
• Current year forms, instructions, and
publications;
• Prior year forms, instructions, and
publications;
• Bonus: Historical Tax Products DVD –
Ships with the final release;
• Tax Map: an electronic research tool and
finding aid;
• Tax law frequently asked questions
(FAQs);
• Tax Topics from the IRS telephone
response system;
• Fill-in, print and save features for most tax
forms;
• Internal Revenue Bulletins; and
• Toll-free and email technical support.
The CD is released twice during the year.
The first release will ship the beginning of
January and the final release will ship the
beginning of March.
Buy the CD from the National Technical
Information Service (NTIS) at www.irs.gov/
cdorders for $25 (no handling fee) or call
1-877-CDFORMS (1-877-233-6767) toll free
to buy the CD for $25 (plus a $5 handling
fee). Price is subject to change.
By phone and in person. You can order
forms and publications by calling
1-800-TAX-FORM (1-800-829-3676). You
can also get most forms and publications at
your local IRS office.

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

file Form 1120 or, if they qualify, Form
1120-A, unless they are required to file a
special return. See Special Returns for
Certain Organizations below.
Limited liability companies. If an entity
with more than one owner was formed as a
limited liability company (LLC) under state
law, it generally is treated as a partnership
for federal income tax purposes and files
Form 1065, U.S. Return of Partnership
Income. Generally, a single-member LLC is
disregarded as an entity separate from its
owner and reports its income and
deductions on its owner’s federal income tax
return. The LLC can file a Form 1120 or
Form 1120-A only if it has filed Form 8832,
Entity Classification Election, to elect to be
treated as an association taxable as a
corporation. For more information about
LLCs, see Pub. 3402, Tax Issues for Limited
Liability Companies.
Corporations engaged in farming. A
corporation (other than a corporation that is
a subchapter T cooperative) that engages in
farming should use Form 1120 or, if they
qualify, Form 1120-A, to report the income
(loss) from such activities. Enter the income
and deductions of the corporation according
to the instructions for lines 1 through 10 and
12 through 29 (lines 12 through 25 of Form
1120-A).
Ownership interest in a Financial Asset
Securitization Investment Trust (FASIT).
Special rules apply to a FASIT in existence
on October 22, 2004, to the extent that
regular interests issued by the FASIT before
October 22, 2004, continue to remain
outstanding in accordance with their original
terms.
If a corporation holds an ownership
interest in a FASIT to which these special
rules apply, it must report all items of
income, gain, deductions, losses, and
credits on the corporation’s income tax
return (except as provided in section 860H).
Show a breakdown of the items on an
attached schedule. For more information,
see sections 860H and 860L.

a. Any ownership in a foreign
corporation or foreign partnership,
b. Foreign shareholders that directly or
indirectly own 25% or more of its stock, or
c. Any ownership in, or transactions
with, a foreign trust.

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

Special Returns for
Certain Organizations
Instead of filing Form 1120 or Form 1120-A,
certain organizations, as shown below, have
to file special returns.

If the organization is a:

File Form

Who May File Form 1120-A
A corporation may file Form 1120-A if it met
all of the following requirements during the
tax year.
1. Its gross receipts (line 1a on page 1)
are under $500,000.
2. Its total income (line 11 on page 1) is
under $500,000.
3. Its total assets (Item D on page 1) are
under $500,000.
4. Its only dividend income is from
domestic corporations and those dividends
(a) qualify for the 70% dividends-received
deduction and (b) are not from
debt-financed securities.
5. It does not owe alternative minimum
tax.
6. It does not have any of the “write-in”
additions to tax listed in the instructions for
Schedule J, line 2 or line 10.
7. It has no nonrefundable tax credits
other than the general business credit.
8. It is not:
a. A member of a controlled group,
b. A personal holding company,
c. Filing a consolidated return,
d. Electing to forego the entire carryback
period for any NOL, or
e. Required to file one of the returns
listed under Special Returns for Certain
Organizations.
9. It does not have:

-2-

Exempt organization with
unrelated trade or business
income

990-T

Religious or apostolic
organization exempt under
section 501(d)

1065

Entity formed as a limited
liability company under state
law and treated as a
partnership for federal
income tax purposes

1065

Cooperative association
(including a subchapter T
cooperative)
Entity that elects to be treated
as a real estate mortgage
investment conduit (REMIC)
under section 860D
Interest charge domestic
international sales
corporation (section 992)

1120-C

1066

1120-IC-DISC

Instructions for Forms 1120 and 1120-A

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Instructions for Forms 1120 and 1120-A

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Foreign corporation (other
than life and property and
casualty insurance company
filing Form 1120-L or Form
1120-PC)
Foreign sales corporation
(section 922)

1120-F

1120-FSC

Condominium management,
residential real estate
management, or timeshare
association that elects to be
treated as a homeowners
association under section 528

1120-H

Life insurance company
(section 801)

1120-L

must sign it and fill in the “Paid Preparer’s
Use Only” area.

Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service to
mail any item to an IRS P.O. box address.

The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided for
the preparer’s signature.
• Give a copy of the return to the taxpayer.

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

Who Must Sign

Fund set up to pay for
nuclear decommissioning
costs (section 468A)

1120-ND

Property and casualty
insurance company
(section 831)

1120-PC

Political organization
(section 527)

1120-POL

Real estate investment trust
(section 856)

1120-REIT

Regulated investment
company (section 851)

The private delivery service can tell you
how to get written proof of the mailing date.

1120-RIC

S corporation (section 1361)
Settlement fund
(section 468B)

The return must be signed and dated by:
• The president, vice president, treasurer,
assistant treasurer, chief accounting officer;
or
• Any other corporate officer (such as tax
officer) authorized to sign.
If a return is filed on behalf of a
corporation by a receiver, trustee, or
assignee, the fiduciary must sign the return,
instead of the corporate officer. Returns and
forms signed by a receiver or trustee in
bankruptcy on behalf of a corporation must
be accompanied by a copy of the order or
instructions of the court authorizing signing
of the return or form.
If an employee of the corporation
completes Form 1120 or Form 1120-A, the
paid preparer’s space should remain blank.
Anyone who prepares Form 1120 or Form
1120-A but does not charge the corporation
should not complete that section. Generally,
anyone who is paid to prepare the return

Note. A paid preparer may sign original or
amended returns by rubber stamp,
mechanical device, or computer software
program.

Paid Preparer
Authorization
If the corporation wants to allow the IRS to
discuss its 2006 tax return with the paid
preparer who signed it, check the “Yes” box
in the signature area of the return. This
authorization applies only to the individual
whose signature appears in the “Paid
Preparer’s Use Only” section of the return. It
does not apply to the firm, if any, shown in
that section.
If the “Yes” box is checked, the
corporation is authorizing the IRS to call the
paid preparer to answer any questions that
may arise during the processing of its return.
The corporation is also authorizing the paid
preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of any
related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return preparation.

1120S

Where To File
1120-SF

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

Private Delivery Services
Corporations can use certain private
delivery services designated by the IRS to
meet the “timely mailing as timely filing/
paying” rule for tax returns and payments.
These private delivery services include only
the following.
• DHL Express (DHL): DHL Same Day
Service, DHL Next Day 10:30 am, DHL Next
Day 12:00 pm, DHL Next Day 3:00 pm, and
DHL 2nd Day Service.
• Federal Express (FedEx): FedEx Priority
Overnight, FedEx Standard Overnight,
FedEx 2Day, FedEx International Priority,
and FedEx International First.
• United Parcel Service (UPS): UPS Next
Day Air, UPS Next Day Air Saver, UPS 2nd
Day Air, UPS 2nd Day Air A.M., UPS
Worldwide Express Plus, and UPS
Worldwide Express.

Instructions for Forms 1120 and 1120-A

File the corporation’s return at the applicable IRS address listed below.
If the corporation’s principal And the total assets at the
business, office, or agency end of the tax year (Form
is located in:
1120, page 1, item D) are:
Connecticut, Delaware, District
of Columbia, Illinois, Indiana,
Kentucky, Maine, Maryland,
Massachusetts, Michigan, New
Hampshire, New Jersey, New
York, North Carolina, Ohio,
Pennsylvania, Rhode Island,
South Carolina, Vermont,
Virginia, West Virginia,
Wisconsin

Use the following Internal
Revenue Service Center
address:

Less than $10 million

Cincinnati, OH 45999-0012

$10 million or more

Ogden, UT 84201-0012

Alabama, Alaska, Arizona,
Arkansas, California, Colorado,
Florida, Georgia, Hawaii,
Idaho, Iowa, Kansas,
Louisiana, Minnesota,
Mississippi, Missouri, Montana,
Nebraska, Nevada, New
Mexico, North Dakota,
Oklahoma, Oregon, South
Dakota, Tennessee, Texas,
Utah, Washington, Wyoming

Any amount

Ogden, UT 84201-0012

A foreign country or U.S.
possession

Any amount

P.O. Box 409101
Ogden, UT 84409

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

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Instructions for Forms 1120 and 1120-A

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The corporation is not authorizing the
paid preparer to receive any refund check,
bind the corporation to anything (including
any additional tax liability), or otherwise
represent the corporation before the IRS.
The authorization will automatically end
no later than the due date (excluding
extensions) for filing the corporation’s 2007
tax return. If the corporation wants to
expand the paid preparer’s authorization or
revoke the authorization before it ends, see
Pub. 947, Practice Before the IRS and
Power of Attorney.

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

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

Electronic Deposit Requirement
The corporation must make electronic
deposits of all depository taxes (such as
employment tax, excise tax, and corporate
income tax) using the Electronic Federal
Tax Payment System (EFTPS) in 2007 if:
• The total deposits of such taxes in 2005
were more than $200,000 or
• The corporation was required to use
EFTPS in 2006.
If the corporation is required to use
EFTPS and fails to do so, it may be subject
to a 10% penalty. If the corporation is not
required to use EFTPS, it can participate
voluntarily. To enroll in or get more
information about EFTPS, call
1-800-555-4477. To enroll online, visit www.
eftps.gov.
Depositing on time. For EFTPS deposits
to be made timely, the corporation must
initiate the transaction at least 1 business
day before the date the deposit is due.

Form 8109-B to make deposits. You can get
this form by calling 1-800-829-4933 or
visiting an IRS taxpayer assistance center.
Have your EIN ready when you call or visit.
Do not send deposits directly to an IRS
office; otherwise, the corporation may have
to pay a penalty. Mail or deliver the
completed Form 8109 with the payment to
an authorized depositary (a commercial
bank or other financial institution authorized
to accept federal tax deposits). Make checks
or money orders payable to the depositary.
If the corporation prefers, it can mail the
coupon and payment to: Financial Agent,
Federal Tax Deposit Processing, P.O. Box
970030, St. Louis, MO 63197. Make the
check or money order payable to “Financial
Agent.”
To help ensure proper crediting, enter
the corporation’s EIN, the tax period to
which the deposit applies, and “Form 1120”
on the check or money order. Darken the
“1120” box under “Type of Tax” and the
appropriate “Quarter” box under “Tax
Period” on the coupon. Records of these
deposits will be sent to the IRS. For more
information, see “Marking the Proper Tax
Period” in the instructions for Form 8109.
For more information on deposits, see
the instructions in the coupon booklet (Form
8109) and Pub. 583, Starting a Business
and Keeping Records.
If the corporation owes tax when it
files Form 1120 or Form 1120-A, do
CAUTION not include the payment with the tax
return. Instead, mail or deliver the payment
with Form 8109 to an authorized depositary,
or use EFTPS, if applicable.

Estimated Tax Payments

amount of the penalty. Generally, the
corporation does not have to file this form
because the IRS can figure the amount of
any penalty and bill the corporation for it.
However, even if the corporation does not
owe the penalty, complete and attach Form
2220 if:
• The annualized income or adjusted
seasonal installment method is used, or
• The corporation is a large corporation
computing its first required installment
based on the prior year’s tax. See the
Instructions for Form 2220 for the definition
of a large corporation.
Also, see the instructions for line 33, Form
1120 (line 29, Form 1120-A).

Interest and Penalties
Interest. Interest is charged on taxes paid
late even if an extension of time to file is
granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial understatements
of tax, and reportable transaction
understatements from the due date
(including extensions) to the date of
payment. The interest charge is figured at a
rate determined under section 6621.
Late filing of return. A corporation that
does not file its tax return by the due date,
including extensions, may be penalized 5%
of the unpaid tax for each month or part of a
month the return is late, up to a maximum of
25% of the unpaid tax. The minimum
penalty for a return that is over 60 days late
is the smaller of the tax due or $100. The
penalty will not be imposed if the corporation
can show that the failure to file on time was
due to reasonable cause. Corporations that
file late should attach a statement explaining
the reasonable cause.

Generally, the following rules apply to the
corporation’s payments of estimated tax.
• The corporation must make installment
payments of estimated tax if it expects its
total tax for the year (less applicable credits)
to be $500 or more.
• The installments are due by the 15th day
of the 4th, 6th, 9th, and 12th months of the
tax year. If any date falls on a Saturday,
Sunday, or legal holiday, the installment is
due on the next regular business day.
• Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to compute
estimated tax.
• If the corporation does not use EFTPS,
use the deposit coupons (Forms 8109) to
make deposits of estimated tax.
• If the corporation overpaid estimated tax,
it may be able to get a quick refund by filing
Form 4466, Corporation Application for
Quick Refund of Overpayment of Estimated
Tax.
See the instructions for lines 32b and
32c, Form 1120 (lines 28b and 28c, Form
1120-A).
Estimated tax penalty. A corporation that
does not make estimated tax payments
when due may be subject to an
underpayment penalty for the period of
underpayment. Generally, a corporation is
subject to the penalty if its tax liability is
$500 or more and it did not timely pay the
smaller of:
• Its tax liability for 2006 or
• Its prior year’s tax.
See section 6655 for details and exceptions,
including special rules for large
corporations.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to see if the
corporation owes a penalty and to figure the

Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud. See
sections 6662, 6662A, and 6663.

