Form 1120S U.S. Income Tax Return for an S Corporation

2006 Form 1120S, U.S Income Tax Return for an S Corporation
Purpose: This is the first circulated draft of the 2006 Form 1120S for your review and comments.
See below for a discussion of the major changes.
TPCC Meeting: None, but one may be arranged if requested.
Prior Version: The 2005 Form 1120S is available at:
http://www.irs.gov/pub/irs-pdf/f1120s.pdf
Instructions: The 2006 Instructions for Form 1120S will be circulated at a later date. The 2005
instructions are available at:
http://www.irs.gov/pub/irs-pdf/i1120s.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and publications are posted
at: http://taxforms.web.irs.gov/draft_products.html
Comments: Please forward any comments by June 28, 2006.
Patti Ghezzi
Tax Forms and Publications
SE:W:CAR:MP:T:B:P
Email: [email protected]
Phone: 202-622-3403
Fax: 202-622-3262
Major Changes to the 2006 Form 1120S
Page 1
● We added new line H where S corporations will indicate if new Schedule M-3 (Form 1120S) is
required to be attached.
● We collapsed lines 14a through 14c into a single line 14 to reflect changes to Form 1120 and
save space for 2 lines.
● We added “or LIFO recapture” to line 22a to give it more prominence than it received as a write
in on line 23d (requested by SBSE and LMSB).
● We revised the text on lines 23a, 25, and 27 to reflect changes to Form 1120.
● We also plan to renumber line 23d as 23e and insert new line 23d to reflect Treasury’s
recent decision to refund the telephone excise tax. The text for new line 23d will read,
“Credit for federal telephone excise tax paid (attach Form 8913).”
Page 2
● We revised question 3 of Schedule B to ask S corporations to identify their QSUB elections
(requested by LMSB). We also removed the request for an address on the attached statement to
conform to the similar request on Form 1120 (Schedule K, question 3).
● We revised item 8 of Schedule B to replace the checkbox with a request for an amount
(requested by LMSB to provide information more useful for both subsequent practitioners and the
Service).
● We changed the title of Schedule K from “Shareholders’ Shares of Income, Deductions,
Credits, etc.” to “Shareholders’ Pro Rata Share Items” to conform to Form 1065 and save space.
The new title was formerly the subtitle of Schedule K.
Page 3

● We renumbered line 17e as line 18 and placed it in its own “reconciliation” section to reflect its
importance and conform to Form 1065. We also removed text requiring its completion only when
Schedule M-1 was required. (Requested by LMSB.) Now all filers must complete this line.

2
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Date

I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
FORM 1120S, PAGE 1 of 4
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
1
FLAT SIZE: 216mm (8 ⁄ 2 ") 3 559mm (22"), TOP FOLD TO: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: HORIZONTALLY ON FOLD

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form

©

Department of the Treasury
Internal Revenue Service

Use
IRS
label.
Otherwise,
print or
type.

Name

Signature

O.K. to print
Revised proofs
requested

OMB No. 1545-0130

Do not file this form unless the corporation has filed Form 2553
to elect to be an S corporation.
© See separate instructions.

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For calendar year 2006 or tax year beginning

B Business activity
code number (see
instructions)

Date

U.S. Income Tax Return for an S Corporation

1120S

A Effective date of S
election

Action

2006

, 2006, ending

, 20

C Employer identification number

Number, street, and room or suite no. If a P.O. box, see instructions.

