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Instructions for Form 1120-PC
❏
Draft
❏
Ok to Print
(Init. & date)
12:00 - 3-DEC-2007
Final regulations (T.D. 9377), effective January 23, 2008,
The type and rule above prints on all proofs including departmental
reproduction
proofs.
MUST
be removed
printing.
provide
guidance
on (a)
determining
thebefore
adjusted
basis of
Temporary regulations, effective December 26,
2007, related to component members of a controlled group
of corporations and consolidated groups filing life-nonlife
income tax returns, are published in Treasury Decision (T.D.)
9369. For more information see Temporary Regulations
sections 1.1561-2T, 1.1563-1T, and 1.1502-47T.
2007
amortizable section 197 intangibles for certain insurance contracts,
(b) reserve increases after a deemed asset sale under section 338,
and (c) the effect of a section 338 election on an insurance
company's election, under section 846(e), to use its historical loss
payment pattern to discount some unpaid losses. For more
information, see T.D. 9377 and Regulations sections 1.197-2(g)(5)
(ii), 1.338-11, and 1.846-2(d).
Department of the Treasury
Internal Revenue Service
Instructions for
Form 1120-PC
delete
Report of
U.S. Property and Casualty Insurance Company 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
How To Get Forms and
Publications . . . . . . . . . . . . . . . . . . 2
IRS E-Services . . . . . . . . . . . . . . . . . 2
General Instructions . . . . . . . . . . . . . 2
Purpose of Form . . . . . . . . . . . . . . . . 2
Who Must File . . . . . . . . . . . . . . . . . . 2
When To File . . . . . . . . . . . . . . . . . . . 2
Where To File . . . . . . . . . . . . . . . . . . 2
Who Must Sign . . . . . . . . . . . . . . . . . 3
Paid Preparer Authorization . . . . . . . . 3
Statements . . . . . . . . . . . . . . . . . . . . 3
Assembling the Return . . . . . . . . . . . . 3
Depository Methods of Tax
Payment . . . . . . . . . . . . . . . . . . . . 3
Estimated Tax Payments . . . . . . . . . . 4
Interest and Penalties . . . . . . . . . . . . . 4
Accounting Methods . . . . . . . . . . . . . . 4
Accounting Period . . . . . . . . . . . . . . . 4
Rounding Off to Whole Dollars . . . . . . 5
Recordkeeping . . . . . . . . . . . . . . . . . . 5
Other Forms and Statements
That May Be Required . . . . . . . . . . 5
Specific Instructions . . . . . . . . . . . . 5
Period Covered . . . . . . . . . . . . . . . . . 5
Name and Address . . . . . . . . . . . . . . 5
Identifying Information . . . . . . . . . . . . 5
Employer Identification Number
(EIN) . . . . . . . . . . . . . . . . . . . . . . . 6
Section 953 Elections . . . . . . . . . . . . . 6
Final Return, Name Change,
Address Change, or Amended
Return . . . . . . . . . . . . . . . . . . . . . . 6
Taxable Income . . . . . . . . . . . . . . . . . 6
Tax Computation and Payments . . . . 6
Schedule A . . . . . . . . . . . . . . . . . . . . 8
Schedule B, Part I . . . . . . . . . . . . . . 13
Schedule B, Part II . . . . . . . . . . . . . . 14
Schedule C . . . . . . . . . . . . . . . . . . . 14
Schedule E . . . . . . . . . . . . . . . . . . . 15
Schedule F . . . . . . . . . . . . . . . . . . . 16
Schedule G . . . . . . . . . . . . . . . . . . . 17
Schedule H . . . . . . . . . . . . . . . . . . . 17
Schedule I . . . . . . . . . . . . . . . . . . . . 17
Schedule L . . . . . . . . . . . . . . . . . . . 18
Schedule M-1 . . . . . . . . . . . . . . . . . 18
Index . . . . . . . . . . . . . . . . . . . . . . . . 20
What’s New
• The extraterritorial income exclusion
generally does not apply after December
31, 2006. However, income from certain
long-term sales and leases may still be
eligible for the exclusion. See the
Instructions for Form 8873 for details.
• A corporation that is a policyholder
owning one or more employer-owned life
insurance contracts issued after August
17, 2006, must file new Form 8925,
Employer-Owned Life Insurance
Contracts.
• Corporations that do not file a Schedule
M-3 (Form 1120-PC) with the Form
1120-PC must attach a schedule that
reconciles the NAIC Annual Statement
with the Form 1120-PC. See Statements
on page 3 for more information.
• The election to deduct GO Zone
clean-up costs does not apply to costs
paid or incurred after December 31, 2007.
• Certain non-life insurance companies
that were in a receivership, liquidation, or
similar proceeding under the supervision
of a state court on April 1, 2004, have
until December 31, 2007, to qualify for
tax-exempt status under section
501(c)(15). See section 501(c)(15) of the
Internal Revenue Code and the transition
rules in section 206 of P.L. 108-218 for
more information.
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 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.
Cat. No. 64537I
to transactions that begin in 2007.
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:
• An impartial and independent look at
your 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.
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.
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.
Page 2 of 20
Instructions for Form 1120-PC
12:00 - 3-DEC-2007
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IRS Tax Products CD/DVD. You can
order Pub. 1796, IRS Tax Products CD/
DVD, 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/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.
IRS E-Services Make
Taxes Easier
Now more than ever before, businesses
can enjoy the benefits of filing and paying
their federal taxes electronically. Whether
you rely on a tax professional or handle
your own taxes, the IRS offers you
convenient programs to make taxes
easier.
• You can e-file your Form 7004; Form
940 and 941 employment tax returns;
Form 1099 and other information returns.
Visit www.irs.gov/efile for details.
• You can pay taxes online or by phone
using the free Electronic Federal Tax
Payment System (EFTPS). Visit www.
eftps.gov or call 1-800-555-4477 for
details.
Who Must File
Every domestic nonlife insurance
company and every foreign corporation
that would qualify as a nonlife insurance
company subject to taxation under
section 831, if it were a U.S. corporation,
must file Form 1120-PC. This includes
organizations described in section
501(m)(1) that provide commercial-type
insurance and organizations described in
section 833.
Exceptions. A nonlife insurance
company that is:
• Exempt under section 501(c)(15)
should file Form 990, Return of
Organization Exempt from Income Tax.
• Subject to taxation under section 831,
and disposes of its insurance business
and reserves, or otherwise ceases to be
taxed under section 831, but continues its
corporate existence while winding up and
liquidating its affairs, should file Form
1120, U.S. Corporation Income Tax
Return.
Next Day 12:00 pm, DHL Next Day 3:00
pm, and DHL 2nd Day Service.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx
International Priority, and FedEx
International First.
• United Parcel Service (UPS): UPS Next
Day Air, UPS Next Day Air Saver, UPS
2nd Day Air, UPS 2nd Day Air A.M., UPS
Worldwide Express Plus, and UPS
Worldwide Express.
The private delivery service can tell
you how to get written proof of the mailing
date.
Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service
to mail any item to an IRS P.O. box
address.
!
Extension of Time To File
Life insurance companies. Life
insurance companies should file Form
1120-L, U.S. Life Insurance Company
Income Tax Return.
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.
When To File
Who Must Sign
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
General Instructions
Purpose of Form
Use Form 1120-PC, U.S. Property and
Casualty Insurance Company Income Tax
Return, to report the income, gains,
losses, deductions, credits, and to figure
the income tax liability of insurance
companies, other than life insurance
companies.
Close up
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-PC, the paid
preparer’s space should remain blank.
Anyone who prepares Form 1120-PC but
does not charge the corporation should
not complete that section. Generally,
anyone who is paid to prepare the return
Align left
Where To File
Use these electronic options to make
filing and paying taxes easier.
the corporation must
File the corporation’s return at the applicable IRS address listed below.
If the corporation’s principal business,
office, or agency is located in:
Align bottom
Use the following addresses:
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012
The United States
A foreign country or U.S. possession
-2-
Gutter
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
Instructions for Form 1120-PC
Page 3 of 20
Instructions for Form 1120-PC
12:00 - 3-DEC-2007
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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
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.