-4-

Instructions for Forms 1120 and 1120-A

Late payment of tax. A corporation that
does not pay the tax when due generally
may be penalized 1/2 of 1% of the unpaid tax
for each month or part of a month the tax is
not paid, up to a maximum of 25% of the
unpaid tax. The penalty will not be imposed
if the corporation can show that the failure to
pay on time was due to reasonable cause.
Trust fund recovery penalty. This penalty
may apply if certain excise, income, social
security, and Medicare taxes that must be
collected or withheld are not collected or
withheld, or these taxes are not paid. These
taxes are generally reported on:
• Form 720, Quarterly Federal Excise Tax
Return;
• Form 941, Employer’s QUARTERLY
Federal Tax Return;
• Form 943, Employer’s Annual Federal
Tax Return for Agricultural Employees; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are determined
by the IRS to have been responsible for
collecting, accounting for, and paying over
these taxes, and who acted willfully in not
doing so. The penalty is equal to the unpaid
trust fund tax. See the Instructions for Form
720, Pub. 15 (Circular E), Employer’s Tax
Guide, or Pub. 51 (Circular A), Agricultural
Employer’s Tax Guide, for details, including
the definition of responsible persons.

Page 5 of 22

Instructions for Forms 1120 and 1120-A

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Accounting Methods

Recordkeeping

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

Keep the corporation’s records for as long
as they may be needed for the
administration of any provision of the
Internal Revenue Code. Usually, records
that support an item of income, deduction,
or credit on the return must be kept for 3
years from the date the return is due or filed,
whichever is later. Keep records that verify
the corporation’s basis in property for as
long as they are needed to figure the basis
of the original or replacement property.

Generally, the following rules apply.

• 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.
• Unless it is a qualifying taxpayer or a
qualifying small business taxpayer, a
corporation must use the accrual method for
sales and purchases of inventory items. See
page 13.
• A corporation engaged in farming must
use the accrual method. For exceptions, see
section 447.
• Special rules apply to long-term contracts.
See section 460.
• Dealers in securities must use the
mark-to-market accounting method. Dealers
in commodities and traders in securities and
commodities can elect to use the
mark-to-market accounting method. See
section 475.
Change in accounting method. To
change the method of accounting used to
report taxable income (for income as a
whole or for the treatment of any material
item), the corporation must file Form 3115,
Application for Change in Accounting
Method.
See Form 3115 and Pub. 538,
Accounting Periods and Methods, for more
information on accounting methods.

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

Rounding Off to
Whole Dollars
The corporation can round off cents to
whole dollars on its return and schedules. If
the corporation does round to whole dollars,
it must round all amounts. To round, drop
amounts under 50 cents and increase
amounts from 50 to 99 cents to the next
dollar. For example, $1.39 becomes $1 and
$2.50 becomes $3.

The corporation should keep copies of all
filed returns. They help in preparing future
and amended returns.

Other Forms and
Statements That May Be
Required
Amended return. Use Form 1120X,
Amended U.S. Corporation Income Tax
Return, to correct a previously filed Form
1120 or Form 1120-A.
Reportable transaction disclosure
statement. Disclose information for each
reportable transaction in which the
corporation participated. Form 8886,
Reportable Transaction Disclosure
Statement, must be filed for each tax year
that the federal income tax liability of the
corporation is affected by its participation in
the transaction. The corporation may have
to pay a penalty if it is required to file Form
8886 and does not do so. The following are
reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to tax avoidance
transactions identified by the IRS.
2. Any transaction offered under
conditions of confidentiality for which the
corporation paid an advisor a fee of at least
$250,000.
3. Certain transactions for which the
corporation has contractual protection
against disallowance of the tax benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single year
or $20 million in any combination of years.
5. Certain transactions resulting in a tax
credit of more than $250,000, if the
corporation held the asset generating the
credit for 45 days or less.
Penalties. The corporation may have to
pay a penalty if it is required to disclose a
reportable transaction under section 6011
and fails to properly complete and file Form
8886. The penalty is $50,000 ($200,000 if
the reportable transaction is a listed
transaction) for each failure to file Form
8886 with its corporate return or for failure to
provide a copy of Form 8886 to the Office of
Tax Shelter Analysis (OTSA). Other
penalties, such as an accuracy-related
penalty under section 6662A, may also
apply. See the Instructions for Form 8886
for details.

If two or more amounts must be added to
figure the amount to enter on a line, include
cents when adding the amounts and round
off only the total.

Reportable transactions by material
advisors. Until further guidance is issued,
material advisors who provide material aid,
assistance, or advice with respect to any
reportable transaction, must use Form 8264,
Application for Registration of a Tax Shelter,
to disclose reportable transactions in
accordance with interim guidance provided
in Notice 2004-80, 2004-50 I.R.B. 963;
Notice 2005-17, 2005-8 I.R.B. 606; and
Notice 2005-22, 2005-12 I.R.B. 756.

Instructions for Forms 1120 and 1120-A

-5-

Transfers to a corporation controlled by
the transferor. If a person receives stock of
a corporation in exchange for property, and
no gain or loss is recognized under section
351, the person (transferor) and the
transferee must each attach to their tax
returns the statements required by
Temporary Regulations section 1.351-3T.
Dual consolidated losses. If a domestic
corporation incurs a dual consolidated loss
(as defined in Regulations section
1.1503-2(c)(5)), the corporation (or
consolidated group) may need to attach an
elective relief agreement and/or an annual
certification as provided in Regulations
section 1.1503-2(g)(2).
Election to reduce basis under section
362(e)(2)(C). The transferor and transferee
in certain section 351 transactions can make
a joint election under section 362(e)(2)(C) to
limit the transferor’s basis in the stock
received instead of the transferee’s basis in
the transferred property. The transferor and
transferee may make the election by
attaching the statement as provided in
Notice 2005-70, 2005-41 I.R.B. 694, to their
tax returns filed by the due date (including
extensions) for the tax year in which the
transaction occurred. Once made, the
election is irrevocable. See section
362(e)(2)(C) and Notice 2005-70.
Other forms and statements. See Pub.
542 for a list of other forms and statements
a corporation may need to file in addition to
the forms and statements discussed
throughout these instructions.

Specific Instructions
Period Covered
File the 2006 return for calendar year 2006
and fiscal years that begin in 2006 and end
in 2007. For a fiscal or short tax year return,
fill in the tax year space at the top of the
form.
The 2006 Form 1120 can also be used
if:
• The corporation has a tax year of less
than 12 months that begins and ends in
2007, and
• The 2007 Form 1120 is not available at
the time the corporation is required to file its
return.
The corporation must show its 2007 tax
year on the 2006 Form 1120 and take into
account any tax law changes that are
effective for tax years beginning after
December 31, 2006.

Name and Address
Print or type the corporation’s true name (as
set forth in the charter or other legal
document creating it), address, and EIN on
the appropriate lines. Include the suite,
room, or other unit number after the street
address. If the post office does not deliver
mail to the street address and the
corporation has a P.O. box, show the box
number instead.
If the corporation receives its mail in care
of a third party (such as an accountant or an
attorney), enter on the street address line
“C/O” followed by the third party’s name and
street address or P.O. box.
If the corporation received a Form 1120
tax package, use the preprinted label. Cross
out any errors and print the correct
information on the label.

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Item A. Identifying
Information

performing arts. The services must be
substantially performed by
employee-owners. See Pub. 542 for more
details.

Consolidated Return
(Form 1120 Only)

A personal service corporation must use
a calendar tax year unless:
• It elects to use a 52-53-week tax year that
ends with reference to the calendar year or
tax year elected under section 444;
• It can establish a business purpose for a
different tax year and obtains the approval
of the IRS (see Form 1128 and Pub. 538);
or
• It elects under section 444 to have a tax
year other than a calendar year. To make
the election, use Form 8716, Election To
Have a Tax Year Other Than a Required
Tax Year.

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

TIP complete (3), (4), and (5) above, if its
total receipts (line 1a plus lines 4
through 10 on page 1 of the return) and its
total assets at the end of the tax year are
less than $250,000.
For more information on consolidated
returns, see the regulations under section
1502.
Common parent of a life-nonlife
consolidated group. If the corporation is
the common parent of a consolidated group
that includes a life-nonlife insurance
company, attach a statement to the return
that includes the name and employer
identification number (EIN) of the common
parent and indicates that this corporation is
the common parent of a life-nonlife
consolidated group. See Temporary
Regulations section 1.1502-47T(s) for more
details.

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

If a corporation makes the section 444
election, its deduction for certain amounts
paid to employee-owners may be limited.
See Schedule H (Form 1120), Section 280H
Limitations for a Personal Service
Corporation (PSC), to figure the maximum
deduction.
If a section 444 election is terminated
and the termination results in a short tax
year, type or print at the top of the first page
of Form 1120 or Form 1120-A for the short
tax year “SECTION 444 ELECTION
TERMINATED.” See Temporary
Regulations section 1.444-1T(a)(5) for more
information.
For more information regarding a
personal service corporation, see Pub. 542.

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

Item B. Employer
Identification Number (EIN)
Enter the corporation’s EIN. If the
corporation does not have an EIN, it must
apply for one. An EIN can be applied for:
• Online — Click on the EIN link at www.irs.
gov/businesses/small. The EIN is issued
immediately once the application information
is validated.
• By telephone at 1-800-829-4933 from
7:00 a.m. to 10:00 p.m. in the corporation’s
local time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.

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

Item E. Initial Return, Final
Return, Name Change, or
Address Change
• If this is the corporation’s first return,
check the “Initial return” box.

• If this is the corporation’s final return and

it will no longer exist, check the “Final
return” box.
• If the corporation changed its name since
it last filed a return, check the box for “Name
change.” Generally, a corporation also must
have amended its articles of incorporation
and filed the amendment with the state in
which it was incorporated.
• If the corporation has changed its address
since it last filed a return (including a change
to an “in care of” address), check the box for
“Address change.”
Note. If a change in address occurs after
the return is filed, use Form 8822, Change
of Address, to notify the IRS of the new
address.

Income
Except as otherwise provided in the Internal
Revenue Code, gross income includes all
income from whatever source derived.
Extraterritorial income. Gross income
generally does not include extraterritorial
income that is qualifying foreign trade
income. Use Form 8873, Extraterritorial
Income Exclusion, to figure the exclusion.
Include the exclusion in the total for “Other
deductions” on line 26, Form 1120 (line 22,
Form 1120-A). See the Instructions for Form
8873 for more information.
Income from qualifying shipping
activities. Gross income does not include
income from qualifying shipping activities if
the corporation makes an election under
section 1354 to be taxed on its notional
shipping income (as defined in section
1353) at the highest corporate tax rate
(35%). If the election is made, the
corporation generally may not claim any
loss, deduction, or credit with respect to
qualifying shipping activities. A corporation
making this election also may elect to defer
gain on the disposition of a qualifying
vessel.
Use Form 8902, Alternative Tax on
Qualifying Shipping Activities, to figure the
tax. Include the alternative tax on Schedule
J, line 9.

Line 1. Gross Receipts or Sales

Note. The online application process is not
yet available for corporations with addresses
in foreign countries or Puerto Rico.

Enter gross receipts or sales from all
business operations except those that must
be reported on lines 4 through 10. In
general, advance payments are reported in
the year of receipt. To report income from
long-term contracts, see section 460. For
special rules for reporting certain advance
payments for goods and long-term
contracts, see Regulations section 1.451-5.

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Instructions for Forms 1120 and 1120-A

If the corporation has not received its
EIN by the time the return is due, enter
“Applied for” and the date you applied in the
space for the EIN. For more details, see the
instructions for Form SS-4.

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For permissible methods for reporting
advance payments for services and certain
goods by an accrual method corporation,
see Rev. Proc. 2004-34, 2004-22 I.R.B. 991.
Installment sales. Generally, the
installment method cannot be used for
dealer dispositions of property. A “dealer
disposition” is any disposition of: (a)
personal property by a person who regularly
sells or otherwise disposes of personal
property of the same type on the installment
plan or (b) real property held for sale to
customers in the ordinary course of the
taxpayer’s trade or business.
These restrictions on using the
installment method do not apply to
dispositions of property used or produced in
a farming business or sales of timeshares
and residential lots for which the corporation
elects to pay interest under section
453(l)(3).
For sales of timeshares and residential
lots reported under the installment method,
the corporation’s income tax is increased by
the interest payable under section 453(l)(3).
Report this addition to the tax on line 9,
Schedule J, Form 1120 (Part I, line 4, Form
1120-A).
Enter on line 1 (and carry to line 3), the
gross profit on collections from installment
sales for any of the following.
• Dealer dispositions of property before
March 1, 1986.
• Dispositions of property used or produced
in the trade or business of farming.
• Certain dispositions of timeshares and
residential lots reported under the
installment method.
Attach a schedule showing the following
information for the current and the 3
preceding years: (a) gross sales, (b) cost of
goods sold, (c) gross profits, (d) percentage
of gross profits to gross sales, (e) amount
collected, and (f) gross profit on the amount
collected.

Line 4. Dividends
Form 1120 filers. See the instructions for
Schedule C. Then, complete Schedule C
and enter on line 4 the amount from
Schedule C, line 19.
Form 1120-A filers. Enter the total
dividends received (that are not from
debt-financed stock) from domestic
corporations that qualify for the 70%
dividends-received deduction.

Line 5. Interest
Enter taxable interest on U.S. obligations
and on loans, notes, mortgages, bonds,
bank deposits, corporate bonds, tax refunds,
etc. Do not offset interest expense against
interest income. Special rules apply to
interest income from certain
below-market-rate loans. See section 7872
for details.
Note. Report tax-exempt interest income on
Schedule K, item 9 (Part II, item 3, Form
1120-A). Also, if required, include the same
amount on Schedule M-1, line 7; Form
1120-A, Part IV, line 6; or Schedule M-3
(Form 1120), Part II, line 13.

Line 6. Gross Rents
Enter the gross amount received for the
rental of property. Deduct expenses such as
repairs, interest, taxes, and depreciation on
the proper lines for deductions. A rental
activity held by a closely held corporation or
a personal service corporation may be
subject to the passive activity loss rules.
See Passive activity limitations on page 8.

Line 10. Other Income

Enter the cost of goods sold on line 2, page
1. Before making this entry, a Form 1120
filer must complete Schedule A on page 2 of
Form 1120. See the Schedule A instructions
on page 13. Form 1120-A filers can use the
worksheet on page 13 to figure the amount
to enter on line 2.

