Capital Gains and Losses and Built-In Gains (Schedule D)

Userid: SD_ZR2MB

PAGER/SGML
Page 1 of 4

Fileid:

DTD INSTR04

Leadpct: -5%

Pt. size: 9

...rs\zr2mb\documents\1120S\1120S Schedule D\I1120SSD_100909.sgm

Instructions for Schedule D (Form 1120S)

❏

Draft

❏

Ok to Print

(Init. & date)

17:07 - 19-OCT-2009

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

2009

Department of the Treasury
Internal Revenue Service

Instructions for Schedule D
(Form 1120S)
Capital Gains and Losses and Built-in Gains
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
What’s New
For tax years beginning in 2009 or 2010,
no tax is imposed on the net recognized
built-in gain of an S corporation if the 7th
tax year in the 10-year recognition period
discussed on page 3 ended before the tax
year.

Purpose of Schedule
Use Schedule D to report the following.

• Sales or exchanges of capital assets.
• Gains on distributions to shareholders

of appreciated capital assets.
• Nonbusiness bad debts.
• Net recognized built-in gain. The
built-in gains tax is figured in Part III of
Schedule D.
Generally, report every sale or
exchange of a capital asset (including
like-kind exchanges) on this schedule
even if there is no gain or loss.

Other Forms the
Corporation May Have To
File
Use Form 4797, Sales of Business
Property, to report the following.
• The sale, exchange, or distribution of
property used in a trade or business.
• The sale, exchange, or distribution of
depreciable and amortizable property.
• The sale or other disposition of
securities or commodities held in
connection with a trading business, if the
corporation made a mark-to-market
election.
• The involuntary conversion (other than
from casualty or theft) of property and
capital assets held for business or profit.
• The disposition of noncapital assets
other than inventory or property held
primarily for sale to customers in the
ordinary course of the corporation’s trade
or business.
Use Form 4684, Casualties and
Thefts, to report involuntary conversions
of property due to casualty or theft.
Use Form 6781, Gains and Losses
From Section 1256 Contracts and
Straddles, to report gains and losses from
section 1256 contracts and straddles.
Use Form 8824, Like-Kind Exchanges,
if the corporation made one or more
“like-kind” exchanges. A like-kind
exchange occurs when the corporation

exchanges business or investment
property for property of a like kind. For
exchanges of capital assets, include the
gain or (loss) from Form 8824, if any, on
line 3 or line 9.

Capital Assets
Each item of property the corporation held
(whether or not connected with its trade
or business) is a capital asset except the
following. See section 1221(a) for details.
• Stock in trade or other property
included in inventory or held mainly for
sale to customers. But see the Tip on this
page.
• Accounts or notes receivable acquired
in the ordinary course of the trade or
business for services rendered or from
the sale of stock in trade or other property
included in inventory or held mainly for
sale to customers.
• Depreciable or real property used in the
trade or business, even if it is fully
depreciated.
• Certain copyrights; literary, musical, or
artistic compositions; letters or
memoranda; or similar property. But see
the Tip on this page.
• U.S. Government publications,
including the Congressional Record, that
the corporation received from the
Government, other than by purchase at
the normal sales price, or that the
corporation got from another taxpayer
who had received it in a similar way, if the
corporation’s basis is determined by
reference to the previous owner’s basis.
• Certain commodities derivative
financial instruments held by a dealer.
• Certain hedging transactions entered
into in the normal course of the trade or
business.
• Supplies regularly used in the trade or
business.
You can elect to treat as capital

TIP assets certain musical

compositions or copyrights you
sold or exchanged. See Pub. 550 for
details.