Statements
NAIC annual statement. Regulations
section 1.6012-2(c) requires that the
NAIC annual statement be filed with Form
1120-PC. A foreign insurance company
subject to tax under section 831 that is
not required to file an annual statement
must file a copy of the pro forma annual
statement. A penalty for the late filing of a
return may be imposed for not including
the annual statement when the return is
filed.
Electronic filing. If the domestic or
foreign nonlife insurance company files
Form 1120-PC electronically, do not
attach the annual statement or pro forma
annual statement to the electronically filed
return. However, you must provide a copy
of the annual statement or pro forma
Instructions for Form 1120-PC
annual statement to the Internal Revenue
Service if requested and retain it with your
other tax records for the period required
by the regulations.
Reconciliation. Corporations that do
not file a Schedule M-3 (Form 1120-PC)
with the Form 1120-PC must attach a
schedule that reconciles the NAIC Annual
Statement to the Form 1120-PC.
Assembling the Return
To ensure that the corporation’s tax return
is correctly processed, attach all
schedules and other forms after page 8 of
Form 1120-PC in the following order.
1. Schedule N (Form 1120).
2. Schedule O (Form 1120).
3. Form 4626.
4. Form 8302.
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-PC. 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 2008 if:
• The total deposits of such taxes in
2006 were more than $200,000 or
• 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.
-3-
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-PC” 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-PC, do not
CAUTION 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
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.
Page 4 of 20
Instructions for Form 1120-PC
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See the instructions for lines 14c and
14e, Form 1120-PC.
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 15,
Form 1120-PC.
!
CAUTION
Foreign insurance companies, see
Notice 90-13, 1990-1 C.B. 321,
before computing estimated tax.
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.
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; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may
be imposed on all persons who are
determined by the IRS to have been
responsible for collecting, accounting for,
and paying over these taxes, and who
acted willfully in not doing so. The penalty
is equal to the unpaid trust fund tax. See
the Instructions for Form 720 or Pub. 15
(Circular E), 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 Period
An insurance company must figure its
taxable income on the basis of a tax year.
A tax year is the annual accounting period
an insurance company uses to keep its
records and report its income and
expenses.
As a general rule under section 843,
the tax year for every insurance company
is the calendar year. However, if an
insurance company joins in the filing of a
consolidated return, it may adopt the tax
year of the common parent corporation
even if that year is not a calendar year.
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.
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.
The corporation should keep copies of
all filed returns. They help in preparing
future and amended returns.
The gross amounts of underwriting
and investment income should be
computed on the basis of the Statement
of Income of the NAIC annual statement
to the extent not inconsistent with the
Internal Revenue Code and its
Regulations. In all cases, the method
used must clearly show taxable income.
Change in accounting method.
Generally, the corporation must get IRS
consent to change the method of
accounting used to report taxable income
(for income as a whole or for the
treatment of any material item). To do so,
the corporation generally 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.
Safe harbor method of accounting for
premium acquisition expenses.
Insurance companies subject to tax under
section 831 are provided with a safe
harbor method of accounting for premium
acquisition expenses. Form 3115 must be
filed in order to change to the safe harbor
method. For more information, see the
Instructions for Form 3115 and item 67 in
the List of Automatic Accounting Method
Changes.
-4-
Other Forms and
Statements That May Be
Required
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.
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) close parenthesis
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 an asset generating the
credit for 45 days or less.
6. 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. Penalties also apply
under section 6707A if the corporation
fails to file Form 8886 with its corporate
return, fails to provide a copy of Form
8886 to the Office of Tax Shelter Analysis
(OTSA), or files a form that fails to include
all the information required (or includes
incorrect information). Other penalties,
such as an accuracy-related penalty
under section 6662A, may also apply.
See the Instructions for Form 8886 for
details on these and other penalties.
Reportable transactions by material
advisors. Material advisors to any
reportable transaction must disclose
certain information about the reportable
transaction by filing Form 8918, Material
Advisor Disclosure Statement, with the
IRS. Form 8918 replaces Form 8264,
which was previously used by material
advisors for disclosure.
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
(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
Instructions for Form 1120-PC
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
Generally, file the 2007 return for
calendar year 2007. However, if an
insurance company joins in the filing of a
consolidated return, it may adopt the tax
year of the common parent corporation
even if that year is not a calendar year.
For a fiscal or short tax year return, fill in
the tax year space at the top of the form.
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.
If the corporation is incorporated in
Delaware or Nevada, the corporation
should use the address of it’s principal
place of business or principal office.
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.
Item A. Identifying
Information
Consolidated Return
If an affiliated group of corporations
includes one or more domestic life
insurance companies taxed under section
801, the common parent may elect to
treat those companies as includible
corporations. The life insurance
companies must have been members of
the group for the 5 tax years immediately
preceding the tax year for which the
election is made. See section 1504(c)(2)
and Regulations section
1.1502-47(d)(12).
Corporations filing a consolidated
return must attach Form 851, Affiliations
-5-
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-PC 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.
delete to conform to 1120
Enter on Form 1120-PC 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.
For more information on consolidated
returns, see the regulations under section
1502.
Note. If a nonlife insurance company is a
member of an affiliated group, file Form
1120-PC as an attachment to the
consolidated return in lieu of filing
supporting statements. Across the top of
page 1 of Form 1120-PC, write
“Supporting Statement to Consolidated
Return.”
Life-Nonlife Consolidated Return. If
the corporation is the common parent of a
life-nonlife consolidated group, check box
2 of Item A. See Temporary Regulations
section 1.1502-47T(s) for more details.
Schedule M-3 (Form 1120-PC)
A nonlife insurance company with total
assets (non-consolidated or consolidated
for all companies 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-PC),
Net Income (Loss) Reconciliation for U.S.
Property and Casualty Insurance
Companies With Total Assets of $10
Million or More, instead of Schedule M-1.
A corporation filing Form 1120-PC that is
not required to file Schedule M-3 (Form
1120-PC) may voluntarily file Schedule
M-3 (Form 1120-PC) instead of Schedule
M-1.
If you are filing Schedule M-3 (Form
1120-PC), check box 3 of Item A at the
top of page 1 of Form 1120-PC. See the
Instructions for Schedule M-3 (Form
1120-PC) for more details.
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Item E. Final Return, Name
Item B. Employer
Identification Number (EIN) Change, Address Change,
Enter the corporation’s EIN. If the
or Amended Return
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. Section 953
Elections
Check the applicable box if the
corporation is a foreign corporation and
elects under:
1. Section 953(c)(3)(C) to treat its
related person insurance income as
effectively connected with the conduct of
a trade or business in the United States
or
2. Section 953(d) to be treated as a
domestic corporation.
Generally, a foreign corporation
making either election must file its return
with the Internal Revenue Service Center,
P.O. Box 409101, Ogden, UT 84409. See
Notice 87-50, 1987-2 C.B. 357, and Rev.
Proc. 2003-47, 2003-28 I.R.B. 55, for the
procedural rules, election statement
formats, and filing addresses for making
the respective elections under section
953(c)(3)(C) or section 953(d).
Note. Once either election is made, it will
apply to the tax year for which made and
all subsequent tax years unless revoked
with the consent of the IRS. Also, any
loss of a foreign corporation electing to be
treated as a domestic insurance company
under section 953(d) will be treated as a
dual-consolidated loss and may not be
used to reduce the taxable income of any
other member of the affiliated group for
this tax year or any other tax year.
Note. If a section 953(d) election is
made, include the additional tax required
to be paid, on line 13, page 1. On the
dotted line to the left of line 13, page 1,
write “Section 953(d)” and the amount.
Attach a schedule showing the
computation. See section 953(d) for more
details.
Indicate a final return, name change,
address change, or amended return by
checking the appropriate box.
Note. If a change of address occurs after
the return is filed, use Form 8822,
Change of Address, to notify the IRS of
the new address.
Taxable Income
Line 1, Taxable income, and line 2,
Taxable investment income. If the
corporation is a small company as
defined in section 831(b)(2) and elects
under section 831(b)(2)(A)(ii) to be taxed
on taxable investment income, complete
Schedule B (ignore Schedule A) and
enter the amount from Schedule B, line
21, on line 2, page 1. All other
corporations should complete Schedule A
(ignore Schedule B) and enter on line 1,
page 1, the amount from Schedule A, line
37.