Enter any other taxable income not reported
on lines 1 through 9. List the type and
amount of income on an attached schedule.
If the corporation has only one item of other
income, describe it in parentheses on line
10.
Examples of other income to report on
line 10 include the following.
1. Recoveries of bad debts deducted in
prior years under the specific charge-off
method.
2. The amount included in income from
Form 6478, Credit for Alcohol Used as Fuel.
3. The amount included in income from
Form 8864, Biodiesel and Renewable Diesel
Fuels Credit.
4. Refunds of taxes deducted in prior
years to the extent they reduced income
subject to tax in the year deducted (see
section 111). Do not offset current year
taxes against tax refunds.
5. Any recapture amount under section
179A for certain clean-fuel vehicle property
(or clean-fuel vehicle refueling property) that
ceases to qualify. See Regulations section
1.179A-1 for details.
6. Ordinary income from trade or
business activities of a partnership (from
Schedule K-1 (Form 1065 or 1065-B)). Do
not offset ordinary losses against ordinary
income. Instead, include the losses on line
26, Form 1120 (line 22, Form 1120-A).
Show the partnership’s name, address, and
EIN on a separate statement attached to
this return. If the amount entered is from
more than one partnership, identify the
amount from each partnership.
7. Any LIFO recapture amount under
section 1363(d). The corporation may have
to include a LIFO recapture amount in
income if it:
a. Used the LIFO inventory method for
its last tax year before the first tax year for

Instructions for Forms 1120 and 1120-A

-7-

Nonaccrual experience method. Accrual
method corporations are not required to
accrue certain amounts to be received from
the performance of services that, on the
basis of their experience, will not be
collected, if:
• The services are in the fields of health,
law, engineering, architecture, accounting,
actuarial science, performing arts, or
consulting, or
• The corporation’s average annual gross
receipts for the 3 prior tax years does not
exceed $5 million.
This provision does not apply to any
amount if interest is required to be paid on
the amount or if there is any penalty for
failure to timely pay the amount. For more
information, see section 448(d)(5) and
Regulations section 1.448-2.
Corporations that qualify to use the
nonaccrual experience method should
attach a schedule showing total gross
receipts, the amount not accrued as a result
of the application of section 448(d)(5), and
the net amount accrued. Enter the net
amount on line 1a.

Line 2. Cost of Goods Sold

which it elected to become an S corporation
or
b. Transferred LIFO inventory assets to
an S corporation in a nonrecognition
transaction in which those assets were
transferred basis property.
The LIFO recapture amount is the
amount by which the C corporation’s
inventory under the FIFO method exceeds
the inventory amount under the LIFO
method at the close of the corporation’s last
tax year as a C corporation (or for the year
of the transfer, if (b) above applies). For
more information, see Regulations section
1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B.
775. Also see the instructions for Schedule
J, line 10.
8. Any net positive section 481(a)
adjustment. The corporation may have to
make an adjustment under section 481(a) to
prevent amounts of income or expense from
being duplicated or omitted. The section
481(a) adjustment period is generally 1 year
for a net negative adjustment and 4 years
for a net positive adjustment. However, a
corporation can elect to use a 1-year
adjustment period if the net section 481(a)
adjustment for the change is less than
$25,000. The corporation must complete the
appropriate lines of Form 3115 to make the
election. If the net section 481(a) adjustment
is negative, report it on line 26, Form 1120
(line 22, Form 1120-A).

Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A generally require corporations
to capitalize, or include in inventory, certain
costs incurred in connection with:
• The production of real property and
tangible personal property held in inventory
or held for sale in the ordinary course of
business.
• Real property or personal property
(tangible and intangible) acquired for resale.
• The production of real property and
tangible personal property by a corporation
for use in its trade or business or in an
activity engaged in for profit.
Tangible personal property produced by
a corporation includes a film, sound
recording, videotape, book, or similar
property.
Corporations subject to the section 263A
uniform capitalization rules are required to
capitalize:
1. Direct costs and
2. An allocable part of most indirect
costs (including taxes) that (a) benefit the
assets produced or acquired for resale or (b)
are incurred because of the performance of
production or resale activities.
For inventory, some of the indirect
expenses that must be capitalized are:
• Administration expenses;
• Taxes;
• Depreciation;
• Insurance;
• Compensation paid to officers attributable
to services;
• Rework labor; and
• Contributions to pension, stock bonus,
and certain profit-sharing, annuity, or
deferred compensation plans.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate to
production or resale activities that must be

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capitalized and those that may be currently
deductible.
Interest expense paid or incurred
during the production period of designated
property must be capitalized and is
governed by special rules. For more details,
see Regulations sections 1.263A-8 through
1.263A-15.
The costs required to be capitalized
under section 263A are not deductible until
the property (to which the costs relate) is
sold, used, or otherwise disposed of by the
corporation.
Exceptions. Section 263A does not apply
to the following.
• Personal property acquired for resale if
the corporation’s average annual gross
receipts for the 3 prior tax years were $10
million or less.
• Timber.
• Most property produced under a
long-term contract.
• Certain property produced in a farming
business.
• Research and experimental costs under
section 174.
• Geological and geophysical costs
amortized under section 167(h).
• Intangible drilling costs for oil, gas, and
geothermal property.
• Mining exploration and development
costs.
• Inventoriable items accounted for in the
same manner as materials and supplies that
are not incidental. See Cost of Goods Sold
on page 13.
For more details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3. See
Regulations section 1.263A-4 for rules for
property produced in a farming business.
Transactions between related taxpayers.
Generally, an accrual basis taxpayer can
only deduct business expenses and interest
owed to a related party in the year the
payment is included in the income of the
related party. See sections 163(e)(3),163(j),
and 267 for limitations on deductions for
unpaid interest and expenses.
Section 291 limitations. Corporations may
be required to adjust deductions for
depletion of iron ore and coal, intangible
drilling and exploration and development
costs, certain deductions for financial
institutions, and the amortizable basis of
pollution control facilities. See section 291 to
determine the amount of the adjustment.
Also see section 43.
Golden parachute payments. A portion of
the payments made by a corporation to key
personnel that exceeds their usual
compensation may not be deductible. This
occurs when the corporation has an
agreement (golden parachute) with these
key employees to pay them these excess
amounts if control of the corporation
changes. See section 280G and
Regulations section 1.280G-1.
Business start-up and organizational
costs. Business start-up and organizational
costs must be capitalized unless an election
is made to deduct or amortize them. The
corporation can elect to amortize costs paid
or incurred before October 23, 2004, over a
period of 60 months or more. For costs paid
or incurred after October 22, 2004, the
following rules apply separately to each
category of costs.
• The corporation can elect to deduct up to
$5,000 of such costs for the year the
corporation begins business operations.

• The $5,000 deduction is reduced (but not
below zero) by the amount the total costs
exceed $50,000. If the total costs are
$55,000 or more, the deduction is reduced
to zero.
• If the election is made, any costs that are
not deducted must be amortized ratably
over a 180-month period.
In all cases, the amortization period
begins the month the corporation begins
business operations. For more details on the
election for business start-up and
organizational costs, see Pub. 535.
Attach any statement required by
Regulations sections 1.195-1(b) or
1.248-1(c). Report the deductible amount of
these costs and any amortization on line 26
(line 22 of Form 1120-A). For amortization
that begins during the 2006 tax year,
complete and attach Form 4562.
Passive activity limitations. Limitations on
passive activity losses and credits under
section 469 apply to personal service
corporations (defined on page 6) and closely
held corporations (defined below).
Generally, the two kinds of passive
activities are:
• Trade or business activities in which the
corporation did not materially participate for
the tax year; and
• Rental activities, regardless of its
participation.
For exceptions, see Form 8810, Corporate
Passive Activity Loss and Credit Limitations.
Corporations subject to the passive
activity limitations must complete Form 8810
to compute their allowable passive activity
loss and credit. Before completing Form
8810, see Temporary Regulations section
1.163-8T, which provides rules for allocating
interest expense among activities. If a
passive activity is also subject to the
earnings stripping rules of section 163(j), the
at-risk rules of section 465, or the
tax-exempt use loss rules of section 470,
those rules apply before the passive loss
rules.
For more information, see section 469,
the related regulations, and Pub. 925,
Passive Activity and At-Risk Rules.
Closely held corporations. A
corporation is a closely held corporation if:
• At any time during the last half of the tax
year more than 50% in value of its
outstanding stock is directly or indirectly
owned by or for not more than five
individuals, and
• The corporation is not a personal service
corporation.
Certain organizations are treated as
individuals for purposes of this test. See
section 542(a)(2). For rules for determining
stock ownership, see section 544 (as
modified by section 465(a)(3)).
Reducing certain expenses for which
credits are allowable. If the corporation
claims any of the following credits, it may
need to reduce the otherwise allowable
deductions for expenses used to figure the
credit.
• Employment credits. See the instructions
for line 13 on page 9.
• Research credit.
• Orphan drug credit.
• Disabled access credit.
• Employer credit for social security and
Medicare taxes paid on certain employee
tips.
• Credit for small employer pension plan
startup costs.

• Credit for employer-provided childcare
facilities and services.
• Low sulfur diesel fuel production credit.
• Mine rescue team training credit.
If the corporation has any of these
credits, figure each current year credit
before figuring the deduction for expenses
on which the credit is based. See the
instructions for the form used to figure the
applicable credit.
Limitations on deductions related to
property leased to tax-exempt entities. If
a corporation leases property to a
governmental or other tax-exempt entity, the
corporation can not claim deductions related
to the property to the extent that they
exceed the corporation’s income from the
lease payments (tax-exempt use loss).
Amounts disallowed may be carried over to
the next tax year and treated as a deduction
with respect to the property for that tax year.
See section 470 for more details and
exceptions.

Enter deductible officers’ compensation on
line 12. See Employment credits on page 9
for a list of employment credits that may
reduce your deduction for officers’
compensation. Do not include compensation
deductible elsewhere on the return, such as
amounts included in cost of goods sold,
elective contributions to a section 401(k)
cash or deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan.
Form 1120 filers must complete
Schedule E if their total receipts (line 1a,
plus lines 4 through 10) are $500,000 or
more. Include only the deductible part of
each officer’s compensation on Schedule E.
See Disallowance of deduction for employee
compensation in excess of $1 million below.
Complete Schedule E, line 1, columns (a)
through (f), for all officers. The corporation
determines who is an officer under the laws
of the state where it is incorporated.
If a consolidated return is filed, each
member of an affiliated group must furnish
this information.
Disallowance of deduction for employee
compensation in excess of $1 million.
Publicly held corporations cannot deduct
compensation to a “covered employee” to
the extent that the compensation exceeds
$1 million. Generally, a covered employee
is:
• The chief executive officer of the
corporation (or an individual acting in that
capacity) as of the end of the tax year or
• An employee whose total compensation
must be reported to shareholders under the
Securities Exchange Act of 1934 because
the employee is among the four highest
compensated officers for that tax year (other
than the chief executive officer).
For this purpose, compensation does not
include the following.
• Income from certain employee trusts,
annuity plans, or pensions.
• Any benefit paid to an employee that is
excluded from the employee’s income.
The deduction limit does not apply to:
• Commissions based on individual
performance,
• Qualified performance-based
compensation, and
• Income payable under a written, binding
contract in effect on February 17, 1993.

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Instructions for Forms 1120 and 1120-A

Line 12. Compensation of
Officers

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The $1 million limit is reduced by
amounts disallowed as excess parachute
payments under section 280G.
For details, see section 162(m) and
Regulations section 1.162-27.

Line 13. Salaries and Wages
Enter the total salaries and wages paid for
the tax year. Do not include salaries and
wages deductible elsewhere on the return,
such as amounts included in officers’
compensation, cost of goods sold, elective
contributions to a section 401(k) cash or
deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan.
If the corporation provided taxable
fringe benefits to its employees, such
CAUTION as personal use of a car, do not
deduct as wages the amount allocated for
depreciation and other expenses claimed on
lines 20 and 26, Form 1120 (lines 20 and
22, Form 1120-A).
Employment credits. If the corporation
claims a credit on any of the following forms,
it may need to reduce its deduction for
officer’s compensation and salaries and
wages. See the applicable form for details.
• Form 5884, Work Opportunity Credit;
• Form 5884-A, Credits for Employers
Affected by Hurricane Katrina, Rita, or
Wilma;
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit;
• Form 8845, Indian Employment Credit;
and
• Form 8861, Welfare-to-Work Credit.

After 12/31/02 but before 1/1/04 . . $18,000
After 12/31/98 but before 1/1/03 . . $15,500
If the lease term began before January 1, 1999, see
Pub. 463, Travel, Entertainment, Gift, and Car
Expenses, to find out if the corporation has an
inclusion amount. The inclusion amount for lease
terms beginning in 2007 will be published in the
Internal Revenue Bulletin in early 2007.

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

Line 17. Taxes and Licenses
Enter taxes paid or accrued during the tax
year, but do not include the following.
• Federal income taxes.
• Foreign or U.S. possession income taxes
if a foreign tax credit is claimed.
• Taxes not imposed on the corporation.
• Taxes, including state or local sales
taxes, that are paid or incurred in connection
with an acquisition or disposition of property
(these taxes must be treated as a part of the
cost of the acquired property or, in the case
of a disposition, as a reduction in the
amount realized on the disposition).
• Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
• Taxes deducted elsewhere on the return,
such as those reflected in cost of goods
sold.
See section 164(d) for apportionment of
taxes on real property between seller and
purchaser.