Items for Special
Treatment
Note. For more information, see Pub.
544, Sales and Other Dispositions of
Assets.
Loss from a sale or exchange between
the corporation and a related person.
Except for distributions in complete
liquidation of a corporation, no loss is
allowed from the sale or exchange of
property between the corporation and
certain related persons. See section 267.
Cat. No. 64419L

Loss from a wash sale. The
corporation cannot deduct a loss from a
wash sale of stock or securities (including
contracts or options to acquire or sell
stock or securities) unless the corporation
is a dealer in stock or securities and the
loss was sustained in a transaction made
in the ordinary course of the corporation’s
trade or business. A wash sale occurs if
the corporation acquires (by purchase or
exchange), or has a contract or option to
acquire, substantially identical stock or
securities within 30 days before or after
the date of the sale or exchange. See
section 1091.
Gain on distributions of appreciated
property. Generally, gain (but not loss)
is recognized on a nonliquidating
distribution of appreciated property to the
extent that the property’s fair market
value exceeds its adjusted basis. See
section 311.
Gain or loss on distribution of property
in complete liquidation. Generally, gain
or loss is recognized on property
distributed in a complete liquidation. Treat
the property as if it had been sold at its
fair market value. See section 336.
Gain or loss on certain short-term
federal, state, and municipal
obligations (other than tax-exempt
obligations). These obligations are
treated as capital assets in determining
gain or loss. On any gain realized, a
portion is treated as ordinary income and
any remaining balance as a short-term
capital gain. See section 1271(a)(3).
Gain from installment sales. If the
corporation sold property at a gain and
will receive a payment in a tax year after
the year of sale, it generally must report
the sale on the installment method unless
it elects not to. However, the installment
method may not be used to report sales
of stock or securities traded on an
established securities market.
Use Form 6252, Installment Sale
Income, to report the sale on the
installment method. Also use Form 6252
to report any payment received during the
tax year from a sale made in an earlier
year that was reported on the installment
method. To elect out of the installment
method, report the full amount of the gain
on Schedule D for the year of the sale on
a return filed by the due date (including
extensions). If the original return was filed
on time without making the election, the
corporation can make the election on an
amended return filed no later than 6
months after the original due date
(excluding extensions). Write “Filed

Page 2 of 4

Instructions for Schedule D (Form 1120S)

17:07 - 19-OCT-2009

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

pursuant to section 301.9100-2” at the top
of the amended return.
Gain or loss on an option to buy or sell
property. See sections 1032 and 1234
for the rules that apply to a purchaser or
grantor of an option. See sections 1032
and 1234B for the rules that apply to
securities futures contracts. See Pub.
550, Investment Income and Expenses.
Gain or loss from a short sale of
property. Report the gain or loss to the
extent that the property used to close the
short sale is considered a capital asset in
the hands of the taxpayer.
Loss from securities that are capital
assets that become worthless during
the year. Except for securities held by a
bank, treat the loss as a capital loss as of
the last day of the tax year. See section
582 for the rules on the treatment of
securities held by a bank.
Nonrecognition of gain on sale of
stock to an employee stock ownership
plan (ESOP) or an eligible cooperative.
See section 1042 and Temporary
Regulations section 1.1042-1T for rules
under which the corporation can elect not
to recognize gain from the sale of certain
stock to an ESOP or an eligible
cooperative.
Gain on disposition of market discount
bonds. See section 1276 for rules on
the disposition of market discount bonds.
Nonbusiness bad debts. A
nonbusiness bad debt must be treated as
a short-term capital loss and can be
deducted only in the year the debt
becomes totally worthless. For each bad
debt, enter the name of the debtor and
“statement attached” in column (a) of line
1 and the amount of the bad debt as a
loss in column (f). Attach a statement of
facts to support each bad debt deduction.
Real estate subdivided for sale.
Certain lots or parcels that are part of a
tract of real estate subdivided for sale
may be treated as capital assets. See
section 1237.
Sale of a partnership interest. A sale
or other disposition of an interest in a
partnership owning unrealized
receivables or inventory items may result
in ordinary gain or loss. See Pub. 541,
Partnerships.
Special rules for traders in securities.
Traders in securities are engaged in the
business of buying and selling securities
for their own account. To be engaged in a
business as a trader in securities, the
corporation:
• Must seek to profit from daily market
movements in the prices of securities and
not from dividends, interest, or capital
appreciation.
• Must be involved in a trading activity
that is substantial.
• Must carry on the activity with
continuity and regularity.
The following facts and circumstances
should be considered in determining if a
corporation’s activity is a business.
• Typical holding periods for securities
bought and sold.
• The frequency and dollar amount of the
corporation’s trades during the year.