Tax Computation and
Payments
Line 3 and attach
If the corporation is a member of a
controlled group, it must check the box on
line 3. Complete 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 4
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 are
not filing a consolidated return figure their
tax by using the Tax Rate Schedule
below.
Tax Rate Schedule
If the amount on line 1 or line 2, Form 1120-PC,
page 1 is:
Over —
$0
50,000
75,000
100,000
335,000
10,000,000
15,000,000
18,333,333
But not
over —
$50,000
75,000
100,000
335,000
10,000,000
15,000,000
18,333,333
-----
Tax is:
Of the
amount
over —
15%
$0
$ 7,500 + 25%
50,000
13,750 + 34%
75,000
22,250 + 39%
100,000
113,900 + 34%
335,000
3,400,000 + 35% 10,000,000
5,150,000 + 38% 15,000,000
35%
0
Deferred tax under section 1291. If the
corporation was a shareholder in a
passive foreign investment company
-6-
(PFIC) and received an excess
distribution or disposed of its investment
in the PFIC during the year, it must
include the total increase in taxes due
under section 1291(c)(2) in the amount
entered on line 4. On the dotted line next
to line 4, enter “Section 1291” and the
amount.
Do not include on line 4 any interest
due under section 1291(c)(3). Instead,
show the amount of interest owed in the
bottom margin of page 1 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 4. On the
dotted line next to line 4, enter “Section
197” and the amount.
Line 5. Enter amount of tax that a
reciprocal must include. A mutual
insurance company that is an interinsurer
or reciprocal underwriter may elect, under
section 835, to limit the deduction for
amounts paid or incurred to a qualifying
attorney-in-fact to the amount of the
deductions of the attorney-in-fact
allocable to the income received by the
attorney-in-fact from the reciprocal. If this
election is made, any increase in taxable
income of a reciprocal as a result of this
limitation is taxed at the highest rate of
tax specified in section 11(b).
Make no entry on line 5 if the mutual
insurance company’s taxable income
before including the section 835(b)
amount is $100,000 or more. Otherwise,
this tax is 35% of the section 835(b)
amount. If an entry is made on line 5,
attach a statement showing how the tax
was computed.
Reciprocal underwriters making the
section 835(a) election are allowed a
credit on line 14h for the amount of tax
paid by the attorney-in-fact that is related
to the income received by the
attorney-in-fact from the reciprocal in the
tax year.
See section 835 and the related
regulations for special rules and
information regarding the statements
required to be attached to the return.
Line 6. Alternative minimum tax (AMT).
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
!
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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 8a. Foreign tax credit. 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, Foreign Tax Credit – Corporations.
Line 8b. Forms 5735 and 8834. Enter
the amount of any credit from Form 5735,
American Samoa Economic Development
Credit, or Form 8834, Qualified Electric
Vehicle Credit.
Line 8c. General Business Credit.
Enter on line 8c 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 8c of Form 1120-PC.
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 on line 8c.
• Form 5884, Work Opportunity Credit,
• 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,
• 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 instructions for the applicable
form.
Line 8d. Credit for prior year minimum
tax. 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 8e. Bond credits. 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 8e.
Line 10. Foreign corporations. A
foreign corporation carrying on an
insurance business in the United States is
taxed as a domestic insurance company
on its income effectively connected with
the conduct of a trade or business in the
United States (see sections 864(c) and
897 for definition).
Instructions for Form 1120-PC
Generally, any other U.S.-source
income received by the foreign
corporation is taxed at 30% (or at a lower
treaty rate) under section 881. If the
corporation has this income, attach a
schedule showing the kind and amount of
income, the tax rate, and the amount of
tax. Enter the tax on line 10. However,
see Reduction of section 881 tax, below.
Note. Interest received from certain
portfolio debt investments that were
issued after July 18, 1984, is not subject
to the tax. See section 881(c) for details.
See section 842 for more information.
Minimum effectively connected net
investment income. See section 842(b)
and Notice 89-96, 1989-2 C.B. 417, for
the general rules for computing this
amount. Also, see Rev. Proc. 2007-58,
2007-37 I.R.B. 585, for the domestic
asset/liability percentages and domestic
investment yields needed to compute this
amount.
Any additional income required by
section 842(b) must be included in
taxable income (for example, Schedule A,
line 13).
Reduction of section 881 tax.
Additional taxes resulting from the net
investment income adjustment may offset
a corporation’s section 881 tax on
U.S.-source income. The tax reduction is
determined by multiplying the section 881
tax by the ratio of the amount of income
adjustment to income subject to the
section 881 tax, computed without the
exclusion for interest on state and local
bonds or income exempted from taxation
by treaty. See section 842(c)(2). Attach a
statement showing how the reduction
under section 881 was figured. Enter the
net tax imposed by section 881 on line
10.
Line 11. Personal holding company
tax. A corporation (other than a
corporation described in section 542(c)) is
taxed as a personal holding company
(PHC) under section 542 if:
• At least 60% of it’s adjusted ordinary
gross income for the tax year is PHC
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), U.S.
Personal Holding Company (PHC) Tax,
for definitions and details on how to figure
the tax.
Line 12. Other Taxes
Include any of the following taxes and
interest in the total on line 12. 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.
-7-
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.
Other. Additional taxes and interest
amounts can be included in the total
entered on line 12. Check the box for
“Other” if the corporation includes any
additional taxes and interest such as the
items discussed below. See How to
report, on this page, 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).
• Interest on deferred tax attributable to
certain nondealer installment obligations
(section 453A(c)).
• Interest due on deferred gain (section
1260(b)).
• Alternative tax on qualifying shipping
activities (see Form 8902).
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 12
and identify the applicable Code section
and the type of tax or interest.
Line 13. Total Tax
Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 13. See Form 8621, Part V, and How
to report, below.
Subtract any deferred tax on the
corporation’s share of undistributed
earnings of a qualified electing fund (see
Form 8621, Part II).
How to report. Attach a schedule
showing the computation of each item
included in, or subtracted from, the total
for line 13. On the dotted line next to line
13, specify (a) the applicable Code
section, (b) the type of tax, and (c) the
amount of tax.
Line 14b. Prior year(s) special
estimated tax payments to be applied.
The amount entered on line 14b must
agree with the amount(s) from Form
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8816, Part III, line 11. See Form 8816 and
section 847 for additional information.
Line 14c. Estimated tax payments.
Enter any estimated tax payments the
corporation made for the tax year. Do not
include any amount being applied on line
14d.
Line 14d. Special estimated tax
payments. If the deduction under
section 847 is claimed on Schedule A,
line 27, special estimated tax payments
must be made in an amount equal to the
tax benefit of the deduction. These
payments must be made on or before the
due date (without regard to extensions) of
this tax return. See Form 8816 and
section 847(2) for additional information.
Tax benefit rule. Section 847(8)
requires that if a corporation carries back
net operating losses or capital losses that
arise in years after a year in which a
section 847 deduction was claimed, then
the corporation must recompute the tax
benefit attributable to the previously
claimed section 847 deduction taking into
account the loss carrybacks. Tax benefits
also include those derived from filing a
consolidated return with another
insurance company (without regard to
section 1503(c)).
Therefore, if the recomputation
changes the amount of the section 847
tax benefit, then the taxpayer must
provide a computation schedule and
attach it to Form 8816.
Line 14e. 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 14h. Credit by reciprocal for tax
paid by attorney-in-fact under section
835(d). Enter the amount of tax paid by
an attorney-in-fact as a result of income
received by the attorney-in-fact from the
reciprocal during the tax year. For more
information, see section 835, the related
regulations, and the instructions for line 5
on page 6.
Line 14i. Other credits and payments.
Enter the amount of any other credits the
corporation may take and/or payments
made. Write to the left of the entry space,
an explanation of the entry.
Line 14j. Total payments. Add the
amounts on lines 14f through 14i and
enter the total on line 14j.