Line 18. Interest

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

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

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

The lease term began:

After 12/31/03 but before 1/1/05 . . $17,500

And the
vehicle’s
FMV on
the first
day of
the lease
exceeded:

After 12/31/04 but before 1/1/07 . . $15,200

Instructions for Forms 1120 and 1120-A

Note. Do not offset interest income against
interest expense.
The corporation must make an interest
allocation if the proceeds of a loan were
used for more than one purpose (for
example, to purchase a portfolio investment
and to acquire an interest in a passive
activity). See Temporary Regulations
section 1.163-8T for the interest allocation
rules.
Mutual savings banks, building and loan
associations, and cooperative banks can
deduct the amounts paid or credited to the
accounts of depositors as dividends,
interest, or earnings. See section 591.
Do not deduct the following interest.
• Interest on indebtedness incurred or
continued to purchase or carry obligations if
the interest is wholly exempt from income
tax. For exceptions, see section 265(b).
• For cash basis taxpayers, prepaid interest
allocable to years following the current tax
year. For example, a cash basis calendar
year taxpayer who in 2006 prepaid interest
allocable to any period after 2006 can
deduct only the amount allocable to 2006.
• Interest and carrying charges on
straddles. Generally, these amounts must
be capitalized. See section 263(g).
• Interest on debt allocable to the
production of designated property by a
corporation for its own use or for sale. The
corporation must capitalize this interest.
Also capitalize any interest on debt allocable
to an asset used to produce the property.
See section 263A(f) and Regulations
sections 1.263A-8 through 1.263A-15 for
definitions and more information.
• Interest paid or incurred on any portion of
an underpayment of tax that is attributable
to an understatement arising from an
undisclosed listed transaction or an
undisclosed reportable avoidance

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transaction (other than a listed transaction)
entered into in tax years beginning after
October 22, 2004.
Special rules apply to:

• Interest on which no tax is imposed (see

section 163(j)). For tax years beginning after
May 16, 2006, a corporation that owns an
interest in a partnership, directly or
indirectly, must treat its distributive share of
the partnership liabilities, interest income,
and interest expense as liabilities, income,
and expenses of the corporation for
purposes of applying the earnings stripping
rules. For more details, see section
163(j)(8).
• Foregone interest on certain
below-market-rate loans (see section 7872).
• Original issue discount on certain
high-yield discount obligations. (See section
163(e) to figure the disqualified portion.)
• Interest which is allocable to unborrowed
policy cash values of life insurance,
endowment, or annuity contracts issued
after June 8, 1997. See section 264(f).
Attach a statement showing the computation
of the deduction.

Line 19. Charitable
Contributions
Enter contributions or gifts actually paid
within the tax year to or for the use of
charitable and governmental organizations
described in section 170(c) and any unused
contributions carried over from prior years.
Special rules and limits apply to
contributions to organizations conducting
lobbying activities. See section 170(f)(9).
Corporations reporting taxable income on
the accrual method can elect to treat as paid
during the tax year any contributions paid by
the 15th day of the 3rd month after the end
of the tax year if the contributions were
authorized by the board of directors during
the tax year. Attach a declaration to the
return stating that the resolution authorizing
the contributions was adopted by the board
of directors during the tax year. The
declaration must include the date the
resolution was adopted. See Regulations
section 1.170A-11.
Limitation on deduction. The total amount
claimed cannot be more than 10% of
taxable income (line 30, Form 1120, or line
26, Form 1120-A) computed without regard
to the following.
• Any deduction for contributions.
• The special deductions on line 29b, Form
1120 (line 25b, Form 1120-A).
• The deduction allowed under section 249.
• The domestic production activities
deduction under section 199.
• Any net operating loss (NOL) carryback to
the tax year under section 172.
• Any capital loss carryback to the tax year
under section 1212(a)(1).
Suspension of 10% limitation for
farmers and ranchers. For tax years
beginning in 2006, a corporation that is a
qualified farmer or rancher (as defined in
section 170(b)(1)(E)) that does not have
publicly traded stock, can deduct
contributions of qualified conservation
property without regard to the general 10%
limit. The total amount of the contribution
claimed for the qualified conservation
property cannot exceed 100% of the excess
of the corporation’s taxable income (as
computed above substituting “100%” for
“10%”) over all other allowable charitable
contributions. Any excess qualified
conservation contributions can be carried

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over to the next 15 years subject to the
100% limitation. See section 170(b)(2)(B).
For contributions made after August 17,
2006, contributed conservation property that
is used in agriculture or livestock production
must remain available for such production.
Carryover. Charitable contributions over
the 10% limitation cannot be deducted for
the tax year but can be carried over to the
next 5 tax years.
Special rules apply if the corporation has
an NOL carryover to the tax year. In figuring
the charitable contributions deduction for the
current tax year, the 10% limit is applied
using the taxable income after taking into
account any deduction for the NOL.
To figure the amount of any remaining
NOL carryover to later years, taxable
income must be modified (see section
172(b)). To the extent that contributions are
used to reduce taxable income for this
purpose and increase an NOL carryover, a
contributions carryover is not allowed. See
section 170(d)(2)(B).
Substantiation requirements. Generally,
no deduction is allowed for any contribution
of $250 or more unless the corporation gets
a written acknowledgment from the donee
organization that shows the amount of cash
contributed, describes any property
contributed, and, either gives a description
and a good faith estimate of the value of any
goods or services provided in return for the
contribution or states that no goods or
services were provided in return for the
contribution. The acknowledgment must be
obtained by the due date (including
extensions) of the corporation’s return, or, if
earlier, the date the return is filed. Do not
attach the acknowledgment to the tax return,
but keep it with the corporation’s records.
Note. For contributions of cash, check,
or other monetary gifts (regardless of the
amount), made in tax years beginning after
August 17, 2006, the corporation must
maintain a bank record, or a receipt, letter,
or other written communication from the
donee organization indicating the name of
the organization, the date of the
contribution, and the amount of the
contribution.
Contributions of property other than
cash. If a corporation (other than a closely
held or personal service corporation)
contributes property other than cash and
claims over a $500 deduction for the
property, it must attach a schedule to the
return describing the kind of property
contributed and the method used to
determine its fair market value (FMV).
Closely held corporations and personal
service corporations must complete Form
8283, Noncash Charitable Contributions,
and attach it to their returns. All other
corporations generally must complete and
attach Form 8283 to their returns for
contributions of property (other than money)
if the total claimed deduction for all property
contributed was more than $5,000. Special
rules apply to the contribution of certain
property. See the Instructions for Form
8283.
Special rules for contributions of
certain easements in registered historic
districts. The following rules apply to
certain contributions of real property
interests located in a registered historic
district.
• For contributions made after July 25,
2006, a deduction is allowed for the qualified
real property interest, if the exterior of the

building (including the front, side, rear, and
space above the building) is preserved and
no portion of the exterior is changed in a
manner that is inconsistent with its historical
character. For more details, see section
170(h)(4)(B).
• For contributions made after August 17,
2006, a deduction is allowed for the building
only (no deduction is allowed for a structure
or land) if located in a registered historic
district. However, if listed in the National
Register, a deduction is also allowed for
structures or land areas. For more
information, see section 170(h)(4)(C).
• For contributions made in tax years
beginning after August 17, 2006, the
corporation must also include the following
information with the tax return.
1. A qualified appraisal (as defined in
section 170(f)(11)(E)) of the qualified
property interest,
2. Photographs of the entire exterior of
the building, and
3. A description of all restrictions on the
development of the building. See section
170(h)(4)(B)(iii).
• The corporation’s deduction may be
reduced if rehabilitation credits were claimed
on the building. See section 170(f)(14).
• A $500 filing fee may apply to certain
deductions over $10,000. See section
170(f)(13).
Other special rules. The corporation
must reduce its deduction for contributions
of certain capital gain property. See sections
170(e)(1) and 170(e)(5).
A larger deduction is allowed for certain
contributions of:
• Inventory and other property to certain
organizations for use in the care of the ill,
needy, or infants (section 170(e)(3)),
including contributions of “apparently
wholesome food” (section 170(e)(3)(C)) and
contributions of qualified book inventory to
public schools (section 170(e)(3)(D)), and
• Scientific equipment used for research to
institutions of higher learning or to certain
scientific research organizations (other than
by personal holding companies and service
organizations (section 170(e)(4)).
• Computer technology and equipment for
educational purposes (section 170(e)(6)).
For more information on charitable
contributions, including substantiation and
recordkeeping requirements, see section
170 and the related regulations and Pub.
526, Charitable Contributions. For other
special rules that apply to corporations, see
Pub. 542.

See Pub. 535 for more information on
depletion.

Line 23. Pension,
Profit-Sharing, etc., Plans
(Form 1120 Only)
Enter the deduction for contributions to
qualified pension, profit-sharing, or other
funded deferred compensation plans.
Employers who maintain such a plan
generally must file one of the forms listed
below, even if the plan is not a qualified plan
under the Internal Revenue Code. The filing
requirement applies even if the corporation
does not claim a deduction for the current
tax year. There are penalties for failure to
file these forms on time and for overstating
the pension plan deduction. See sections
6652(e) and 6662(f).
Form 5500, Annual Return/Report of
Employee Benefit Plan. File this form for a
plan that is not a one-participant plan (see
below).
Form 5500-EZ, Annual Return of
One-Participant (Owners and Their
Spouses) Retirement Plan. File this form for
a plan that only covers the owner (or the
owner and his or her spouse) but only if the
owner (or the owner and his or her spouse)
owns the entire business.

Line 24. Employee Benefit
Programs (Form 1120 Only)
Enter contributions to employee benefit
programs not claimed elsewhere on the
return (for example, insurance, health and
welfare programs, etc.) that are not an
incidental part of a pension, profit-sharing,
etc., plan included on line 23.

Line 26, Form 1120
(Line 22, Form 1120-A).
Other Deductions

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

Attach a schedule, listing by type and
amount, all allowable deductions that are
not deductible elsewhere on Form 1120 or
Form 1120-A. Form 1120-A filers should
include amounts described in the
instructions above for lines 21, 23, and 24 of
Form 1120. Enter the total of other
deductions on line 26, Form 1120 (line 22,
Form 1120-A).
Examples of other deductions include the
following. See Pub. 535 for details on other
deductions that may apply to corporations.
• Amortization. See Form 4562.
• Certain costs of qualified film or television
productions. See section 181.
• Certain business start-up and
organizational costs the corporation elects
to deduct. See page 8.
• Reforestation costs. The corporation can
elect to deduct up to $10,000 of qualifying
reforestation expenses for each qualified
timber property. The corporation can elect to
amortize over 84 months any amount not
deducted. See Pub. 535.
The limit for a small timber producer is
increased by the smaller of $10,000 or the
amount of qualified reforestation expenses
paid or incurred during the tax year, for (a)
qualified timber property any portion of
which is located in the Gulf Opportunity
Zone (GO Zone), (b) qualified timber
property any portion of which is located in
the Rita GO Zone and no portion is located
in the GO Zone, and (c) qualified timber
property any portion of which is located in
the Wilma GO Zone. See Pub. 4492,
Information for Taxpayers Affected by
Hurricanes Katrina, Rita, and Wilma, for a

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Instructions for Forms 1120 and 1120-A

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

Line 21. Depletion
(Form 1120 Only)

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list of areas included in the GO Zone, the
Rita GO Zone, and the Wilma GO Zone.
The increased limit does not apply to any
timber producer who (a) held more than 500
acres of qualified timber property at any time
during the tax year, (b) is a corporation with
stock publicly traded on an established
securities market, or (c) is a real estate
investment trust. See section 1400N(i) for
details.
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the
business.
• Travel and entertainment expenses.
Special rules apply (discussed below).
• Utilities.
• Ordinary losses from trade or business
activities of a partnership (from Schedule
K-1 (Form 1065 or 1065-B)). Do not offset
ordinary income against ordinary losses.
Instead, include the income on line 10.
Show the partnership’s name, address, and
EIN on a separate statement attached to
this return. If the amount is from more than
one partnership, identify the amount from
each partnership.
• Any extraterritorial income exclusion (from
Form 8873, line 54).
• Any negative net section 481(a)
adjustment. See the instructions for line 10.
• Deduction for certain energy efficient
commercial building property. See section
179D and Notice 2006-52, 2006-26 I.R.B.
1175.
• GO Zone clean-up cost. The corporation
can elect to deduct certain costs paid or
incurred during the tax year for the removal
of debris from, or the demolition of
structures on certain real property located in
the GO Zone. See section 1400N(f).
• Dividends paid in cash on stock held by
an employee stock ownership plan.
However, a deduction can only be taken for
the dividends above if, according to the
plan, the dividends are:
1. Paid in cash directly to the plan
participants or beneficiaries;
2. Paid to the plan, which distributes
them in cash to the plan participants or their
beneficiaries no later than 90 days after the
end of the plan year in which the dividends
are paid;
3. At the election of such participants or
their beneficiaries (a) payable as provided
under 1or 2 above or (b) paid to the plan
and reinvested in qualifying employer
securities; or
4. Used to make payments on a loan
described in section 404(a)(9).
See section 404(k) for more details and the
limitation on certain dividends.
Do not deduct the following.
• Fines or penalties paid to a government
for violating any law.
• Any amount that is allocable to a class of
exempt income. See section 265(b) for
exceptions.
• Lobbying expenses. However, see
exceptions (discussed below).
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a corporation can deduct
ordinary and necessary travel, meals, and
entertainment expenses paid or incurred in
its trade or business. Also, special rules
apply to deductions for gifts, skybox rentals,
luxury water travel, convention expenses,
and entertainment tickets. See section 274
and Pub. 463 for details.
Travel. The corporation cannot deduct
travel expenses of any individual

accompanying a corporate officer or
employee, including a spouse or dependent
of the officer or employee, unless:
• That individual is an employee of the
corporation, and
• His or her travel is for a bona fide
business purpose and would otherwise be
deductible by that individual.
Meals and entertainment. Generally,
the corporation can deduct only 50% of the
amount otherwise allowable for meals and
entertainment expenses paid or incurred in
its trade or business. In addition (subject to
exceptions under section 274(k)(2)):
• Meals must not be lavish or extravagant;
• A bona fide business discussion must
occur during, immediately before, or
immediately after the meal; and
• An employee of the corporation must be
present at the meal.
See section 274(n)(3) for a special rule
that applies to expenses for meals
consumed by individuals subject to the
hours of service limits of the Department of
Transportation.
Membership dues. The corporation can
deduct amounts paid or incurred for
membership dues in civic or public service
organizations, professional organizations
(such as bar and medical associations),
business leagues, trade associations,
chambers of commerce, boards of trade,
and real estate boards. However, no
deduction is allowed if a principal purpose of
the organization is to entertain, or provide
entertainment facilities for, members or their
guests. In addition, corporations cannot
deduct membership dues in any club
organized for business, pleasure, recreation,
or other social purpose. This includes
country clubs, golf and athletic clubs, airline
and hotel clubs, and clubs operated to
provide meals under conditions favorable to
business discussion.
Entertainment facilities. The
corporation cannot deduct an expense paid
or incurred for a facility (such as a yacht or
hunting lodge) used for an activity usually
considered entertainment, amusement, or
recreation.
Amounts treated as compensation.
Generally, the corporation may be able to
deduct otherwise nondeductible
entertainment, amusement, or recreation
expenses if the amounts are treated as
compensation to the recipient and reported
on Form W-2 for an employee or on Form
1099-MISC for an independent contractor.
However, if the recipient is an officer,
director, or beneficial owner (directly or
indirectly) of more than 10% of any class of
stock, the deductible expense is limited. See
section 274(e)(2) and Notice 2005-45,
2005-24 I.R.B. 1228.
Lobbying expenses. Generally, lobbying
expenses are not deductible. These
expenses include:
• Amounts paid or incurred in connection
with influencing federal or state legislation
(but not local legislation) or
• Amounts paid or incurred in connection
with any communication with certain federal
executive branch officials in an attempt to
influence the official actions or positions of
the officials. See Regulations section
1.162-29 for the definition of “influencing
legislation.”
Dues and other similar amounts paid to
certain tax-exempt organizations may not be
deductible. See section 162(e)(3). If certain
in-house lobbying expenditures do not
exceed $2,000, they are deductible.