• The extent to which the shareholders
pursue the activity to produce income for
a livelihood.
• The amount of time devoted to the
activity.
Like an investor, a trader must report
each sale of securities (taking into
account commissions and any other costs
of acquiring or disposing of the securities)
on Schedule D or on an attached
statement containing all the same
information for each sale in a similar
format. However, if a trader made the
mark-to-market election (see the
Instructions for Form 4797), each
transaction is reported in Part II of Form
4797 instead of on Schedule D.
The limitation on investment interest
expense that applies to investors does
not apply to interest paid or incurred in a
trading business. A trader reports interest
expense and other expenses (excluding
commissions and other costs of acquiring
and disposing of securities) from a trading
business on page 1 of Form 1120S.
A trader also may hold securities for
investment. The rules for investors
generally will apply to those securities. If
they apply, allocate interest and other
expenses between your trading business
and investment securities. Report
investment interest expense on line 12b
of Schedule K and in box 12 of Schedule
K-1 using code H.
Gain from certain constructive
ownership transactions. Gain in
excess of the gain the corporation would
have recognized if it had held a financial
asset directly during the term of a
derivative contract must be treated as
ordinary income. See section 1260.
Gain on the constructive sale of
certain appreciated financial positions.
Generally, if the corporation holds an
appreciated financial position in stock or
certain other interests, it may have to
recognize gain (but not loss) if it enters
into a constructive sale (such as a “short
sale against the box”). See Pub. 550.
Rollover of gain from qualified stock.
If the corporation sold qualified small
business stock (defined below) it held for
more than 6 months, it can postpone gain
if it purchased other qualified small
business stock during the 60-day period
that began on the date of the sale. The
corporation must recognize gain to the
extent the sale proceeds exceed the cost
of the replacement stock. Reduce the
basis of the replacement stock by any
postponed gain.
If the corporation chooses to postpone
gain, report the entire gain realized on the
sale on line 1 or 7. Directly below the line
on which the corporation reported the
gain, enter in column (a) “Section 1045
Rollover” and enter the amount of the
postponed gain as a (loss) in column (f).
The corporation also must
separately state the amount of the
gain rolled over on qualified stock
under section 1045 on Form 1120S,
Schedule K, line 10, because each
shareholder must determine if he or she
qualifies for the rollover at the
shareholder level. Also, the corporation
must separately state on that line (and not

!

CAUTION

-2-

on Schedule D) any gain that could
qualify for the section 1045 rollover at the
shareholder level instead of the corporate
level (because a shareholder was entitled
to purchase replacement stock). If the
corporation had a gain on qualified stock
that could qualify for the partial exclusion
under section 1202, report that gain on
Schedule D, line 7 (and on Form 1120S,
Schedule K, line 10).
To be qualified small business stock,
the stock must meet all of the following
tests.
• It must be stock in a C corporation.
• It must have been originally issued
after August 10, 1993.
• As of the date the stock was issued,
the corporation was a qualified small
business. A qualified small business is a
domestic C corporation with total gross
assets of $50 million or less (a) at all
times after August 9, 1993, and before
the stock was issued, and (b) immediately
after the stock was issued. Gross assets
include those of any predecessor of the
corporation. All corporations that are
members of the same parent-subsidiary
controlled group are treated as one
corporation.
• The corporation must have acquired
the stock at its original issue (either
directly or through an underwriter), either
in exchange for money or other property
or as pay for services (other than as an
underwriter) to the corporation. In certain
cases, the corporation may meet the test
if it acquired the stock from another
person who met this test (such as by gift
or inheritance) or through a conversion or
exchange of qualified small business
stock held by the corporation.
• During substantially all the time the
corporation held the stock:
1. The issuer was a C corporation,
2. At least 80% of the value of the
issuer’s assets were used in the active
conduct of one or more qualified
businesses (defined below), and
3. The issuing corporation was not a
foreign corporation, DISC, former DISC,
corporation that has made (or that has a
subsidiary that has made) a section 936
election, regulated investment company,
real estate investment trust, REMIC,
FASIT, or cooperative.
Note. A specialized small business
investment company (SSBIC) is treated
as having met test (2) above.
A qualified business is any business
other than the following.
• One involving services performed in the
fields of health, law, engineering,
architecture, accounting, actuarial
science, performing arts, consulting,
athletics, financial services, or brokerage
services.
• One whose principal asset is the
reputation or skill of one or more
employees.
• Any banking, insurance, financing,
leasing, investing, or similar business.
• Any farming business (including the
raising or harvesting of trees).
• Any business involving the production
of products for which percentage
depletion can be claimed.
• Any business of operating a hotel,
motel, restaurant, or similar business.
Instructions for Schedule D (Form 1120S)