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 14i. Write the amount
withheld and the words “Backup
Withholding” on the dotted line to the left
of the entry space for line 14i.
Line 15. Estimated tax penalty. If Form
2220 is attached, check the box on line
15 and enter the amount of any penalty
on this line.
Line 18. Electronic deposit of tax
refund of $1 million or more. If the
corporation is due a refund of $1 million
or more and wants it electronically
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 8302 and attach it to the
corporation’s tax return.
Schedule A—Taxable
Income
Gross income. Under section 832,
gross amounts of underwriting and
investment income should be computed
on the basis of the Statement of Income
of the NAIC annual statement to the
extent not inconsistent with the Internal
Revenue Code and its Regulations.
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 line
12, page 1 of the Form 1120-PC.
Note. In computing the amounts for lines
2, 3, and 4, take all interest, dividends, or
rents received during the year, add
interest, dividends, or rents due and
accrued at the end of the tax year, and
deduct interest, dividends, or rents due
and accrued at the end of the preceding
tax year. For rules regarding the accrual
of dividends, see Regulations section
1.301-1(b).
Line 3a, column (a). Gross interest.
Enter the gross amount of interest
income, including all tax-exempt interest.
Line 3b, column (a). Section 103(a)
excludes interest on state or local bonds
from gross income.
This exclusion does not apply to any:
1. Private activity bond which is not a
qualified bond as defined by section 141;
2. Arbitrage bond as defined by
section 148; or
3. Bonds not meeting the
requirements of section 149 (regarding
the registration of tax-exempt bonds).
Lines 3a and 3b, column (b).
Amortization of premium. Enter on
line 3a, column (b), the total amortization
of bond premium, including amortization
-8Move under instruction for Line 14i as HD4.
on tax-exempt bonds. Enter on line 3b,
column (b), the amortization of bond
premium on tax-exempt bonds only.
Note. Insurance companies electing to
amortize discount for tax purposes must
reduce the amortization of premium by
any amortization of discount.
Line 4. Gross rents. Enter gross rents,
computed as indicated under the
instructions for Gross income, on this
page. Deduct expenses, such as repairs,
interest, taxes, and depreciation, on the
proper lines for deductions.
Line 6. Capital gain net income. Every
sale or exchange of a capital asset must
be reported in detail on Schedule D (Form
1120), Capital Gains and Losses, even if
there is no gain or loss.
Generally, losses from sales or
exchanges of capital assets are only
allowed to the extent of gains. However,
corporations taxed under section 831 may
claim losses from capital assets sold or
exchanged to get funds to meet abnormal
insurance losses and to pay dividends
and similar distributions to policyholders.
Do not include those types of losses here,
but instead, report them on Schedule G.
The net capital loss for these
corporations is the amount by which
losses for the year from sales or
exchanges of capital assets exceed the
gains from these sales or exchanges plus
the smaller of:
1. Taxable income (computed without
gains or losses from sales or exchanges
of capital assets); or
2. Losses from the sale or exchange
of capital assets sold or exchanged to
obtain funds to meet abnormal insurance
losses and to provide for the payment of
dividends and similar distributions to
policyholders.
Subject to the limitations in section
1212(a), a net capital loss can be carried
back 3 years and forward 5 years as a
short-term capital loss.
Line 8. Certain mutual fire or flood
insurance company premiums. A
mutual fire or flood insurance company
whose principal business is the issuance
of policies (1) for which the premium
deposits are the same (regardless of the
length of the term the policies are written
for) and (2) under which the unabsorbed
portion of such premium deposits not
required for losses, expenses, or
establishment of reserves is returned or
credited to the policyholder on
cancellation or expiration of the policy,
must include in income an amount equal
to 2% of the premiums earned on
insurance contracts during the tax year
with respect to such policies after
deduction of premium deposits returned
or credited during the same tax year. See
section 832(b)(1)(D).
Line 9. Income on account of special
income and deduction accounts.
Corporations which write the kinds of
insurance below must maintain the
Instructions for Form 1120-PC
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following special accounts. A corporation
which writes:
1. Mortgage guaranty insurance, must
maintain a mortgage guaranty account;
2. Lease guaranty insurance, must
maintain a lease guaranty account; and
3. Insurance on obligations the
interest on which is excludable from gross
income under section 103, must maintain
an account with respect to insurance on
state and local obligations.
Amounts required to be subtracted
from these accounts under sections
832(e)(5) and 832(e)(6) must be reported
as income on line 9. See section 832(e)
for more information.
Line 10. Income from protection
against loss account. Although section
1024 of P.L. 99-514 repealed section 824
relating to the protection against loss
(PAL) account, PAL account balances are
includible in income as though section
824 were still in effect. Attach a schedule
showing the computation.
Line 11. Mutual interinsurers or
reciprocal underwriters — decrease in
subscriber accounts. Enter the
decrease for the tax year in savings
credited to subscriber accounts of a
mutual insurance company that is an
interinsurer or reciprocal underwriter.
Line 12. Income from a special loss
discount account. Enter the amount
from Form 8816, Part II, line 6.
Line 13. Other Income. Enter any other
taxable income not reported on lines 1
through 12. 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
13. Examples of other income to report on
line 13 include the following.
1. The amount included in income
from line 4 of Form 6478, Credit for
Alcohol Used as Fuel.
2. The amount included in income
from line 8 of Form 8864, Biodiesel and
Renewable Diesel Fuels Credit.
3. 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.
4. 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.
5. Ordinary income from trade or
business activities of a partnership (from
Schedule K-1 (Form 1065 or Form
1065-B)). Do not offset ordinary losses
against ordinary income. Instead, include
the losses on line 31. 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.
6. 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.
Instructions for Form 1120-PC
Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A require corporations to
capitalize certain costs.
For details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3.
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 certain
deductions. 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.
• 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 31, Schedule A. For amortization that
begins during the 2007 tax year, complete
and attach Form 4562.
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
-9-
deductions for expenses used to figure
the credit.
• Employment credits. See the
instructions for line 16 on page 10.
• Research credit.
• Orphan drug credit.
• Disabled access credit.
• 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 applicable
form used to figure the 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 15. Compensation of officers.
Enter deductible officers’ compensation
on line 15. See Employment credits below
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 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.
Include only the deductible part of
each officer’s compensation on line 15.
(See Disallowance of deduction for
employee compensation in excess of $1
million, below.) Attach a schedule for all
officers using the following columns:
1. Name of officer.
2. Social security number.
3. Percentage of time devoted to
business.
4. Amount of compensation.
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. Also see
Notice 2007-49, 2007-25 I.R.B. 1429.
Line 16. 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, 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 the personal use of a car,
do not deduct as wages the amount
allocated for depreciation and other
expenses that are claimed elsewhere on
the return (for example, on Schedule A,
line 22 or line 31).
!
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 18. 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 the vehicle lease expense
may have to be reduced by an amount
called the inclusion amount. The
corporation may have an inclusion
amount if:
And the vehicle’s
FMV on the first
day of the lease
exceeded:
The lease term
began:
After 12/31/06 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 19. 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 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.
See section 164(d) for details on the
apportionment of taxes on real property
between a seller and a purchaser.
Line 20a. 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.
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).
• 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 section 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
-10-
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 20b. Less tax-exempt interest
expense. Enter interest paid or accrued
during the tax year 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).
Line 21. 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 37, Schedule
A) computed without regard to the
following.
• Any deduction for contributions.
• The deduction for dividends received.
• The domestic production activities
deduction under section 199.
• Any net operating loss (NOL) carryback
to the tax year under section 172.
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Contributions of $250 or more.
• Any capital loss carryback to the tax
year under section 1212(a)(1).
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 taxable income
after taking into account any deduction for
the NOL.
To figure the amount of any remaining
NOL carryover to later years, taxable
income must be modified (see section
172(b)). To the extent that contributions
are used to reduce taxable income for this
purpose and increase an NOL carryover,
a contributions carryover is not allowed.
See section 170(d)(2)(B).
Cash Contributions. For contributions
of cash, check, or other monetary gifts
(regardless of the amount), the
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.
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.
Special rules apply to qualified
conservation contributions, including
contributions of certain easements on
buildings located in a registered historic
district. See Section 170(h) and Pub. 526,
Charitable Contributions.