Instructions for Forms 1120 and 1120-A

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Line 28, Form 1120
(Line 24, Form 1120-A). Taxable
Income Before NOL Deduction
and Special Deductions
At-risk rules. Generally, special at-risk
rules under section 465 apply to closely held
corporations (see Passive activity limitations
on page 8) engaged in any activity as a
trade or business or for the production of
income. These corporations may have to
adjust the amount on line 28, Form 1120, or
line 24, Form 1120-A. (See below.)
The at-risk rules do not apply to:
• Holding real property placed in service by
the taxpayer before 1987;
• Equipment leasing under sections
465(c)(4), (5), and (6); or
• Any qualifying business of a qualified
corporation under section 465(c)(7).
However, the at-risk rules do apply to the
holding of mineral property.
If the at-risk rules apply, adjust the
amount on this line for any section 465(d)
losses. These losses are limited to the
amount for which the corporation is at risk
for each separate activity at the close of the
tax year. If the corporation is involved in one
or more activities, any of which incurs a loss
for the year, report the losses for each
activity separately. Attach Form 6198,
At-Risk Limitations, showing the amount at
risk and gross income and deductions for
the activities with the losses.
If the corporation sells or otherwise
disposes of an asset or its interest (either
total or partial) in an activity to which the
at-risk rules apply, determine the net profit
or loss from the activity by combining the
gain or loss on the sale or disposition with
the profit or loss from the activity. If the
corporation has a net loss, it may be limited
because of the at-risk rules.
Treat any loss from an activity not
allowed for the tax year as a deduction
allocable to the activity in the next tax year.

Line 29a, Form 1120
(Line 25a, Form 1120-A).
Net Operating Loss Deduction
A corporation can use the NOL incurred in
one tax year to reduce its taxable income in
another tax year. Enter on line 29a (line 25a,
Form 1120-A), the total NOL carryovers
from other tax years, but do not enter more
than the corporation’s taxable income (after
special deductions). Attach a schedule
showing the computation of the NOL
deduction. Form 1120 filers must also
complete item 12 on Schedule K.
The following special rules apply.
• A personal service corporation may not
carry back an NOL to or from any tax year to
which an election under section 444 to have
a tax year other than a required tax year
applies.
• A corporate equity reduction interest loss
may not be carried back to a tax year
preceding the year of the equity reduction
transaction (see section 172(b)(1)(E)).
• If an ownership change occurs, the
amount of the taxable income of a loss
corporation that may be offset by the
pre-change NOL carryovers may be limited.
See section 382 and the related regulations.
A loss corporation must include the
information statement as provided in
Temporary Regulations section
1.382-11T(a), with its income tax return for
each tax year that certain ownership shifts
described in Temporary Regulations section

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1.382-2T(a)(2)(i) occur. If the corporation
makes the closing-of-the-books election,
see Regulations section 1.382-6(b).
• If a corporation acquires control of
another corporation (or acquires its assets in
a reorganization), the amount of
pre-acquisition losses that may offset
recognized built-in gain may be limited (see
section 384).
• If a corporation elects the alternative tax
on qualifying shipping activities under
section 1354, no deduction is allowed for an
NOL attributable to the qualifying shipping
activities to the extent that the loss is carried
forward from a tax year preceding the first
tax year for which the alternative tax election
was made. See section 1358(b)(2).
• Certain qualified GO Zone losses are
eligible for a special 5-year carryback
period. See section 1400N(k).
• A corporation may elect to treat any Go
Zone public utility casualty loss as a
specified liability loss to which the 10-year
carryback period applies. See the
Instructions for Form 1139.
For more details on the NOL deduction,
see section 172, the Instructions for Form
1139, and Pub. 542.

Line 29b, Form 1120
(Line 25b, Form 1120-A).
Special Deductions
Form 1120 filers. See the instructions for
Schedule C on page 14.
Form 1120-A filers. Generally, enter 70%
of line 4, page 1, on line 25b. However, this
deduction cannot be more than 70% of line
24, page 1. Compute line 24 without regard
to any adjustment under section 1059 and
without regard to any capital loss carryback
to the tax year under section 1212(a)(1).
In a year in which an NOL occurs, this
70% limitation does not apply even if the
loss is created by the dividends-received
deduction. See sections 172(d) and 246(b).

Tax and Payments
Line 30, Form 1120
(Line 26, Form 1120-A).
Taxable Income
Minimum taxable income. The
corporation’s taxable income cannot be less
than the largest of the following amounts.
• The inversion gain of the corporation for
the tax year, if the corporation is an
expatriated entity or a partner in an
expatriated entity. For details, see section
7874.
• The sum of the corporation’s excess
inclusions from Schedules Q (1066), line 2c,
and the corporation’s taxable income
determined solely with respect to its
ownership and high-yield interests in
FASITs. For details, see sections 860E(a)
and 860J.
Net operating loss (NOL). If line 30
(figured without regard to the items listed
above under minimum taxable income), is
zero or less, the corporation may have an
NOL that can be carried back or forward as
a deduction to other tax years. Generally, a
corporation first carries back an NOL 2 tax
years. However, the corporation can elect to
waive the carryback period and instead
carry the NOL forward to future tax years.
To make the election, see the instructions
for Schedule K, item 11 on page 17.

See Form 1139 for details, including
other elections that may be available, which
must be made no later than 6 months after
the due date (excluding extensions) of the
corporation’s tax return.
Capital construction fund. To take a
deduction for amounts contributed to a
capital construction fund (CCF), reduce the
amount that would otherwise be entered on
line 30 (line 26, Form 1120-A) by the
amount of the deduction. On the dotted line
next to the entry space, enter “CCF” and the
amount of the deduction. For more
information, see section 7518.

Line 32b, Form 1120
(Line 28b, Form 1120-A).
Estimated Tax Payments
Enter any estimated tax payments the
corporation made for the tax year.
Beneficiaries of trusts. If the corporation
is the beneficiary of a trust, and the trust
makes a section 643(g) election to credit its
estimated tax payments to its beneficiaries,
include the corporation’s share of the
payment in the total for line 32b (line 28b,
Form 1120-A). Enter “T” and the amount on
the dotted line next to the entry space.
Special estimated tax payments for
certain life insurance companies. If the
corporation is required to make or apply
special estimated tax payments (SETP)
under section 847 in addition to its regular
estimated tax payments, enter on line 32b
(line 28b, Form 1120-A), the corporation’s
total estimated tax payments. In the margin
near line 32b, enter “Form 8816” and the
amount. Attach a schedule showing your
computation of estimated tax payments. See
sections 847(2) and 847(8) and Form 8816,
Special Loss Discount Account and Special
Estimated Tax Payments for Insurance
Companies, for more information.

Line 32c, Form 1120
(Line 28c, Form 1120-A).
Overpaid estimated tax
If the corporation overpaid estimated tax, it
may be able to get a quick refund by filing
Form 4466. The overpayment must be at
least 10% of the corporation’s expected
income tax liability and at least $500. File
Form 4466 after the end of the corporation’s
tax year, and no later than the 15th day of
the third month after the end of the tax year.
Form 4466 must be filed before the
corporation files its tax return.

Line 32f, Form 1120
(Line 28f, Form 1120-A)
Credit from Form 2439. Enter any credit
from Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains, for
the corporation’s share of the tax paid by a
regulated investment company (RIC) or a
real estate investment trust (REIT) on
undistributed long-term capital gains
included in the corporation’s income. Attach
Form 2439 to Form 1120 or Form 1120-A.
Credit for federal tax on fuels. Enter any
credit from Form 4136, Credit for Federal
Tax Paid on Fuels. Attach Form 4136 to
Form 1120 or Form 1120-A.
Credit for tax on ozone-depleting
chemicals. Include on line 32f (line 28f,
Form 1120-A) any credit the corporation is

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claiming under section 4682(g)(2) for tax on
ozone-depleting chemicals. Enter “ODC”
next to the entry space.

Line 32g, Form 1120
(Line 28g, Form 1120-A).
Credit for Federal Telephone
Excise Tax Paid
If the corporation was billed after February
28, 2003, and before August 1, 2006, for the
federal telephone excise tax on long
distance or bundled service, the corporation
may be able to request a credit for the tax
paid. The corporation had bundled service if
its local and long distance service was
provided under a plan that does not
separately state the charge for local service.
The corporation cannot request the credit if
it has already received a credit or refund
from its service provider. If the corporation
requests the credit, it cannot ask its service
provider for a credit or refund and must
withdraw any request previously submitted
to its provider.
The corporation can request the credit by
attaching Form 8913, Credit for Federal
Telephone Excise Tax Paid, showing the
actual amount the corporation paid. The
corporation also may be able to request the
credit based on an estimate of the amount
paid. See Form 8913 for details. In either
case, the corporation must keep records to
substantiate the amount of the credit
requested.

Line 32h, Form 1120
(Line 28h, Form 1120-A).
Total Payments
On Form 1120, add the amounts on lines
32d through 32g and enter the total on line
32h. On Form 1120-A, add the amounts on
lines 28d through 28g and enter the total on
line 28h.
Backup withholding. If the corporation had
federal income tax withheld from any
payments it received because, for example,
it failed to give the payer its correct EIN,
include the amount withheld in the total for
line 32h (line 28h, Form 1120-A). On Form
1120, enter the amount withheld and the
words “Backup Withholding” in the blank
space above line 32h. On Form 1120-A,
show the amount withheld on the dotted line
to the left of line 28h, and enter “Backup
Withholding.”

Line 33, Form 1120
(Line 29, Form 1120-A).
Estimated Tax Penalty
If Form 2220 is attached, check the box on
line 33 (line 29, Form 1120-A), and enter the
amount of any penalty on this line.

Line 36, Form 1120
(Line 32, Form 1120-A).
Direct Deposit of Refund
If the corporation wants its refund directly
deposited into its checking or savings
account at any U.S. bank or other financial
institution instead of having a check sent to
the corporation, complete Form 8050 and
attach it to the corporation’s tax return.

Instructions for Forms 1120 and 1120-A

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Instructions for Forms 1120 and 1120-A

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Schedule A, Form 1120
(Worksheet, Form 1120-A)
Cost of Goods Sold
Generally, inventories are required at the
beginning and end of each tax year if the
production, purchase, or sale of
merchandise is an income-producing factor.
See Regulations section 1.471-1.
However, if the corporation is a qualifying
taxpayer or a qualifying small business
taxpayer, it can adopt or change its
accounting method to account for
inventoriable items in the same manner as
materials and supplies that are not
incidental (unless its business is a tax
shelter (as defined in section 448(d)(3))).
A qualifying taxpayer is a taxpayer that,
for each prior tax year ending after
December 16, 1998, has average annual
gross receipts of $1 million or less for the 3
prior tax years.
A qualifying small business taxpayer is a
taxpayer (a) that, for each prior tax year
ending on or after December 31, 2000, has
average annual gross receipts of $10 million
or less for the 3 prior tax years, and (b)
whose principal business activity is not an
ineligible activity.
Under this accounting method, inventory
costs for raw materials purchased for use in
producing finished goods and merchandise
purchased for resale are deductible in the
year the finished goods or merchandise are
sold (but not before the year the corporation
paid for the raw materials or merchandise, if
it is also using the cash method). For
additional guidance on this method of
accounting for inventoriable items, see Pub.
538 and the Instructions for Form 3115.
Enter amounts paid for all raw materials
and merchandise during the tax year on line
2. The amount the corporation can deduct
for the tax year is figured on line 8.
All filers not using the cash method of
accounting should see Section 263A
uniform capitalization rules on page 7 before
completing Schedule A (Form 1120) or the
worksheet of Form 1120-A. The instructions
for lines 1 through 7 that follow apply to
Schedule A and the worksheet below.

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

Instructions for Forms 1120 and 1120-A

For corporations that have elected the
simplified resale method, additional section
263A costs are generally those costs
incurred with respect to the following
categories.
• Off-site storage or warehousing.
• Purchasing.
• Handling, such as processing,
assembling, repackaging, and transporting.
• General and administrative costs (mixed
service costs).
For details, see Regulations section
1.263A-3(d).
Enter on line 4 the balance of section
263A costs paid or incurred during the tax
year not includible on lines 2, 3, and 5.