Page 3 of 4

Instructions for Schedule D (Form 1120S)

17:07 - 19-OCT-2009

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

Exclusion of gain from DC Zone
assets. If the corporation sold or
exchanged a District of Columbia
Enterprise Zone (DC Zone) asset held for
more than 5 years, it can exclude any
qualified capital gain. The sale or
exchange of DC Zone capital assets
reported on Schedule D include:
• Stock in a domestic corporation that
was a DC Zone business.
• Interest in a partnership that was a DC
Zone business.
Report the sale or exchange of
property used in the corporation’s DC
Zone business on Form 4797.
Gains not qualified for exclusion.
The following gains do not qualify for the
exclusion of gain from DC Zone assets.
• Gain attributable to unrecaptured
section 1250 gain on the sale of an
interest in a partnership that is a DC Zone
business. See the instructions for line 8c
of Schedule K for information on how to
report unrecaptured section 1250 gain.
• Gain on the sale of an interest in a
partnership attributable to real property or
an intangible asset that is not an integral
part of a DC Zone business.
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub. 544.
See Pub. 954, Tax Incentives for
Distressed Communities, and section
1400B for more details on DC Zone
assets and special rules.
How to report. Report the entire
gain realized from the sale or exchange
as the corporation otherwise would
without regard to the exclusion. On
Schedule D, line 7, enter “DC Zone
Asset” in column (a) and enter as a loss
in column (f) the amount of the allowable
exclusion.
Rollover of gain from empowerment
zone assets. If the corporation sold a
qualified empowerment zone asset held
for more than 1 year, it may be able to
elect to postpone part or all of the gain.
See Pub. 954 and section 1397B.
Exclusion of gain from qualified
community assets. If the corporation
sold or exchanged a qualified community
asset acquired after December 31, 2001,
and held for more than 5 years, it may be
able to exclude any qualified capital gain.
The exclusion applies to an interest in, or
property of, certain renewal community
businesses.
Qualified community asset. A
qualified community asset is any of the
following.
• Qualified community stock.
• Qualified community partnership
interest.
• Qualified community business property.
Qualified capital gain. Qualified
capital gain is any gain recognized on the
sale or exchange of a qualified
community asset, but does not include
any of the following.
• Gain treated as ordinary income under
section 1245.
• Section 1250 gain figured as if section
1250 applied to all depreciation rather
than the additional depreciation.
Instructions for Schedule D (Form 1120S)

• Gain attributable to real property, or an
intangible asset, that is not an integral
part of a renewal community business.
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub. 544.
See Pub. 954 and section 1400F for
more details and special rules.
How to report. Report the entire gain
realized from the sale or exchange as the
corporation otherwise would without
regard to the exclusion. On Schedule D,
line 7, enter “Qualified Community Asset”
in column (a) and enter as a loss in
column (f) the amount of the allowable
exclusion. If reporting the sale directly on
Schedule D, line 7, use the line directly
below the line on which the corporation is
reporting the sale.
Collectibles (28%) rate gain or (loss).
Report any 28% gain or loss on line 8b of
Schedule K (and each shareholder’s
share in box 8b of Schedule K-1). A
collectibles gain or loss is any long-term
gain or deductible long-term loss from the
sale or exchange of a collectible that is a
capital asset.
Collectibles include works of art, rugs,
antiques, metals (such as gold, silver, and
platinum bullion), gems, stamps, coins,
alcoholic beverages, and certain other
tangible property.
Also include gain (but not loss) from
the sale or exchange of an interest in a
partnership or trust held more than 1 year
and attributable to unrealized appreciation
of collectibles. See Regulations section
1.1(h)-1. Also, attach the statement
required under Regulations section
1.1(h)-1(e).