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” (see section
170(e)(3)(C)) and contributions of
qualified book inventory to public schools
(see section 170(e)(3)(D)),
• 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 22. Depreciation. Include on line
22 depreciation and the cost of certain
property that the corporation elected to
expense under section 179. See Form
4562 and its instructions.
Line 23. 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 24. 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).
Instructions for Form 1120-PC
Generally,
Qualified conservation contributions.
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 25. 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 24.
Line 27. Additional deduction. Enter
on line 27, the total from Form 8816, Part
II, line 5.
Any insurance company taking the
additional deduction must:
• Make special estimated tax payments
equal to the tax benefit from the
deduction and
• Establish and maintain a Special Loss
Discount Account. See section 847 and
Form 8816 for more information.
Line 29. Dividends to policyholders.
Enter the total dividends and similar
distributions paid or declared to
policyholders, as policyholders, except in
the case of a mutual fire insurance
company exclusively issuing perpetual
policies. Whether dividends have been
paid or declared should be determined
according to the method of accounting
employed by the insurance company.
Dividends and similar distributions
include amounts returned or credited to
policyholders on cancellation or expiration
of policies issued by a mutual fire or flood
insurance company:
1. Where the premium deposits for
the policy are the same (regardless of the
length of the policy) and
2. The unabsorbed portion of the
premium deposits not required for losses,
expenses, or establishment of reserves is
returned or credited to the policyholder on
cancellation or expiration of the policy.
In the case of a qualified group
self-insurers fund, the fund’s deduction for
policyholder dividends is allowed no
earlier than the date the state regulatory
authority determines the amount of the
policyholder dividend that may be paid.
See section 6076 of the Technical and
Miscellaneous Revenue Act of 1988.
Line 30. Mutual interinsurers or
reciprocal underwriters — increase in
subscriber accounts. A mutual
insurance company that is an interinsurer
or reciprocal underwriter may deduct the
increase in savings credited to subscriber
accounts for the tax year.
Savings credited to subscriber
accounts means the surplus credited to
the individual accounts of subscribers
before the 16th day of the 3rd month
following the close of the tax year. This is
-11, generally,
Insurance companies never PSCs rarely closely held.
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true only if the corporation would be
required to pay this amount promptly to a
subscriber if the subscriber ended the
contract when the corporation’s tax year
ends. The corporation must notify the
subscriber as required by Regulations
section 1.823-6(c)(2)(v). The subscriber
must treat any savings credited to the
subscriber’s account as a dividend paid or
declared.
Line 31. Other deductions. Attach a
schedule, listing by type and amount, all
allowable deductions under sections
832(c)(1) and (10) (net of the annual
statement change in undiscounted unpaid
loss adjustment expenses) that are not
deductible on lines 15 through 30.
Examples of other deductions include
the following. See Pub. 535 for details on
other deductions that may apply to
corporations.
• The domestic production activities
deduction. See Form 8903.
• Certain business start-up and
organizational costs that the corporation
elects to deduct. See page 9.
• 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 13.
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.
• Any extraterritorial income exclusion
(from Form 8873, line 54).
• 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
(after August 27, 2005, and 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 may only be taken
for the dividends above if, according to
the plan, the dividends are:
a. Paid in cash directly to the plan
participants or beneficiaries;
b. 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;
c. At the election of the participants or
their beneficiaries (i) payable as
provided under a or b above or (ii) paid
to the plan and reinvested in qualifying
employer securities; or
s/b 52;
corrected in
final upload
d. 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.
• 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
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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.
Line 32. Total deductions. Insurance
companies that issue specified insurance
contracts (as defined in section 848(e)(1))
are generally required to amortize policy
acquisition expenses on a straight-line
basis over a period of 120 months
beginning with the 1st month in the 2nd
half of the tax year (section 848(a)).
Reduce total deductions on line 32 by the
amount required to be capitalized under
section 848. Attach a schedule showing
all computations. See section 848 and its
regulations for special rules, definitions,
and exceptions. Also see Schedule G,
Form 1120-L, and its instructions for more
information.
Line 34b. Deduction on account of the
special income and deduction
accounts. Enter the total of the amounts
required to be added under sections
832(e)(4) and (6). However, no deduction
is permitted unless tax and loss bonds
are purchased in an amount equal to the
tax benefit of the deduction. See section
832(e).
Note. The deduction on account of the
special income and deduction accounts is
limited to taxable income for the tax year
(computed without regard to this
deduction or to any carryback of a net
operating loss).
Line 36b. Net operating loss
deduction. A corporation can use the
net operating loss (NOL) incurred in one
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tax year to reduce its taxable income in
another tax year.
Enter on line 36b the total NOL
carryovers from other tax years, but do
not enter more than the corporation’s
taxable income (after the
dividends-received deduction). Attach a
schedule showing the computation of the
NOL deduction. Also complete item 12 on
Schedule I.
The following special rules apply.
• 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 s
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. See
Regulations section 1.382-6(b) for details
on how to make the closing-of-the-books
election.
• 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.
• An NOL cannot be carried to or from
any tax year for which the insurance
company is not subject to tax under
section 831(a), or to any tax year if,
between the tax year from which the loss
is being carried and such tax year, there
is an intervening tax year for which the
insurance company was not subject to tax
imposed by section 831(a).
For more details on the NOL
deduction, see section 172, section 844,
the Instructions for Form 1139,
Corporation Application for Tentative
Refund, and Pub. 542.
Line 37. Taxable income. If line 37
(figured without regard to the items listed
below 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-PC
as a deduction to other tax years.
Generally, a corporation first carries back
an NOL 2 tax years. However, the
corporation may 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 I, 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.
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.
Schedule B, Part I—
Taxable Investment
Income of Electing Small
Companies
Note. (1) Once an election under section
831(b) is made to be taxed only on
investment income, it can only be revoked
with the consent of the Secretary, and (2)
a corporation making this election must
include on line 8, Gross investment
income, any amount subtracted from a
protection against loss account.
Income
Line 1a, column (a). Gross interest.
Enter the gross amount of interest
income, including all tax-exempt interest
income.
Line 1b, column (a). Interest exempt
under section 103. Enter the amount of
interest on state and local bonds that is
exempt from taxation under section 103.
See the instructions for Schedule A, line
3b, column (a), for more information.
Lines 1a and 1b, column (b).
Amortization of premium. Enter on
line 1a, column (b), the total amortization
of premium on tax-exempt bonds.
Enter on line 1b, column (b), the
amortization of bond premium on
tax-exempt bonds.
Note. Insurance companies electing to
amortize discount for tax purposes must
reduce the amortization of premium by
any amortization of discount.
Line 3. Gross rents. Enter the gross
rents received or accrued during the tax
year. Deduct rental expenses such as
repairs, interest, taxes, and depreciation
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on the proper lines in the Deductions
section.
Line 5. Gross income from a trade or
business, other than an insurance
business, and from Form 4797. Enter
the gross income from a trade or
business, other than an insurance
business, carried on by the insurance
company or by a partnership of which the
insurance company is a partner. Include
section 1245 and section 1250 gains (as
modified by section 291) and other gains
from Form 4797, Sales of Business
Property, on investment assets only.
Line 6. Income from leases described
in sections 834(b)(1)(B) and
834(b)(1)(C). Enter gross income from
entering into, changing, or ending any
lease, mortgage, or other instrument or
agreement from which the company
earns interest, rents, or royalties.
Line 8. Gross investment income. If
gross investment income includes an
amount subtracted from the protection
against loss account, write on the dotted
line next to line 8, “PAL” and the amount.
Deductions
Note. See section 834(d)(1) regarding
the limitation of expenses on real estate
owned and occupied in part or in whole
by a mutual insurance company.
Line 9. Real estate taxes. Enter taxes
paid or accrued on real estate owned by
the corporation and deductible under
section 164.
Line 10. Other real estate expenses.
Enter all ordinary and necessary real
estate expenses, such as fire insurance,
heat, light, and labor. Also enter the cost
of incidental repairs, such as labor and
supplies, that do not add to the property’s
value or appreciably prolong its life. Do
not include any amount paid for new
buildings or for permanent improvements
or betterments made to increase the
value of any property or any amount
spent on foreclosed property before the
property is held for rent.