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

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

Lines 9a Through 9f.
Inventory Valuation Methods
Inventories can be valued at:

• Cost;
• Cost or market value (whichever is lower);
or

• Any other method approved by the IRS

that conforms to the requirements of the
applicable regulations cited below.
However, if the corporation is using the
cash method of accounting, it is required to
use cost.
Corporations that account for
inventoriable items in the same manner as
materials and supplies that are not
incidental can currently deduct expenditures
for direct labor and all indirect costs that
would otherwise be included in inventory
costs.
The average cost (rolling average)
method of valuing inventories generally
does not conform to the requirements of the

regulations. See Rev. Rul. 71-234, 1971-1
C.B. 148.
Corporations that use erroneous
valuation methods must change to a method
permitted for federal income tax purposes.
Use Form 3115 to make this change.
On line 9a, check the method(s) used for
valuing inventories. Under lower of cost or
market, the term “market” (for normal goods)
means the current bid price prevailing on the
inventory valuation date for the particular
merchandise in the volume usually
purchased by the taxpayer. For a
manufacturer, market applies to the basic
elements of cost — raw materials, labor, and
burden. If section 263A applies to the
taxpayer, the basic elements of cost must
reflect the current bid price of all direct costs
and all indirect costs properly allocable to
goods on hand at the inventory date.
Inventory may be valued below cost
when the merchandise is unsalable at
normal prices or unusable in the normal way
because the goods are subnormal due to
damage, imperfections, shopwear, etc.,
within the meaning of Regulations section
1.471-2(c). The goods may be valued at the
current bona fide selling price, minus direct
cost of disposition (but not less than scrap
value) if such a price can be established.
If this is the first year the Last-in,
First-out (LIFO) inventory method was either
adopted or extended to inventory goods not
previously valued under the LIFO method
provided in section 472, attach Form 970,
Application To Use LIFO Inventory Method,
or a statement with the information required
by Form 970. Also check the LIFO box on
line 9c. On line 9d, enter the amount or the
percent of total closing inventories covered
under section 472. Estimates are
acceptable.
If the corporation changed or extended
its inventory method to LIFO and had to
write up the opening inventory to cost in the
year of election, report the effect of the
write-up as other income (line 10, page 1),
proportionately over a 3-year period that
begins with the year of the LIFO election
(section 472(d)).
Note. Corporations using the LIFO method
that make an S corporation election or
transfer LIFO inventory to an S corporation
in a nonrecognition transaction may be
subject to an additional tax attributable to
the LIFO recapture amount. See the
instructions for line 10, Schedule J, on page
16, and line 10, Other Income, on page 7.

Cost of Goods Sold Worksheet
(Form 1120-A)

Keep for Your Records

1. Inventory at beginning of year. Enter here and in Part III, line 3,
column (a), Form 1120-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Purchases. Enter here and in Part II, line 5a(1), Form 1120-A . . . . .
3. Cost of labor. Enter here and include in total in Part II, line 5a(3),
Form 1120-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Additional section 263A costs. Enter here and in Part II, line 5a(2),
Form 1120-A (see instruction for line 4) . . . . . . . . . . . . . . . . . . . .
5. Other costs. Enter here and include in Part II, line 5a(3), Form
1120-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Total. Add lines 1 through 5 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Inventory at end of year. Enter here and in Part III, line 3, column (b),
Form 1120-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Cost of goods sold. Subtract line 7 from line 6. Enter the result
here and on page 1, line 2, Form 1120-A . . . . . . . . . . . . . . . . . . .

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1.
2.
3.
4.
5.
6.
7.
8.

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Instructions for Forms 1120 and 1120-A

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For more information on inventory
valuation methods, see Pub. 538.

RIC specifying the amount of dividends that
qualify for the deduction.

Schedule C
(Form 1120 Only)

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

Line 3, Columns (b) and (c)

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

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

Line 2, Column (a)
Enter on line 2:
• Dividends (except those received on
debt-financed stock acquired after July 18,
1984) that are received from
20%-or-more-owned domestic corporations
subject to income tax and that are subject to
the 80% deduction under section 243(c),
and
• Taxable distributions from an IC-DISC or
former DISC that are considered eligible for
the 80% deduction.

Line 3, Column (a)
Enter the following.

• Dividends received on debt-financed

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

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

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

Line 6, Column (a)
Enter the U.S.-source portion of dividends
that:
• Are received from less-than-20%-owned
foreign corporations, and
• Qualify for the 70% deduction under
section 245(a). To qualify for the 70%
deduction, the corporation must own at least
10% of the stock of the foreign corporation
by vote and value.
Also include dividends received from a
less-than-20%-owned FSC that:
• Are attributable to income treated as
effectively connected with the conduct of a
trade or business within the United States
(excluding foreign trade income), and
• Qualify for the 70% deduction under
section 245(c)(1)(B).

Line 7, Column (a)

Line 9, Column (c)
Generally, line 9, column (c), cannot exceed
the amount from the worksheet on page 15.
However, in a year in which an NOL occurs,
this limitation does not apply even if the loss
is created by the dividends-received
deduction. See sections 172(d) and 246(b).

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

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

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

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

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

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

Line 8, Column (a)

Line 16, Column (a)

Line 14, Column (a)

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

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

No deduction is allowed under section
243 for a dividend from an IC-DISC or
former DISC (as defined in section 992(a))
to the extent the dividend:
• Is paid out of the corporation’s
accumulated IC-DISC income or previously
taxed income, or
• Is a deemed distribution under section
995(b)(1).

-14-

Instructions for Forms 1120 and 1120-A

Enter taxable distributions from an IC-DISC
or former DISC that are designated as not
eligible for a dividends-received deduction.

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Line 17, Column (a)

Line 18, Column (c)

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

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

Schedule J, Form 1120
(Part I, Form 1120-A)
Line 1 (Form 1120 Only)
If the corporation is a member of a
controlled group, it must check the box on
line 1 and complete Schedule O (Form
1120). Members of a controlled group must
use Schedule O (Form 1120) to figure the
tax for the group. See Schedule O and its
instructions for more information.

on line 2 (line 1, Part I, Form 1120-A) even if
the corporation has no tax liability.
A corporation is a qualified personal
service corporation if it meets both of the
following tests.
1. Substantially all of the corporation’s
activities involve the performance of
services in the fields of health, law,
engineering, architecture, accounting,
actuarial science, performing arts, or
consulting.
2. At least 95% of the corporation’s
stock, by value, is directly or indirectly
owned by
a. Employees performing the services,
b. Retired employees who had
performed the services listed above,
c. Any estate of an employee or retiree
described above, or
d. Any person who acquired the stock of
the corporation as a result of the death of an
employee or retiree (but only for the 2-year
period beginning on the date of the
employee’s or retiree’s death).

Line 2, Form 1120
(Line 1, Form 1120-A)

Mutual savings bank conducting life
insurance business. The tax under section
Most corporations not filing a consolidated
594 consists of the sum of (a) a partial tax
return figure their tax by using the Tax Rate
computed on Form 1120 on the taxable
Schedule below. Qualified personal service
income of the bank determined without
corporations should see the instructions
regard to income or deductions allocable to
below.
the life insurance department, and (b) a
partial tax on the taxable income computed
Tax Rate Schedule
on Form 1120-L of the life insurance
department. Enter the combined tax on line
If taxable income (line 30, Form 1120, or line 26,
2. Attach Form 1120-L as a schedule (and
Form 1120-A) on page 1 is:
identify it as such), together with the annual
statements and schedules required to be
Of the
But not
amount
filed with Form 1120-L. See Temporary
Over —
over —
Tax is:
over —
Regulations section 1.6012-2T(c)(1)(ii). An
exception applies for insurance companies
$0
$50,000
15%
$0
that electronically file their returns. See
50,000
75,000
$ 7,500 + 25%
50,000
Temporary Regulations section
75,000
100,000
13,750 + 34%
75,000
1.6012-2T(c)(4).
100,000
335,000
22,250 + 39% 100,000
Deferred tax under section 1291. If the
335,000 10,000,000
113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000 corporation was a shareholder in a passive
15,000,000 18,333,333 5,150,000 + 38% 15,000,000 foreign investment company (PFIC) and
received an excess distribution or disposed
18,333,333
----35%
0
of its investment in the PFIC during the year,
it must include the increase in taxes due
Qualified personal service corporation. A under section 1291(c)(2) in the total for line
If patronage dividends or per-unit retain
qualified personal service corporation is
2. On the dotted line next to line 2, enter
allocations are included on line 17, identify
taxed at a flat rate of 35% on taxable
“Section 1291” and the amount.
the total of these amounts in a schedule
income. If the corporation is a qualified
Do not include on line 2 any interest due
attached to Form 1120.
personal service corporation, check the box
under section 1291(c)(3). Instead, show the
amount of interest owed in the bottom
margin of page 1, Form 1120, and enter
Worksheet for Schedule C, line 9
Keep for Your Records “Section 1291 interest.” For details, see
Form 8621.
Additional tax under section 197(f). A
corporation that elects to pay tax on the gain
1. Refigure line 28, page 1, Form 1120, without any domestic production
from the sale of an intangible under the
activities deduction, any adjustment under section 1059, and without
related person exception to the
any capital loss carryback to the tax year under section 1212(a)(1) . . .
1.
anti-churning rules should include any
2. Complete lines 10, 11 and 12, column (c), and enter the total here . . . .
2.
additional tax due under section 197(f)(9)(B)
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
in the total for line 2. On the dotted line next
4. Multiply line 3 by 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
to line 2, enter “Section 197” and the
5. Add lines 2, 5, 7, and 8, column (c), and the part of the deduction on
amount.
6.

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

line 3, column (c), that is attributable to dividends from
20%-or-more-owned corporations . . . . . . . . . . . . . . . . . . . . . . . . .
Enter the smaller of line 4 or 5. If line 5 is greater than line 4, stop here;
enter the amount from line 6 on line 9, column (c), and do not complete
the rest of this worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter the total amount of dividends from 20%-or-more-owned
corporations that are included on lines 2, 3, 5, 7, and 8, column (a) . . .
Subtract line 7 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiply line 8 by 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line 5 above from line 9, column (c) . . . . . . . . . . . . . . . . . .
Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . . .
Dividends-received deduction after limitation (sec. 246(b)). Add
lines 6 and 11. Enter the result here and on line 9, column (c) . . . . . . .

Instructions for Forms 1120 and 1120-A

-15-

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

Line 3 (Form 1120 Only)
A corporation that is not a small
corporation exempt from the AMT
CAUTION may be required to file Form 4626 if
it claims certain credits, even though it does
not owe any AMT. See Form 4626 for
details.
Unless the corporation is treated as a
small corporation exempt from the AMT, it
may owe the AMT if it has any of the
adjustments and tax preference items listed
on Form 4626. The corporation must file

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Form 4626 if its taxable income (or loss)
before the NOL deduction, combined with
these adjustments and tax preference items
is more than the smaller of $40,000 or the
corporation’s allowable exemption amount
(from Form 4626). For this purpose, taxable
income does not include the NOL deduction.
See Form 4626 for definitions and details
on how to figure the tax.

Line 5a (Form 1120 Only)
To find out when a corporation can take the
credit for payment of income tax to a foreign
country or U.S. possession, see Form 1118.

Line 5b (Form 1120 Only)
Use Form 8834, Qualified Electric Vehicle
Credit, if the corporation can claim a credit
for a qualified electric vehicle placed in
service in 2006.

Line 5c, Form 1120
(Line 2, Form 1120-A)
Enter on line 5c (line 2 of Form 1120-A) the
corporation’s total general business credit.
The corporation is required to file Form
3800, General Business Credit, to claim
certain business credits. For a list of
allowable credits, see Form 3800. Check the
“Form 3800” box and include the allowable
credit from Part II, line 19 of Form 3800, on
line 5c of Form 1120 (line 2 of Form
1120-A). Also, see the applicable credit form
and its instructions .
However, if the corporation is filing any of
the following forms, check the applicable
box, and include the allowable credit on line
5c (line 2 of Form 1120-A).
• Form 6478, Credit for Alcohol Used as
Fuel,
• Form 8835, Renewable Electricity,
Refined Coal, and Indian Coal Production
Credit, with a credit from Section B, or
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit.
See the instructions of the applicable form.

Line 5d (Form 1120 Only)
To figure the minimum tax credit and any
carryforward of that credit, use Form 8827,
Credit for Prior Year Minimum Tax —
Corporations. Also see Form 8827 if any of
the corporation’s 2005 nonconventional
source fuel credit or qualified electric vehicle
credit was disallowed solely because of the
tentative minimum tax limitation. See section
53(d).

Line 5e (Form 1120 Only)
Enter the amount of any credit from Form
8860, Qualified Zone Academy Bond Credit
or from Form 8912, Credit for Clean
Renewable Energy and Gulf Tax Credit
Bonds. Check the applicable box(es) and
include the amount of the credit in the total
for line 5e.

Line 8 (Form 1120 Only)
A corporation is taxed as a personal holding
company under section 542 if:
• At least 60% of its adjusted ordinary gross
income for the tax year is personal holding
company income, and
• At any time during the last half of the tax
year more than 50% in value of its
outstanding stock is directly or indirectly
owned by five or fewer individuals.
See Schedule PH (Form 1120) for
definitions and details on how to figure the
tax.

Line 9, Form 1120
(Line 4, Form 1120-A)

showing the computation of each item
included in the total for line 9 (Form 1120-A,
Part I, line 4) and identify the applicable
Code section and the type of tax or interest.

Include any of the following taxes and
interest in the total on line 9 (Form 1120-A,
Part I, line 4). Check the appropriate box(es)
for the form, if any, used to compute the
total.
Recapture of investment credit. If the
corporation disposed of investment credit
property or changed its use before the end
of its useful life or recovery period, it may
owe a tax. See Form 4255, Recapture of
Investment Credit.
Recapture of low-income housing credit.
If the corporation disposed of property (or
there was a reduction in the qualified basis
of the property) for which it took the
low-income housing credit, it may owe a tax.
See Form 8611, Recapture of Low-Income
Housing Credit.
Interest due under the look-back
methods. If the corporation used the
look-back method for certain long-term
contracts, see Form 8697, Interest
Computation Under the Look-Back Method
for Completed Long-Term Contracts, for
information on figuring the interest the
corporation may have to include.
The corporation may also have to include
interest due under the look-back method for
property depreciated under the income
forecast method. See Form 8866, Interest
Computation Under the Look-Back Method
for Property Depreciated Under the Income
Forecast Method.
Alternative tax on qualifying shipping
activities. Enter any alternative tax on
qualifying shipping activities from Form
8902. Check the box for Form 8902.
Other. Additional taxes and interest
amounts can be included in the total entered
on line 9 (Form 1120-A, Part I, line 4).
Check the box for “Other” if the corporation
includes any additional taxes and interest
such as the items discussed below. See
How to report below for details on reporting
these amounts on an attached schedule.
• Recapture of qualified electric vehicle
(QEV) credit. The corporation must
recapture part of the QEV credit it claimed in
a prior year if, within 3 years of the date the
vehicle was placed in service, it ceases to
qualify for the credit. See Regulations
section 1.30-1 for details on how to figure
the recapture.
• Recapture of Indian employment credit.
Generally, if an employer terminates the
employment of a qualified employee less
than 1 year after the date of initial
employment, any Indian employment credit
allowed for a prior tax year because of
wages paid or incurred to that employee
must be recaptured. For details, see Form
8845 and section 45A.
• Recapture of new markets credit (see
Form 8874).
• Recapture of employer-provided childcare
facilities and services credit (see Form
8882).
• Tax and interest on a nonqualified
withdrawal from a capital construction fund
(section 7518).
• Interest on deferred tax attributable to (a)
installment sales of certain timeshares and
residential lots (section 453(l)(3)) and (b)
certain nondealer installment obligations
(section 453A(c)).
• Interest due on deferred gain (section
1260(b)).
How to report. If the corporation
checked the “Other” box, attach a schedule

Check the “Yes” box for question 4 if:
• The corporation is a subsidiary in an
affiliated group (defined below), but is not
filing a consolidated return for the tax year
with that group, or
• The corporation is a subsidiary in a
parent-subsidiary controlled group. For a
definition of a parent-subsidiary controlled
group, see the instructions for Schedule O
(Form 1120).
Any corporation that meets either of the
requirements above should check the “Yes”
box. This applies even if the corporation is a
subsidiary member of one group and the
parent corporation of another.
Note. If the corporation is an “excluded
member” of a controlled group (see section
1563(b)(2)), it is still considered a member
of a controlled group for this purpose.