Specific Instructions
Parts I and II
In Part I, report the sale, exchange, or
distribution of capital assets held 1 year
or less. In Part II, report the sale,
exchange, or distribution of capital assets
held more than 1 year. Use the trade
dates for the dates of acquisition and sale
of stocks and bonds traded on an
exchange or over-the-counter market.

Column (b). Date Acquired
The acquisition date for an asset the
corporation held on January 1, 2001, for
which it made an election to recognize
any gain on a deemed sale, is the date of
the deemed sale and reacquisition.

Column (e). Cost or Other Basis
In general, the basis of property is its
cost. See section 1012 and the related
regulations. Special rules may apply to
the receipt of certain distributions with
respect to stock (section 301), liquidation
of another corporation (334), transfer to
another corporation (358), transfer from a
shareholder or reorganization (362),
bequest (1014), contribution or gift
(1015), tax-free exchange (1031),
involuntary conversion (1033), certain
asset acquisitions (1060), or wash sale of
stock (1091). Attach an explanation if the
corporation uses a basis other than actual

-3-

cost of the property. See Pub. 551, Basis
of Assets, for more details.
Before making an entry in column (e),
increase the cost or other basis by any
expense of sale, such as broker’s fees,
commissions, state and local transfer
taxes, and option premiums, unless the
net sales price was reported in column
(d).
If the corporation sold property in a
bargain sale to a charitable organization,
figure the adjusted basis for determining
gain from the sale by dividing the amount
realized by the fair market value and
multiplying that result by the adjusted
basis.
If the corporation elected to recognize
gain on an asset held on January 1, 2001,
its basis in the asset is its closing market
price or fair market value, whichever
applies, on the date of the deemed sale
and reacquisition, whether the deemed
sale resulted in a gain or unallowed loss.
See section 852(f) for the treatment of
certain load charges incurred in acquiring
stock in a mutual fund (or other regulated
investment company) with a reinvestment
right.

Column (f). Gain or (Loss)
Make a separate entry in this column for
each transaction reported on line 1 or line
7 and any other line(s) that apply to the
corporation. For lines 1 and 7, subtract
the amount in column (e) from the amount
in column (d). Enter negative amounts in
parentheses.

Part III. Built-in Gains Tax
Section 1374 provides for a tax on built-in
gains. The built-in gains tax may apply to
the following S corporations.
1. An S corporation that was a C
corporation before it elected to be an S
corporation.
2. An S corporation that acquired an
asset with a basis determined (in whole or
in part) by reference to its basis (or the
basis of any other property) in the hands
of a C corporation (a transferred-basis
acquisition).
An S corporation may owe the tax if it
has net recognized built-in gain during the
applicable recognition period. The
applicable recognition period is the
10 – year period beginning:
• For an asset held when the S
corporation was a C corporation, on the
first day of the first tax year for which the
corporation is an S corporation; or
• For an asset with a basis determined
by reference to its basis (or the basis of
any other property) in the hands of a C
corporation, on the date the asset was
acquired by the S corporation.
A corporation described in both (1) and
(2), above, must figure the built-in gains
tax separately for the group of assets it
held at the time its S election became
effective and for each group of assets it
acquired from a C corporation with basis
determined (in whole or in part) by
reference to the basis of the asset (or any
other property) in the hands of the C
corporation. For details, see Regulations
section 1.1374-8.

Page 4 of 4

Instructions for Schedule D (Form 1120S)