Line 11. Depreciation. Enter
depreciation on assets only to the extent
that the assets are used to produce gross
investment income reported on lines 1
through 7 of Schedule B. For more
information, see the instructions for line
22, Schedule A.
Line 12. Depletion. Enter any allowable
depletion on royalty income reported on
line 4, Schedule B. See the instructions
for line 23, Schedule A, for more
information.
Line 13. Trade or business deductions.
Enter the total deductions related to any
trade or business income included in
gross investment income under section
834(b)(2). Do not include deductions for
any insurance business. Do not include
losses from sales or exchanges of capital
assets or property used in the business,
or from the compulsory or involuntary
conversion of property used in the trade
or business.
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Line 14. Interest. See the instructions
for lines 20a and 20b, Schedule A.
Line 17. Investment expenses. Enter
expenses that are properly chargeable as
investment expenses. If general
expenses are allocated to investment
expenses, the total deduction cannot be
more than the amount on Schedule B,
Part II, line 39. Attach a schedule showing
the kind and amount of general expenses.
Minor items may be grouped together.
See section 267 for the limitation on
deductions for unpaid expenses and
interest in transactions between related
taxpayers.
dividends received by a foreign
corporation.
Lines 1 through 25
Definitions
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.
Lines 1 through 9, column (a). Enter in
column (a) of the appropriate line those
dividends that are subject to the
provisions of section 832(b)(5)(B).This will
include:
1. All dividends (other than 100%
dividends) received on stock acquired
after August 7, 1986, and
2. 100% dividends received on stock
acquired after August 7, 1986, to the
extent that such dividends are attributable
to prorated amounts (see definition on
this page).
The acquisition date for investments
acquired by direct purchase is the trade
date rather than the settlement date. For
investments not acquired by direct
purchase (such as those acquired
through transfers among affiliates,
tax-free reorganizations, or the liquidation
of a subsidiary, etc.), the actual
acquisition date should be used
regardless of the holding period
determined under section 1223.
A special rule applies in determining
the acquisition date of dividends received
from affiliates. This rule provides that the
portion of any 100% dividend which is
related to prorated amounts be treated as
received with respect to stock acquired on
the later of:
(a) the date the payor acquired the
stock or obligation to which the prorated
amounts are attributable or
(b) the first day on which the payor and
payee were members of the same
affiliated group as defined in section
243(b).
Also, if the taxpayer is a member of an
affiliated group filing a consolidated
return, its determination of dividends
received is made as if the group were not
filing a consolidated return.
Prorated amounts means tax-exempt
interest and dividends for which a
deduction is allowable under section 243,
244, or 245 (other than 100% dividends).
100% dividend means any dividend if
the percentage used for purposes of
determining the deduction allowable
under section 243, 244, or 245(b) is
100%. A special rule applies to certain
In the case of an insurance company
that files a consolidated return, the
determination with respect to any
dividend paid by a member to another
member of the affiliated group is made as
if no consolidated return was filed. See
section 832(g).
Line 1. 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. Enter on line 2:
• Dividends (except those received on
debt-financed stock acquired after July
Schedule B, Part II—
Invested Assets Book
Values
Use Schedule B, Part II, to compute the
limitation on investment expenses under
section 834(c)(2) when any general
expenses are in part assigned to, or
included in, the investment expenses
deducted on Schedule B, Part I, line 17.
Schedule C—Dividends
and Special Deductions
-14-
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. 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 4. 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. 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. 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 foreign sales
corporation (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. 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 provided
in section 245(c)(1)(B).
Instructions for Form 1120-PC
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Line 8. 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.
Also, include on line 8 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 9. Enter only those 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 10, column (b). Enter foreign
dividends not reportable on lines 3, 6, 7 or
8 of column (b). Include on line 10 the
corporation’s share of the ordinary
earnings of a qualified electing fund from
line 1c, 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 11, column (b). Include income
constructively received from controlled
foreign corporations 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 12, column (b). Include gross-up
for taxes deemed paid under sections 902
and 960.
Line 13, column (b). 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
Instructions for Form 1120-PC
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.
Line 17. 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
Worksheet for Schedule C, line 23
dividends received from foreign
corporations. Attach a schedule showing
how the amount on line 17 was figured.
Line 23, column (b). Generally, line 23,
column (b), cannot exceed the amount
from the worksheet on page 16. 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).
Schedule E—Premiums
Earned
Definitions
Undiscounted unearned premiums
means the unearned premiums shown in
the annual statement filed for the year
ending with or in the tax year.
Applicable interest rate means the
annual rate determined under section
846(c)(2) for the calendar year the
premiums are received.
Applicable statutory premium
recognition pattern means the statutory
premium recognition pattern in effect for
the calendar year the premiums are
received, and is based on the statutory
premium recognition pattern which
applies to premiums received by the
corporation in that calendar year. For
purposes of the preceding sentence,
premiums received during any calendar
year will be treated as received in the
middle of such year.
Line 1. Enter gross premiums written on
insurance contracts during the tax year,
Keep for Your Records
1. Refigure the amount from Schedule A, line 35 or Schedule B, line
19, whichever applies, 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. Enter the sum of the amounts from line 22, column (b) (without
regard to wholly owned foreign subsidiary dividends) and line 9,
column (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Multiply line 3 by 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Add lines 16, 19, 21, and 22 (without regard to FSC dividends),
column (b), and the portion of the deduction on line 17, column
(b), that is attributable to dividends received from
20%-or-more-owned corporations . . . . . . . . . . . . . . . . . . . . . .
6. Enter the smaller of line 4 or line 5. If line 5 is greater than line 4,
stop here; enter the amount from line 6 on line 23, column (b),
and do not complete the rest of this worksheet . . . . . . . . . . . . .
7. Enter the total amount of dividends received from
20%-or-more-owned corporations that are included on lines 2, 3,
5, 7, and 8 (without regard to FSC dividends), column (b) . . . . .
8. Subtract line 7 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Multiply line 8 by 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Subtract line 5 from line 23, column (b) (without regard to FSC
dividends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . .
12. Dividends-received deduction after limitation (section
246(b)). Add lines 6 and 11. Enter the result here and on line 23,
column (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-15-
for 2007
Page 16 of 20
Instructions for Form 1120-PC
The applicable
interest rate and
loss payment
patterns are
published in Rev.
Proc. 2008-10,
2008-3 I.R.B. 1.
290.
12:00 - 3-DEC-2007
The salvage discount
factors for 2007 are
published in Rev. Proc.
2008-11, 2008-3 I.R.B. 1.
301.
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less return premiums and premiums paid
for reinsurance. See Regulations section
1.832-4.
Lines 2a and 4a. Include on lines 2a
and 4a:
1. All life insurance reserves, as
defined in section 816(b) (but determined
under section 807) and
2. All unearned premiums of a Blue
Cross or Blue Shield organization to
which section 833 applies.
business (multiple peril lines must be
treated as a single line of business) and
by each accident year and must be equal
to the present value of those losses
determined by using the:
1. Amount of the undiscounted unpaid
losses,
2. Applicable interest rate, and
3. Applicable loss payment pattern.
Lines 2b and 4b. Include on lines 2b
and 4b, 90% of unearned premiums for
insurance against default in the payment
of principal or interest on securities
described in section 165(g)(2)(C) (relating
to worthless securities) with maturities of
more than 5 years.
Lines 2c and 4c. The amount of
discounted unearned premiums at the
end of any tax year must be the present
value of those premiums (as of such time
and separately with respect to premiums
received in each calendar year)
determined by using:
1. The amount of the undiscounted
unearned premiums at such time;
2. The applicable interest rate; and
3. The applicable statutory premium
recognition pattern.
insurance (other than credit disability
insurance),
• Noncancelable accident and health
insurance,
• Cancelable accident and health
insurance, and
• International and reinsurance lines of
business.
Lines 2d and 4d. Include on lines 2d
and 4d, 80% of the total of all unearned
premiums not reported on lines 2a
through 2c, or 4a through 4c,
respectively.