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Instructions for Forms 1120 and 1120-A

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

Schedule K, Form 1120
(Part II, Form 1120-A)
The following instructions apply to Form
1120, page 3, Schedule K, or Form 1120-A,
page 2, Part II. Complete all items that apply
to the corporation.

Question 4 (Form 1120 Only)

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Affiliated group. An affiliated group is one
or more chains of includible corporations
(section 1504(a)) connected through stock
ownership with a common parent
corporation. The common parent must be an
includible corporation and the following
requirements must be met.
1. The common parent must own
directly stock that represents at least 80% of
the total voting power and at least 80% of
the total value of the stock of at least one of
the other includible corporations.
2. Stock that represents at least 80% of
the total voting power and at least 80% of
the total value of the stock of each of the
other corporations (except for the common
parent) must be owned directly by one or
more of the other includible corporations.
For this purpose, the term “stock”
generally does not include any stock that
(a) is nonvoting, (b) is nonconvertible,
(c) is limited and preferred as to dividends
and does not participate significantly in
corporate growth, and (d) has redemption
and liquidation rights that do not exceed the
issue price of the stock (except for a
reasonable redemption or liquidation
premium). See section 1504(a)(4). See
section 1563(d)(1) for the definition of stock
for purposes of determining stock ownership
above.

Question 6 (Form 1120-A Only)
Foreign financial accounts. Check the
“Yes” box for question 6 if either 1 or 2
below applies to the corporation. Otherwise,
check the “No” box.
1. At any time during the 2006 calendar
year, the corporation had an interest in or
signature or other authority over a bank,
securities, or other financial account in a
foreign country (see Form TD F 90-22.1,
Report of Foreign Bank and Financial
Accounts); and
a. The combined value of the accounts was
more than $10,000 at any time during the
calendar year and
b. The account was not with a U.S. military
banking facility operated by a U.S.
financial institution.
The corporation owns more than 50% of the
stock in any corporation that would answer
“Yes” to item 1 above.
If the “Yes” box is checked:
• Enter the name of the foreign country or
countries. Attach a separate sheet if more
space is needed.
• File Form TD F 90-22.1 by June 30, 2007,
with the Department of the Treasury at the
address shown on the form, do not file it
with Form 1120-A. You can order Form TD
F 90-22.1 by calling 1-800-TAX-FORM
(1-800-829-3676) or you can download it
from the IRS website at www.irs.gov.

Question 7 (Form 1120 Only)

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

Item 9, Form 1120
(Item 3, Form 1120-A)
Show any tax-exempt interest received or
accrued. Including any exempt-interest
dividends received as a shareholder in a
mutual fund or other RIC. Also, if required,
include the same amount on Schedule M-1,
line 7; Form 1120-A, Part IV, line 6; or
Schedule M-3, Part II, line 13.

Schedule L, Form 1120
(Part III, Form 1120-A)
The balance sheet should agree with the
corporation’s books and records.
Corporations with total receipts (line 1a
plus lines 4 through 10 on page 1) and total
assets at the end of the tax year less than
$250,000 are not required to complete
Schedules L, M-1, and M-2 (Parts III and IV,
Form 1120-A) if the “Yes” box on Schedule
K, question 13 (Part II, question 7, Form
1120-A), is checked. If the corporation is
required to complete Schedule L, include
total assets reported on Schedule L, line 15,
column (d), on page 1, item D.
If filing a consolidated return, report total
consolidated assets, liabilities, and
shareholder’s equity for all corporations
joining in the return. See Consolidated
Return on page 6 of these instructions.
Corporations with total assets
non-consolidated (or consolidated for all
corporations included within the tax
consolidation group) of $10 million or more
on the last day of the tax year must
complete Schedule M-3 (Form 1120)
instead of Schedule M-1. See the separate
instructions for Schedule M-3 (Form 1120)
for provisions also affecting Schedule L.

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

Line 5
Include on this line:

• State and local government obligations,

the interest on which is excludable from
gross income under section 103(a) and

• Stock in a mutual fund or other RIC that

distributed exempt-interest dividends during
the tax year of the corporation.

Item 11 (Form 1120 Only)
If the corporation has an NOL for its 2006
tax year, it can elect to waive the entire
carryback period for the NOL and instead
carry the NOL forward to future tax years.
To do so, check the box on line 11 and file
the tax return by its due date, including
extensions. Do not attach the statement
described in Temporary Regulations section
301.9100-12T. Once made, the election is
irrevocable. See Pub. 542 and Form 1139
for more details.

Check the “Yes” box if one foreign person
owned at least 25% of (a) the total voting
power of all classes of stock of the
corporation entitled to vote, or (b) the total
value of all classes of stock of the
corporation.

Corporations filing a consolidated return
must also attach the statement required by
Regulations section 1.1502-21(b)(3).

The constructive ownership rules of
section 318 apply in determining if a

Enter the amount of the NOL carryover to
the tax year from prior years, even if some

Item 12 (Form 1120 Only)

Instructions for Forms 1120 and 1120-A

of the loss is used to offset income on this
return. The amount to enter is the total of all
NOLs generated in prior years but not used
to offset income (either as a carryback or
carryover) to a tax year prior to 2006. Do not
reduce the amount by any NOL deduction
reported on line 29a.

-17-

Line 26, Form 1120
(Line 21, Form 1120-A)
Some examples of adjustments to report on
this line include:

• Unrealized gains and losses on securities
held “available for sale.”

• Foreign currency translation adjustments.
• The excess of additional pension liability
over unrecognized prior service cost.

• Guarantees of employee stock (ESOP)
debt.
• Compensation related to employee stock
award plans.
If the total adjustment to be entered on
line 26 (line 21, Form 1120-A) is a negative
amount, enter the amount in parentheses.

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Instructions for Forms 1120 and 1120-A

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Schedule M-1, Form 1120
(Part IV, Form 1120-A)
Corporations with total receipts (line 1a plus
lines 4 through 10 on page 1) and total
assets at the end of the tax year less than
$250,000 are not required to complete
Schedules L, M-1, and M-2 (Parts III and IV,
Form 1120-A) if the “Yes” box on Schedule
K, question 13 (Part II, question 7, Form
1120-A) , is checked.
Corporations with total assets
non-consolidated (or consolidated for all
corporations included within the tax
consolidation group) of $10 million or more
on the last day of the tax year must
complete Schedule M-3 instead of Schedule
M-1. See Schedule M-3 (Form 1120 Only)
on page 6. A corporation filing Form 1120
that is not required to file Schedule M-3 may

voluntarily file Schedule M-3 instead of
Schedule M-1. See the Instructions for
Schedule M-3 for more information.

Line 5c, Form 1120
(Line 5, Form 1120-A)
Include any of the following.
• Meal and entertainment expenses not
deductible under section 274(n).
• Expenses for the use of an entertainment
facility.
• The part of business gifts over $25.
• Expenses of an individual over $2,000,
which are allocable to conventions on cruise
ships.
• Employee achievement awards over
$400.
• The cost of entertainment tickets over
face value (also subject to 50% limit under
section 274(n)).

• The cost of skyboxes over the face value
of nonluxury box seat tickets.
• The part of luxury water travel expenses
not deductible under section 274(m).
• Expenses for travel as a form of
education.
• Other nondeductible travel and
entertainment expenses.
For more information, see Pub. 542.

Line 7, Form 1120
(Line 6, Form 1120-A)
Report any tax exempt interest received or
accrued, including any exempt-interest
dividends received as a shareholder in a
mutual fund or other RIC. Also report this
same amount on Schedule K, item 9 (item 3,
Form 1120-A).

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

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

Recordkeeping

Learning about
the law or the form

Preparing the form

Copying,
assembling,
and sending the
form to the IRS

70 hr., 47 min.
43 hr., 30 min.
6 hr., 56 min.
5 hr., 58 min.
76 hr., 3 min.
3 hr., 49 min.
6 hr., 42 min.
15 hr., 18 min.

42 hr., 1 min.
24 hr., 13 min.
3 hr., 55 min.
35 min.
3 hr., 40 min.
1 hr., 30 min.
2 hr., 5 min.
6 hr., 12 min.

72 hr., 56 min.
42 hr., 33 min.
6 hr., 3 min.
43 min.
5 hr., 4 min.
4 hr., 25 min.
2 hr., 16 min.
8 hr., 35 min.

8 hr., 2 min.
4 hr., 49 min.
32 min.
--------48 min.
----32 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedules
simpler, we would be happy to hear from you. You can write to Internal Revenue Service, Tax Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6406, Washington, DC 20224. Do not send the tax form to this address. Instead, see
Where To File on page 3.

-18-

Instructions for Forms 1120 and 1120-A

Page 19 of 22

Instructions for Forms 1120 and 1120-A

15:00 - 27-DEC-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120 and 1120-A
Principal Business Activity Codes
This list of principal business activities and their
associated codes is designed to classify an
enterprise by the type of activity in which it is
engaged to facilitate the administration of the
Internal Revenue Code. These principal business
activity codes are based on the North American
Industry Classification System.
Code

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

Mining
211110
212110
212200
212310
212320

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

Construction
Construction of Buildings
236110 Residential Building
Construction
236200 Nonresidential Building
Construction
Heavy and Civil Engineering
Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil
Engineering Construction

Code
Specialty Trade Contractors
238100 Foundation, Structure, &
Building Exterior Contractors
(including framing carpentry,
masonry, glass, roofing, &
siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors
238300 Building Finishing
Contractors (including
drywall, insulation, painting,
wallcovering, flooring, tile, &
finish carpentry)
238900 Other Specialty Trade
Contractors (including site
preparation)

Instructions for Forms 1120 and 1120-A

Once the principal business activity is determined,
entries must be made on Form 1120, Schedule K,
lines 2a, 2b, and 2c, or on Form 1120-A, Part II,
lines 1a, 1b, and 1c. For the business activity code
number, enter the six digit code selected from the list
below. On the next line (Form 1120, Schedule K, line
2b, or Form 1120-A, Part II, line 1b), enter a brief
description of the company’s business activity.
Finally, enter a description of the principal product or
service of the company on Form 1120, Schedule K,
line 2c, or Form 1120-A, Part II, line 1c.

Code
Printing and Related Support
Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries
(including integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal
Products Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine
Mfg
325500 Paint, Coating, & Adhesive
Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory
Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product
Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral
Product Mfg
Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy
Mfg
331200 Steel Product Mfg from
Purchased Steel
331310 Alumina & Aluminum
Production & Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product
Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural
Metals Mfg
332400 Boiler, Tank, & Shipping
Container Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned
Product; & Screw, Nut, & Bolt
Mfg
332810 Coating, Engraving, Heat
Treating, & Allied Activities
332900 Other Fabricated Metal
Product Mfg
Machinery Manufacturing
333100 Agriculture, Construction, &
Mining Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service
Industry Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, &
Commercial Refrigeration
Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg

-19-

Code
333900 Other General Purpose
Machinery Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral
Equipment Mfg
334200 Communications Equipment
Mfg
334310 Audio & Video Equipment
Mfg
334410 Semiconductor & Other
Electronic Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing &
Reproducing Magnetic &
Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment
Mfg
335200 Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment
Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer
Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts
Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building
336990 Other Transportation
Equipment Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment &
Supplies Mfg
339900 Other Miscellaneous
Manufacturing

Wholesale Trade
Merchant Wholesalers, Durable
Goods
423100 Motor Vehicle & Motor
Vehicle Parts & Supplies
423200 Furniture & Home
Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except
Petroleum)
423600 Electrical & Electronic Goods
423700 Hardware, & Plumbing &
Heating Equipment &
Supplies
423800 Machinery, Equipment, &
Supplies
423910 Sporting & Recreational
Goods & Supplies
423920 Toy & Hobby Goods &
Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious
Stone, & Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists’ Sundries
424300 Apparel, Piece Goods, &
Notions

Page 20 of 22

Instructions for Forms 1120 and 1120-A

15:00 - 27-DEC-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120 and 1120-A (continued)
Code
424400
424500
424600
424700

Grocery & Related Products
Farm Product Raw Materials
Chemical & Allied Products
Petroleum & Petroleum
Products
424800 Beer, Wine, & Distilled
Alcoholic Beverages
424910 Farm Supplies
424920 Book, Periodical, &
Newspapers
424930 Flower, Nursery Stock, &
Florists’ Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous
Nondurable Goods
Wholesale Electronic Markets and
Agents and Brokers
425110 Business to Business
Electronic Markets
425120 Wholesale Trade Agents &
Brokers