D Date incorporated

City or town, state, and ZIP code

E Total assets (see instructions)

$

F Check if: (1)
Initial return
(2)
Final return
(3)
Name change
(4)
G Enter the number of shareholders in the corporation at the end of the tax year
H Check if Schedule M-3 is required (attach Schedule M-3)

Address change

(5)

Amended return
©

©

Tax and Payments

Deductions

(see instructions for limitations)

Income

Caution. Include only trade or business income and expenses on lines 1a through 21. See the instructions for more information.
1a
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

c Bal ©

Gross receipts or sales
b Less returns and allowances
Cost of goods sold (Schedule A, line 8)
Gross profit. Subtract line 2 from line 1c
Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797)
Other income (loss) (see instructions—attach statement)
Total income (loss). Add lines 3 through 5

©

Compensation of officers
Salaries and wages (less employment credits)
Repairs and maintenance
Bad debts
Rents
Taxes and licenses
Interest
Depreciation not claimed on Schedule A or elsewhere on return (attach Form 4562)
Depletion (Do not deduct oil and gas depletion.)
Advertising
Pension, profit-sharing, etc., plans
Employee benefit programs
Other deductions (attach statement)
Total deductions. Add lines 7 through 19
Ordinary business income (loss). Subtract line 20 from line 6

22a Excess net passive income or LIFO recapture tax (see
instructions)
b Tax from Schedule D (Form 1120S)
c Add lines 22a and 22b (see instructions for additional taxes)

©

1c
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

22a
22b
22c

23a 2006 estimated tax payments and 2005 overpayment credited to
23a
2006
23b
b Tax deposited with Form 7004
23c
c Credit for federal tax paid on fuels (attach Form 4136)
23d
d Add lines 23a through 23c
24
©
24 Estimated tax penalty (see instructions). Check if Form 2220 is attached
25
25 Amount owed. If line 23d is smaller than the total of lines 22c and 24, enter amount owed
26
26 Overpayment. If line 23d is larger than the total of lines 22c and 24, enter amount overpaid
27 Enter amount from line 26 Credited to 2007 estimated tax ©
Refunded © 27

Sign
Here

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true,
correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
May the IRS discuss this return
with the preparer shown below
Yes
No
(see instructions)?
Signature of officer
Date
Title

©

Paid
Preparer’s
Use Only

Preparer’s
signature

©

Firm’s name (or
yours if self-employed),
address, and ZIP code

©

Date

©

For Privacy Act and Paperwork Reduction Act Notice, see separate instructions.

Preparer’s SSN or PTIN

Check if
self-employed
EIN
Phone no.
Cat. No. 11510H

(

)
Form

1120S

(2006)

2
I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
FORM 1120S, PAGE 2 of 4
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
1
FLAT SIZE: 216mm (8 ⁄ 2 ") 3 559mm (22"), TOP FOLD TO: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: HORIZONTALLY ON FOLD

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 1120S (2006)

Schedule A

Page

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1
Inventory at beginning of year
2
Purchases
3
Cost of labor
4
Additional section 263A costs (attach statement)
5
Other costs (attach statement)
6
Total. Add lines 1 through 5
7
Inventory at end of year
8
Cost of goods sold. Subtract line 7 from line 6. Enter here and on page 1, line 2
(i)
Cost as described in Regulations section 1.471-3
Check all methods used for valuing closing inventory:
(ii)
Lower of cost or market as described in Regulations section 1.471-4
(iii)
Other (Specify method used and attach explanation.) ©
b Check if there was a writedown of subnormal goods as described in Regulations section 1.471-2(c)
c Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970)

1
2
3
4
5
6
7
8
9a

d If the LIFO inventory method was used for this tax year, enter percentage (or amounts) of closing
9d
inventory computed under LIFO
e If property is produced or acquired for resale, do the rules of section 263A apply to the corporation?
f Was there any change in determining quantities, cost, or valuations between opening and closing inventory?
If “Yes,” attach explanation.

Schedule B

2

Cost of Goods Sold (see instructions)

©
©

Yes
Yes

Other Information (see instructions)

No
No

Yes No

Check accounting method:
a
Cash
b
Accrual
c
Other (specify) ©
See the instructions and enter the:
a Business activity ©
b Product or service ©
At the end of the tax year, did the corporation own, directly or indirectly, 50% or more of the voting stock of a domestic
corporation? (For rules of attribution, see section 267(c).) If “Yes,” attach a statement showing: (a) name and employer
identification number (EIN), (b) percentage owned, and (c) if 100% owned, was a QSub election made?
Was the corporation a member of a controlled group subject to the provisions of section 1561?