A reciprocal or interinsurer required
under state law to reflect unearned
premiums on its annual statement net of
premium acquisition expenses should
increase its unearned premiums by the
amount of such acquisition expenses
prior to making the computation on lines
2d and 4d. See section 832(b)(7)(E).
Line 6. Transitional adjustments apply to
companies which become taxable under
section 831(a). See section 832(b)(7)(D).
Schedule F—Losses
Incurred
Line 1. Losses paid. Enter the total
losses paid on insurance contracts during
the tax year less salvage and reinsurance
recovered during the tax year.
Lines 2a and 4a. Unpaid losses on life
insurance contracts. Unpaid losses
must be adjusted for recoveries of
reinsurance. The amounts of expected
recoveries should be estimated based on
the facts in each case and the
corporation’s experience with similar
cases. See Regulations section
1.832-4(b).
Lines 2b and 4b. Discounted unpaid
losses outstanding. Enter all
discounted unpaid losses as defined in
section 846.
Section 846 provides that the amount
of discounted unpaid losses must be
figured separately by each line of
Special rules apply with respect to:
• Unpaid losses related to disability
With regard to the special rules for
discounting unpaid losses on accident
and health insurance (other than disability
income insurance), unpaid losses are
assumed to be paid in the middle of the
year following the accident year.
Generally, the amount of undiscounted
unpaid losses means the unpaid losses
and unpaid loss adjustment expenses
shown in the annual statement. However,
see Regulations section 1.846-1(a)(1)
referring to Regulations section
1.832-4(b) relating to the determination of
unpaid losses.
Under section 832(b)(5)(A), unpaid
losses must be adjusted to take into
account estimated recoveries due to
salvage and reinsurance for those losses.
If the amounts shown in the annual
statement were determined on a
discounted basis and if the extent to
which these losses were discounted can
be determined on the basis of information
disclosed on or with the annual
statement, the amount of the
undiscounted unpaid losses must be
recomputed to eliminate any reduction
caused by such discounting. In no event
can the amount of discounted unpaid
losses with respect to any line of business
for an accident year exceed the total
amount of unpaid losses with respect to
any line of business for an accident year
as reported on the annual statement. Also
see Regulations section 1.832-4(d)
regarding increasing unpaid losses shown
on the annual statement by salvage
recoverable. Also see Rev. Proc. 92-77,
1992-2 C.B. 454.
The applicable interest rate for each
calendar year and the applicable loss
payment pattern for each accident year
for each line of business are determined
by the IRS. The applicable interest rate
and loss payment patterns for 2007 will
be published in the Internal Revenue
Bulletin when available. The applicable
interest rate and loss payment patterns
for 2005 and 2006 are published in Rev.
Proc. 2005-72, 2005-49 I.R.B. 1078, and
Rev. Proc. 2007-9, 2007-3 I.R.B. 278,
respectively.
-16-
Corporations having sufficient
historical experience to determine a loss
payment pattern may, under certain
circumstances, elect under section 846(e)
to use their own historical experience
(instead of the loss payment patterns
determined by the IRS). If this election is
made, the loss payment patterns will be
based on the most recent calendar year
for which an annual statement was filed
before the beginning of the accident year.
The election will not apply to any
international or reinsurance line of
business. If the corporation makes this
election, check the “Yes” column for
question 7 in Schedule I, Other
Information. For more information, see
section 846(e), Regulations section
1.846-2, and Rev. Proc. 92-76, 1992-2
C.B. 453.
Note. There is a special application of
the “fresh start” provision for an insurance
company that is not subject to tax under
section 831(a) for its first tax year
beginning after December 31, 1986,
because (1) it is described in section
501(c) or (2) it is subject to tax under
section 831(b) on its investment income.
If the insurance company later
becomes subject to tax under section
831(a), the rules relating to the fresh start
under the discounting provisions are
applied by treating the last tax year before
the year in which the insurance company
becomes subject to tax under section
831(a) as the insurance company’s last
tax year beginning before 1987. See
section 1010(e) of the Technical and
Miscellaneous Revenue Act of 1988 and
Notice 88-100, 1988-2 C.B. 439.
Lines 6 and 7. Estimated salvage and
reinsurance recoverable. Enter on
lines 6 and 7 the amount of estimated
salvage and reinsurance recoverable.
The amount of estimated salvage
recoverable must be determined on a
discounted basis. The salvage discount
factors for 2006 are published in Rev.
Proc. 2007-10, 2007-3 I.R.B. 289. The
salvage discount factors for 2007 will be
published in the Internal Revenue Bulletin
when available. Also see Regulations
2008
section 1.832-4.
Line 9. Tax-exempt interest subject to
section 832(b)(5)(B). Enter the amount
of tax-exempt interest received or
accrued during the tax year on
investments made after August 7, 1986.
For information regarding the
determination of the acquisition date of an
investment, see the instructions for
Schedule C.
Schedule G—Other
Capital Losses
Capital assets are considered sold or
exchanged to provide funds to meet
abnormal insurance losses and to pay
dividends and make similar distributions
to policyholders to the extent that the
gross receipts from their sale or exchange
are not more than the amount by which
Delete sentence
as corrected.
Instructions for Form 1120-PC
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the sum of dividends and similar
distributions paid to policyholders, losses
paid, and expenses paid for the tax year
is more than the total on line 9, Schedule
G.
Total gross receipts from sales of
capital assets (line 12, column (c)) must
not be more than line 10. If necessary,
the corporation may report part of the
gross receipts from a particular sale of a
capital asset on this schedule and the rest
on Schedule D (Form 1120). Otherwise,
do not include on Schedule D (Form
1120) any sales reported on this
schedule.
Schedule H—Special
Deduction and Ending
Adjusted Surplus for
Section 833 Organizations
Line 5. Beginning adjusted surplus. If
the corporation was a section 833
organization in 2006, it should enter the
amount from Schedule H, line 10, of its
2006 Form 1120-PC.
Generally, the adjusted surplus as of
the beginning of any tax year is an
amount equal to the adjusted surplus as
of the beginning of the preceding tax
year:
1. Increased by the amount of any
adjusted taxable income for the preceding
tax year or
2. Decreased by the amount of any
adjusted net operating loss for the
preceding tax year.
If 2007 is the first tax year the taxpayer
qualifies as a section 833 organization,
see section 833(c)(3)(C) to determine the
adjusted surplus as of the beginning of
the 2007 tax year.
For purposes of the computation of the
adjusted surplus, the terms “adjusted
taxable income” and “adjusted net
operating loss” mean the taxable income
or the net operating loss, respectively,
determined with the following
modifications:
1. Without regard to the deduction
determined under section 833(b)(1);
2. Without regard to any carryover or
carryback to that tax year; and
3. By increasing gross income by an
amount equal to the net exempt income
for the tax year.
Line 6. Special deduction. The
deduction for any tax year is limited to
taxable income for that tax year
determined without regard to this
deduction.
Note. Under section 833(b)(4), any
determination under section 833(b) must
be made by only taking into account items
from the health-related business of the
corporation.
Line 8a. Adjusted tax-exempt income.
Reduce the total tax-exempt interest
received or accrued during the tax year
Instructions for Form 1120-PC
by any amount (not otherwise deductible)
which would have been allowable as a
deduction for the tax year if such interest
were not tax-exempt. Enter the result on
line 8a.
Line 8b. Adjusted dividends-received
deduction. Reduce the total amount
allowed as a deduction under sections
243, 244, and 245 by the amount of any
decrease in deductions allowable for the
tax year because of section 832(b)(5)(B)
when the decrease is caused by the
deductions under sections 243, 244, and
245. Enter the result on line 8b.
Schedule I—Other
Information
The following instructions apply to page 7,
Form 1120-PC. Complete all items that
apply to the corporation.
Question 4
Check the “Yes” box 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 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.
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
-17-
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
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 6a the percentage owned
by the foreign person specified in
question 6. On line 6b, enter the name of
the owner’s country.
Note. If there is more than one
25%-or-more foreign owner, complete
lines 6a and 6b 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. 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 10
Show any tax-exempt interest received or
accrued. Include any exempt-interest
dividends received as a shareholder in a
mutual fund or other RIC.