Retail Trade
Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441221 Motorcycle Dealers
441222 Boat Dealers
441229 All Other Motor Vehicle
Dealers
441300 Automotive Parts,
Accessories, & Tire Stores
Furniture and Home Furnishings
Stores
442110 Furniture Stores
442210 Floor Covering Stores
442291 Window Treatment Stores
442299 All Other Home Furnishings
Stores
Electronics and Appliance Stores
443111 Household Appliance Stores
443112 Radio, Television, & Other
Electronics Stores
443120 Computer & Software Stores
443130 Camera & Photographic
Supplies Stores
Building Material and Garden
Equipment and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Stores
444130 Hardware Stores
444190 Other Building Material
Dealers
444200 Lawn & Garden Equipment &
Supplies Stores
Food and Beverage Stores
445110 Supermarkets and Other
Grocery (except
Convenience) Stores
445120 Convenience Stores
445210 Meat Markets
445220 Fish & Seafood Markets
445230 Fruit & Vegetable Markets
445291 Baked Goods Stores
445292 Confectionery & Nut Stores
445299 All Other Specialty Food
Stores
445310 Beer, Wine, & Liquor Stores
Health and Personal Care Stores
446110 Pharmacies & Drug Stores
446120 Cosmetics, Beauty Supplies,
& Perfume Stores
446130 Optical Goods Stores
446190 Other Health & Personal
Care Stores
Gasoline Stations
447100 Gasoline Stations (including
convenience stores with gas)
Clothing and Clothing Accessories
Stores
448110 Men’s Clothing Stores
448120 Women’s Clothing Stores
448130 Children’s & Infants’ Clothing
Stores
448140 Family Clothing Stores
448150 Clothing Accessories Stores

Code
448190
448210
448310
448320

Other Clothing Stores
Shoe Stores
Jewelry Stores
Luggage & Leather Goods
Stores
Sporting Goods, Hobby, Book, and
Music Stores
451110 Sporting Goods Stores
451120 Hobby, Toy, & Game Stores
451130 Sewing, Needlework, & Piece
Goods Stores
451140 Musical Instrument &
Supplies Stores
451211 Book Stores
451212 News Dealers & Newsstands
451220 Prerecorded Tape, Compact
Disc, & Record Stores
General Merchandise Stores
452110 Department Stores
452900 Other General Merchandise
Stores
Miscellaneous Store Retailers
453110 Florists
453210 Office Supplies & Stationery
Stores
453220 Gift, Novelty, & Souvenir
Stores
453310 Used Merchandise Stores
453910 Pet & Pet Supplies Stores
453920 Art Dealers
453930 Manufactured (Mobile) Home
Dealers
453990 All Other Miscellaneous Store
Retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454110 Electronic Shopping &
Mail-Order Houses
454210 Vending Machine Operators
454311 Heating Oil Dealers
454312 Liquefied Petroleum Gas
(Bottled Gas) Dealers
454319 Other Fuel Dealers
454390 Other Direct Selling
Establishments (including
door-to-door retailing, frozen
food plan providers, party
plan merchandisers, &
coffee-break service
providers)

Transportation and
Warehousing
Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation
Truck Transportation
484110 General Freight Trucking,
Local
484120 General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi Service
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground
Passenger Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing

Code
488490 Other Support Activities for
Road Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers
492210 Local Messengers & Local
Delivery
Warehousing and Storage
493100 Warehousing & Storage
(except lessors of
miniwarehouses &
self-storage units)

Information
Publishing Industries (except
Internet)
511110 Newspaper Publishers
511120 Periodical Publishers
511130 Book Publishers
511140 Directory & Mailing List
Publishers
511190 Other Publishers
511210 Software Publishers
Motion Picture and Sound
Recording Industries
512100 Motion Picture & Video
Industries (except video
rental)
512200 Sound Recording Industries
Broadcasting (except Internet)
515100 Radio & Television
Broadcasting
515210 Cable & Other Subscription
Programming
Internet Publishing and
Broadcasting
516110 Internet Publishing &
Broadcasting
Telecommunications
517000 Telecommunications
(including paging, cellular,
satellite, cable & other
program distribution,
resellers, & other
telecommunications)
Internet Service Providers, Web
Search Portals, and Data Processing
Services
518111 Internet Service Providers
518112 Web Search Portals
518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates &
libraries)

-20-

Code
523120 Securities Brokerage
523130 Commodity Contracts
Dealing
523140 Commodity Contracts
Brokerage
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment
advice)
Insurance Carriers and Related
Activities
524140 Direct Life, Health, & Medical
Insurance & Reinsurance
Carriers
524150 Direct Insurance &
Reinsurance (except Life,
Health & Medical) Carriers
524210 Insurance Agencies &
Brokerages
524290 Other Insurance Related
Activities (including
third-party administration of
insurance and pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee
Benefit Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525930 Real Estate Investment
Trusts (Form 1120-REIT)
525990 Other Financial Vehicles
(including closed-end
investment funds)
“Offices of Bank Holding Companies”
and “Offices of Other Holding
Companies” are located under
Management of Companies (Holding
Companies) on page 22.

Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential
Buildings & Dwellings
531114 Cooperative Housing
531120 Lessors of Nonresidential
Buildings (except
Miniwarehouses)
531130 Lessors of Miniwarehouses &
Self-Storage Units
531190 Lessors of Other Real Estate
Property
531210 Offices of Real Estate Agents
& Brokers
531310 Real Estate Property
Managers
531320 Offices of Real Estate
Appraisers
531390 Other Activities Related to
Real Estate
Rental and Leasing Services
532100 Automotive Equipment Rental
& Leasing
532210 Consumer Electronics &
Appliances Rental
532220 Formal Wear & Costume
Rental
532230 Video Tape & Disc Rental
532290 Other Consumer Goods
Rental
532310 General Rental Centers
532400 Commercial & Industrial
Machinery & Equipment
Rental & Leasing
Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
533110 Lessors of Nonfinancial
Intangible Assets (except
copyrighted works)

Professional, Scientific, and
Technical Services
Legal Services
541110 Offices of Lawyers
541190 Other Legal Services

Instructions for Forms 1120 and 1120-A

Page 21 of 22

Instructions for Forms 1120 and 1120-A

15:00 - 27-DEC-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120 and 1120-A (continued)
Code
Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and
Related Services
541310 Architectural Services
541320 Landscape Architecture
Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying &
Mapping Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and
Related Services
541511 Custom Computer
Programming Services
541512 Computer Systems Design
Services
541513 Computer Facilities
Management Services
541519 Other Computer Related
Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting
Services
541700 Scientific Research &
Development Services
541800 Advertising & Related
Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional,
Scientific, & Technical
Services

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

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

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

Health Care and Social
Assistance
Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
621210 Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except
Physicians)
621340 Offices of Physical,
Occupational & Speech
Therapists, & Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other
Miscellaneous Health
Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory
Surgical & Emergency
Centers
621498 All Other Outpatient Care
Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic
Laboratories

Instructions for Forms 1120 and 1120-A

Code
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care
Services
621900 Other Ambulatory Health
Care Services (including
ambulance services & blood
& organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care
Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing,
& Emergency & Other Relief
Services
624310 Vocational Rehabilitation
Services
624410 Child Day Care Services

Accommodation and Food
Services
Accommodation
721110 Hotels (except Casino Hotels)
& Motels
721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler
Accommodation
721210 RV (Recreational Vehicle)
Parks & Recreational Camps
721310 Rooming & Boarding Houses
Food Services and Drinking Places
722110 Full-Service Restaurants
722210 Limited-Service Eating
Places
722300 Special Food Services
(including food service
contractors & caterers)
722410 Drinking Places (Alcoholic
Beverages)

-21-

Code

Page 22 of 22

Instructions for Forms 1120 and 1120-A

15:00 - 27-DEC-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index

A
Accounting methods . . . . . . . . . . . 5
Accounting period (Tax
Year) . . . . . . . . . . . . . . . . . . . . . . . 5
Address change . . . . . . . . . . . . . . . 6
Affiliated group . . . . . . . . . . . . . . . 17
Amended return . . . . . . . . . . . . . . . 5
Amortization . . . . . . . . . . . . . . . . . . 8
Assembling the return . . . . . . . . . 4
At-risk rules . . . . . . . . . . . . . . . . . . 11
B
Backup withholding . . . . . . . . . . . 12
Bad debts . . . . . . . . . . . . . . . . . . . . . 9
Balance sheets . . . . . . . . . . . . . . . 17
Business startup expenses . . . . . 8
C
Capital construction fund:
Deduction for
contributions . . . . . . . . . . . . . 12
Tax on nonqualified
withdrawal . . . . . . . . . . . . . . . 16
Closely held corporations . . . . . . 8
Compensation of officers . . . . . . . 8
Consolidated return . . . . . . . . . 6, 17
Contributions to reduce debt held
by the public . . . . . . . . . . . . . . . . 2
Contributions, charitable . . . . . . . 9
Controlled group . . . . . . . . . . . . . 15
Cost of goods sold . . . . . . . . . . 7, 13
Credits against tax . . . . . . . . . . . . 16
D
Deductions . . . . . . . . . . . . . . . . . . . . 7
Depletion . . . . . . . . . . . . . . . . . . . . 10
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . . . 4
Depreciation . . . . . . . . . . . . . . . . . 10
Direct deposit of refund . . . . . 1, 12
Disclosure statement . . . . . . . . . . 5
Dividend income . . . . . . . . . . . . . . 7
Dividends-received
deduction . . . . . . . . . . . . . . . 14-15
Dues, membership and
other . . . . . . . . . . . . . . . . . . . . . . 11

E
Electronic Federal Tax Payment
System (EFTPS) . . . . . . . . . . . . 4
Electronic filing . . . . . . . . . . . . . . . . 2
Employee benefit
programs . . . . . . . . . . . . . . . . . . 10
Employer identification number
(EIN) . . . . . . . . . . . . . . . . . . . . . . . 6
Estimated tax:
Penalty . . . . . . . . . . . . . . . . . . 4, 12
Estimated tax payments . . . . . . . 4
Extension of time to file . . . . . . . . 3
Extraterritorial income . . . . . . 6, 11
F
Farming, corporations engaged
in . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Final return . . . . . . . . . . . . . . . . . . . . 6
Financial asset securitization
investment trust (FASIT) . . . . . 2
Foreign financial accounts . . . . 17
Foreign person (defined) . . . . . . 17
Foreign tax credit . . . . . . . . . . . . . 16
Form 1120-A requirements . . . . . 2
Forms and publications, how to
get . . . . . . . . . . . . . . . . . . . . . . . . . 2
G
General business credit . . . . . . . 16
Golden parachute
payments . . . . . . . . . . . . . . . . . . . 8
Gross receipts . . . . . . . . . . . . . . . . . 6
I
Income . . . . . . . . . . . . . . . . . . . . . . . 6
Installment sales . . . . . . . . . . . . . . 7
Interest due:
Late payment of tax . . . . . . . . . 4
Look-back method . . . . . . . . . . 16
Interest expense (relating to
section 263A) . . . . . . . . . . . . . . . 8
Interest expense . . . . . . . . . . . . . . 9
Interest income:
Tax-exempt . . . . . . . . . . . . 17, 18
Taxable . . . . . . . . . . . . . . . . . . . . . 7
Inventory:
Section 263A uniform
capitalization rules . . . . . 7, 13

Valuation methods . . . . . . . . . 13
L
LIFO recapture:
Tax on . . . . . . . . . . . . . . . . . . . . . 16
Where to report . . . . . . . . . . . . . 7
Limitations on deductions . . . . 7, 9
Lobbying expenses,
nondeductibility . . . . . . . . . . . . 11
M
Minimum tax:
Alternative . . . . . . . . . . . . . . . . . 15
Prior year, credit for . . . . . . . . 16
Mutual savings banks conducting
life insurance business . . . . . 15
N
Name change . . . . . . . . . . . . . . . . . 6
Net operating loss . . . . . . . . 11, 17
Nonaccrual experience
method . . . . . . . . . . . . . . . . . . . . . 7
O
Other deductions . . . . . . . . . . . . . 10
Other income . . . . . . . . . . . . . . . . . 7
Other taxes . . . . . . . . . . . . . . . . . . 16
Overpaid estimated tax . . . . . . . 12
P
Partnership income (loss) . . . . . . 7,
11
Passive activity limitations . . . . . . 8
Penalties . . . . . . . . . . . . . . . . . . . 4, 12
Pension, profit-sharing, etc.
plans . . . . . . . . . . . . . . . . . . . . . . 10
Personal holding company . . . . . 6
Personal holding company
tax . . . . . . . . . . . . . . . . . . . . . . . . 16
Personal service
corporation . . . . . . . . . . . . . . . . . 6
Preparer, tax return . . . . . . . . . . . . 3
Private delivery services . . . . . . . 3

R
Recapture taxes . . . . . . . . . . . . . . 16
Reconciliation of income . . . . . . 18
Recordkeeping . . . . . . . . . . . . . . . . 5
Related party transactions . . . . . 8
Rents (expense) . . . . . . . . . . . . . . . 9
Rents (income) . . . . . . . . . . . . . . . . 7
Repairs and maintenance . . . . . . 9
S
Salaries and wages . . . . . . . . . . . . 9
Schedule:
A . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C . . . . . . . . . . . . . . . . . . . . . . . . . . 14
J . . . . . . . . . . . . . . . . . . . . . . . . . . 15
K . . . . . . . . . . . . . . . . . . . . . . . . . . 16
L . . . . . . . . . . . . . . . . . . . . . . . . . . 17
M-1 . . . . . . . . . . . . . . . . . . . . . . . . 18
M-3 . . . . . . . . . . . . . . . . . . . . . . 6, 18
O . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 263A costs . . . . . . . . . 7, 13
Shareholders’ equity
adjustments . . . . . . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . 3
Special returns for certain
organizations . . . . . . . . . . . . . . . 2
T
Tax issues, unresolved . . . . . . . . 1
Tax rate schedule . . . . . . . . . . . . 15
Tax-exempt securities . . . . . . . . 17
Taxes and licenses . . . . . . . . . . . . 9
Travel, meals, and
entertainment . . . . . . . . . . . . . . 11
W
When to file . . . . . . . . . . . . . . . . . . . 3
Where to file . . . . . . . . . . . . . . . . . . 3
Who must file . . . . . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . . . . 3
Worksheets:
Cost of goods sold . . . . . . . . . 13
Schedule C . . . . . . . . . . . . . . . . 14

■

Q
Qualified personal service
corporation . . . . . . . . . . . . . . . . 15

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Instructions for Forms 1120 and 1120-A

File Type	application/pdf
File Title	Project File Checksheet.doc
Author	RMDFB
File Modified	2007-12-05
File Created	2005-01-24