1
2
3

4
5

Has this corporation filed, or is it required to file, a return under section 6111 to provide information on any reportable
transaction?
©
Check this box if the corporation issued publicly offered debt instruments with original issue discount

6

If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount
Instruments.
If the corporation: (a) was a C corporation before it elected to be an S corporation or the corporation acquired an
asset with a basis determined by reference to its basis (or the basis of any other property) in the hands of a
C corporation and (b) has net unrealized built-in gain (defined in section 1374(d)(1)) in excess of the net recognized
built-in gain from prior years, enter the net unrealized built-in gain reduced by net recognized built-in gain from prior
© $
years
Enter the accumulated earnings and profits of the corporation at the end of the tax year.
$

7

8
9

Are the corporation’s total receipts (see instructions) for the tax year and its total assets at the end of the tax year
less than $250,000? If “Yes,” the corporation is not required to complete Schedules L and M-1.
Note: If the corporation, at any time during the tax year, had assets or operated a business in a foreign country or U.S. possession, it
may be required to attach Schedule N (Form 1120), Foreign Operations of U.S. Corporations, to this return. See Schedule N for details.

Income (Loss)

Schedule K
1
2
3a
b
c
4
5

Shareholders’ Pro Rata Share Items

Ordinary business income (loss) (page 1, line 21)
Net rental real estate income (loss) (attach Form 8825)
3a
Other gross rental income (loss)
3b
Expenses from other rental activities (attach statement)
Other net rental income (loss). Subtract line 3b from line 3a
Interest income
Dividends: a Ordinary dividends
5b
b Qualified dividends
6 Royalties
7 Net short-term capital gain (loss) (attach Schedule D (Form 1120S))
8a Net long-term capital gain (loss) (attach Schedule D (Form 1120S))
8b
b Collectibles (28%) gain (loss)
8c
c Unrecaptured section 1250 gain (attach statement)
9 Net section 1231 gain (loss) (attach Form 4797)
Type ©
10 Other income (loss) (see instructions)

Total amount

1
2

3c
4
5a
6
7
8a

9
10
Form

1120S

(2006)

2
I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
FORM 1120S, PAGE 3 of 4
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
1
FLAT SIZE: 216mm )8 ⁄ 2 ") 3 559mm (22"), TOP FOLD TO: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: HORIZONTALLY ON FOLD

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 1120S (2006)

Page

3

Total amount

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11
12a
b
c
d

Section 179 deduction (attach Form 4562)
Contributions
Investment interest expense
Section 59(e)(2) expenditures (1) Type ©
Other deductions (see instructions)

13a
b
c
d
e
f
g

Low-income housing credit (section 42(j)(5))
Low-income housing credit (other)
Qualified rehabilitation expenditures (rental real estate) (attach Form 3468)
Other rental real estate credits (see instructions) Type ©
Other rental credits (see instructions)
Type ©
Credit for alcohol used as fuel (attach Form 6478)
Other credits (see instructions)
Type ©

(2) Amount ©

Type ©

14a Name of country or U.S. possession ©
b Gross income from all sources
c Gross income sourced at shareholder level
Foreign gross income sourced at corporate level
d Passive
e Listed categories (attach statement)
f General limitation
Deductions allocated and apportioned at shareholder level
g Interest expense

Alternative
Minimum Tax
(AMT) Items

15a
b
c
d
e
f

Post-1986 depreciation adjustment
Adjusted gain or loss
Depletion (other than oil and gas)
Oil, gas, and geothermal properties—gross income
Oil, gas, and geothermal properties—deductions
Other AMT items (attach statement)

Items Affecting
Shareholder
Basis

h Other
Deductions allocated and apportioned at corporate level to foreign source income
i Passive
j Listed categories (attach statement)
k General limitation
Other information
l Total foreign taxes (check one): ©
Paid
Accrued
m Reduction in taxes available for credit (attach statement)
n Other foreign tax information (attach statement)