Item 11
If the corporation has an NOL for its 2007
tax year, it can elect under section
172(b)(3) 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,
section 172, and Form 1139 for more
details.
Page 18 of 20
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5
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 Schedule
A, line 36b.
Schedule L—Balance
Sheet per Books
Note. All insurance companies required
to file Form 1120-PC must complete
Schedule L.
The balance sheet should agree with
the corporation’s books and records.
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 5.
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-PC)
instead of Schedule M-1. See the
separate instructions for Schedule M-3
(Form 1120-PC) for provisions also
affecting Schedule L.
Line 1. Cash. Include certificates of
deposit as cash on this line.
Line 5. Tax-exempt securities. Include
on this line:
• State and local government obligations,
the interest on which is excludable from
gross income under section 103(a) and
• Stock in a mutual fund or other RIC that
distributed exempt-interest dividends
during the tax year of the corporation.
Line 18. Insurance liabilities. Include
on this line:
• Undiscounted unpaid losses.
• Loss adjustment expenses.
• Unearned premiums.
See section 846 for more information.
Line 27. Adjustments to shareholders’
equity. 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 27 is a negative amount, enter the
amount in parentheses.
Schedule M-1—
Reconciliation of Income
(Loss) per Books With
Income per Return
All insurance companies required to file
Form 1120-PC, with total assets
(non-consolidated or consolidated for all
corporations included within the tax
consolidation group) of $10 million or
-18-
more on the last day of the tax year must
complete Schedule M-3 (Form 1120-PC)
instead of Schedule M-1. See Schedule
M-3 (Form 1120-PC) on page 6. A
corporation filing Form 1120-PC that is
not required to file Schedule M-3 (Form
1120-PC) may voluntarily file Schedule
M-3 (Form 1120-PC) instead of Schedule
M-1. See the Instructions for Schedule
M-3 (Form 1120-PC) for more
information.
Line 5c. Travel and entertainment.
Include on line 5c any of the following.
• Meals 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 7a. Tax-exempt interest. 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 I, item 10.
Instructions for Form 1120-PC
Page 19 of 20
Instructions for Form 1120-PC
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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-PC
Sch. M-3 (Form
1120-PC)
Recordkeeping
5
97 hr., 48 min.
84 hr., 40
13 min.
78
Learning about
the law or the form
33
37 hr.,43
40 min.
74 hr.,404 min.
Preparing the form
57
68 hr.,16
50 min.
36 min.
215 hr., 23
Copying,
assembling,
and sending the
form to the IRS
58 hr., 54
2 min.
-----
3 hr., 29 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 the Internal Revenue Service, Tax Products Coordinating
Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this
address. Instead, see Where To File on page 2.
Instructions for Form 1120-PC
-19-
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Instructions for Form 1120-PC
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Index
A
Accounting methods . . . . . . . . 4
Accounting period (tax
year) . . . . . . . . . . . . . . . . . . . . . 4
Address Change . . . . . . . . . . . . 6
Adjustments to shareholders’
equity . . . . . . . . . . . . . . . . . . . 18
Affiliated group . . . . . . . . . . . . 17
Amended return . . . . . . . . . . . . 6
Assembling the return . . . . . . 3
B
Backup withholding . . . . . . . . . 8
Business startup
expenses . . . . . . . . . . . . . . . . . 9
C
Charitable
contributions . . . . . . . . . . . . 10
Consolidated return . . . . . . . . . 5
Controlled group:
Brother-Sister . . . . . . . . . . . . 6
Combined group . . . . . . . . . 6
Member of . . . . . . . . . . . . . . . 6
Parent-Subsidiary . . . . . . . . 6
D
Deductions . . . . . . . . . . . . . . . . . 9
Definitions:
100% dividend . . . . . . . . . . 14
Acquisition date . . . . . . . . . 14
Applicable interest
rate . . . . . . . . . . . . . . . . . . . 15
Applicable statutory
premium recognition
pattern . . . . . . . . . . . . . . . . 15
Prorated amounts . . . . . . . 14
Undiscounted unearned
premiums . . . . . . . . . . . . . 15
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . 3
Disclosure statement . . . . . . . 4
E
Electronic deposit of tax
refund of $1 million or
more . . . . . . . . . . . . . . . . . . . . . 8
Electronic federal tax payment
system (EFTPS) . . . . . . . . . . 3
Employer identification
number (EIN) . . . . . . . . . . . . . 6
Estimated tax:
Payments . . . . . . . . . . . . . 3, 8
Penalty . . . . . . . . . . . . . . . . 4, 8
Extension of time to file . . . . . 2
F
Final return . . . . . . . . . . . . . . . . . 6
Foreign corporations . . . . . . . . 7
Foreign person . . . . . . . . . . . . 17
Foreign tax credit . . . . . . . . . . . 7
Forms and publications, how
to get . . . . . . . . . . . . . . . . . . . . 1
G
General business credit . . . . . 7
Golden parachute
payments . . . . . . . . . . . . . . . . 9
I
Insurance liabilities . . . . . . . . 18
Interest due on late payment
of tax . . . . . . . . . . . . . . . . . . . . . 4
L
Limitation on
dividends-received
deduction . . . . . . . . . . . . . . . 15
Limitations on
deductions . . . . . . . . . . . . . . . 9
Lobbying expenses . . . . . . . . 12
M
Minimum tax:
Alternative . . . . . . . . . . . . . . . . 6
Prior year, credit for . . . . . . 7
N
NAIC annual statement . . . . . 3
Name change . . . . . . . . . . . . . . 6
Net operating loss . . . . . . . . . 12
O
Other deductions . . . . . . . . . . 12
Overpaid estimated tax . . . . . 8
Owner’s country . . . . . . . . . . . 17
P
Paid preparer
authorization . . . . . . . . . . . . . 3
Penalties . . . . . . . . . . . . . . . . 4, 8
Pension, profit-sharing, etc.
plans . . . . . . . . . . . . . . . . . . . . 11
Period covered . . . . . . . . . . . . . 5
Personal holding company
tax . . . . . . . . . . . . . . . . . . . . . . . 7
Private delivery services . . . . 2
R
Recordkeeping . . . . . . . . . . . . . 4
Related party
transactions . . . . . . . . . . . . . . 9
S
Schedule:
A......................... 8
B, Part I . . . . . . . . . . . . . . . . . 13
B, Part II . . . . . . . . . . . . . . . . 14
C . . . . . . . . . . . . . . . . . . . . . . . . 14
E . . . . . . . . . . . . . . . . . . . . . . . . 15
F . . . . . . . . . . . . . . . . . . . . . . . . 16
G . . . . . . . . . . . . . . . . . . . . . . . 16
-20-
H . . . . . . . . . . . . . . . . . . . . . . . . 17
I . . . . . . . . . . . . . . . . . . . . . . . . . 17
L . . . . . . . . . . . . . . . . . . . . . . . . 18
M-1 . . . . . . . . . . . . . . . . . . . . . 18
M-3 . . . . . . . . . . . . . . . . . . . . . . 5
Section 953 Election . . . . . . . . 6
Special estimated tax
payments:
Prior year(s) special
estimated tax payments
to be applied . . . . . . . . . . . 8
Tax benefit rule . . . . . . . . . . . 8
T
Tax and payments . . . . . . . . . . 6
Tax rate schedule . . . . . . . . . . 6
Tax-exempt securities . . . . . 18
Travel, meals, and
entertainment . . . . . . . . . . . 12
U
Unresolved tax issues . . . . . . 1
W
When to file, extension . . . . . . 2
Where to file . . . . . . . . . . . . . . . . 2
Who must file:
Exceptions . . . . . . . . . . . . . . . 2
Life insurance
companies . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . 2
Worksheet for Schedule
C . . . . . . . . . . . . . . . . . . . . . . . . 16
■
Instructions for Form 1120-PC
| File Type | application/pdf |
| File Title | Form 1725 (Rev. 7-2004) |
| Subject | Routing Slip |
| Author | efcoll07 |
| File Modified | 2008-02-11 |
| File Created | 2008-02-08 |