16a
b
c
d
e

Tax-exempt interest income
Other tax-exempt income
Nondeductible expenses
Property distributions
Repayment of loans from shareholders

ReconOther
ciliation Information

Foreign Transactions

Credits

Deductions

Shareholders’ Pro Rata Share Items (continued)

17a
b
c
d

Investment income
Investment expenses
Dividend distributions paid from accumulated earnings and profits
Other items and amounts (attach statement)

18

Income/loss reconciliation. Combine the amounts on lines 1 through 10 in the far right
column. From the result, subtract the sum of the amounts on lines 11 through 12d and 14l

11
12a
12b
12c(2)
12d
13a
13b
13c
13d
13e
13f
13g
14b
14c
14d
14e
14f
14g
14h
14i
14j
14k
14l
14m
15a
15b
15c
15d
15e
15f
16a
16b
16c
16d
16e
17a
17b
17c
17d

18
Form

1120S

(2006)

2
I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
FORM 1120S, PAGE 4 of 4
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES.
PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
1
FLAT SIZE: 216mm (8 ⁄ 2 ") 3 559mm (22"), TOP FOLD TO: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: HORIZONTALLY ON FOLD

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 1120S (2006)

Page

4

Note: The corporation is not required to complete Schedules L and M-1 if question 9 on Schedule B is answered “Yes.”

Schedule L

Balance Sheets per Books

Beginning of tax year
(a)

Assets
1
2a
b
3
4
5
6
7
8
9
10a
b
11a
b
12
13a
b
14
15

Cash
Trade notes and accounts receivable
Less allowance for bad debts
Inventories
U.S. government obligations
Tax-exempt securities (see instructions)
Other current assets (attach statement)
Loans to shareholders
Mortgage and real estate loans
Other investments (attach statement)
Buildings and other depreciable assets
Less accumulated depreciation
Depletable assets
Less accumulated depletion
Land (net of any amortization)
Intangible assets (amortizable only)
Less accumulated amortization
Other assets (attach statement)
Total assets

16
17
18
19
20
21
22
23
24
25
26
27

Liabilities and Shareholders’ Equity
Accounts payable
Mortgages, notes, bonds payable in less than 1 year
Other current liabilities (attach statement)
Loans from shareholders
Mortgages, notes, bonds payable in 1 year or more
Other liabilities (attach statement)
Capital stock
Additional paid-in capital
Retained earnings
Adjustments to shareholders’ equity (attach statement)
Less cost of treasury stock
Total liabilities and shareholders’ equity

Schedule M-1
1
2

3

(

)

(

)

(

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(

)

(

)

(

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(

)

(

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Reconciliation of Income (Loss) per Books With Income (Loss) per Return (see instructions)

Add lines 1 through 3

5 Income recorded on books this year not included
on Schedule K, lines 1 through 10 (itemize):
a Tax-exempt interest $

6 Deductions included on Schedule K, lines
1 through 12 and 14l, not charged against
book income this year (itemize):
a Depreciation $

7 Add lines 5 and 6
8 Income (loss) (Schedule K, line 18). Line 4 less line 7

Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders’
Undistributed Taxable Income Previously Taxed (see instructions)
(a) Accumulated
adjustments account

1
2
3
4
5
6
7
8

(d)

)

Net income (loss) per books
Income included on Schedule K, lines 1, 2, 3c, 4,
5a, 6, 7, 8a, 9, and 10, not recorded on books this
year (itemize):
Expenses recorded on books this year not
included on Schedule K, lines 1 through 12
and 14l (itemize):

Schedule M-2

(c)

(

a Depreciation $
b Travel and entertainment $
4

End of tax year
(b)

Balance at beginning of tax year
Ordinary income from page 1, line 21
Other additions
(
Loss from page 1, line 21
(
Other reductions
Combine lines 1 through 5
Distributions other than dividend distributions
Balance at end of tax year. Subtract line 7 from line 6

(b) Other adjustments
account

)
) (

Printed on recycled paper

(c) Shareholders’ undistributed
taxable income previously taxed

)

Form

1120S

(2006)