17:07 - 19-OCT-2009

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

For tax years beginning in 2009 or
2010, no tax is imposed if the S
corporation’s 7th tax year of the
applicable recognition period ended
before the tax year.
For tax years beginning in 2009 or
2010, no tax is imposed on the net
CAUTION recognized built-in gain of an S
corporation if the 7th year of the
applicable recognition period ended
before the tax year. In figuring the amount
to enter on line 14, exclude any
recognized built-in gains and recognized
built-in losses arising in the tax year if the
7th year of the applicable recognition
period ended before the beginning of the
tax year. This exclusion does not apply,
however, for the following purposes.
• Determining the character of the
deemed loss arising from the built-in
gains tax, as described in Regulations
section 1.1366-4(b);
• Figuring the carryover of net
recognized built-in gain in excess of the
taxable income limitation;
• Allocating your taxable income
limitation (line 15) between separate
groups of assets, as required by
Regulations section 1.1374-8(d);
• Figuring your net unrealized built-in
gain limitation (Schedule B, line 6) in any
subsequent year; or
• Figuring your section 1374(b)(2)
deduction (line 17) in any subsequent
year.
For these purposes, treat net recognized
built-in gain excluded from line 14 as if
the full amount had been entered on line
14 in the current tax year.
Certain transactions involving the
disposal of timber, coal, or domestic iron
ore under section 631 are not subject to
the built-in gains tax. See Rev. Rul.
2001-50, 2001-43 I.R.B. 343.
Line 14. Generally, enter the amount
that would be the taxable income of the
corporation for the tax year if only
recognized built-in gains (including any
carryover of gain under section
1374(d)(2)(B)) and recognized built-in
losses were taken into account. However,
do not enter any net recognized built-in
gain if the 7th tax year in the applicable
recognition period ended before the
current tax year.
Generally, recognized built-in gain
includes the following items.
1. Any gain recognized during the
applicable recognition period on the sale
or distribution (disposition) of any asset,
except to the extent the corporation
establishes that:
a. The asset was not held by the
corporation as of the beginning of the
applicable recognition period, or
b. The gain exceeds the excess of the
fair market value of the asset as of the
beginning of the applicable recognition
period over the adjusted basis of the
asset at that time; and

!

2. Any item of income that is properly
taken into account during the applicable
recognition period but is attributable to
periods before the applicable recognition
period.
Generally, recognized built-in loss
includes the following items.
1. Any loss recognized during the
applicable recognition period on the
disposition of any asset to the extent the
corporation establishes that:
a. The asset was held by the
corporation as of the beginning of the
applicable recognition period, and
b. The loss does not exceed the
excess of the adjusted basis of the asset
as of the beginning of the applicable
recognition period, over the fair market
value of the asset as of that time; and
2. Any amount that is allowed as a
deduction during the applicable
recognition period (determined without
regard to any carryover) but is attributable
to periods before the applicable
recognition period.
For details, see section 1374(d) and
Regulations section 1.1374-4.
The corporation must show on an
attachment its total net recognized built-in
gain and list separately any capital gain or
loss and ordinary gain or loss.
Line 15. Figure taxable income by
completing lines 1 through 28 of Form
1120. Follow the instructions for Form
1120. Enter the amount from line 28 of
Form 1120 on line 15 of Schedule D.
Attach to Schedule D the Form 1120
computation or other worksheet used to
figure taxable income.
For corporations figuring the built-in
gains tax for separate groups of assets,
taxable income must be apportioned to
each group of assets in proportion to the
net recognized built-in gain for each
group of assets. For details, see
Regulations section 1.1374-8.
Note. Taxable income is defined in
section 1375(b)(1)(B) and is generally
figured in the same manner as taxable
income for line 9 of the Excess Net
Passive Income Tax Worksheet for Line
22a in the Instructions for Form 1120S.
Line 16. If for any tax year the amount
on line 14 exceeds the taxable income on
line 15, the excess is treated as a
recognized built-in gain in the succeeding
tax year. This carryover provision applies
only in the case of an S corporation that
made its election to be an S corporation
after March 30, 1988. See section
1374(d)(2)(B).
For corporations figuring the built-in
gains tax for separate groups of assets,
do not use the amount from Schedule B,
line 6. Instead, figure the amount of net
unrealized built-in gain separately for
each group of assets.

-4-

Line 17. Enter the section 1374(b)(2)
deduction. Generally, this is any net
operating loss carryforward or capital loss
carryforward (to the extent of net capital
gain included in recognized built-in gain
for the tax year) either arising in tax years
for which the corporation was a C
corporation or acquired in a
transferred-basis acquisition (defined
earlier). The 1374(b)(2) deduction must
be figured and applied separately for
each separate group of assets. See
section 1374(b)(2) and Regulations
section 1.1374-5.
Line 20. Enter the section 1374(b)(3)
credit. Generally, this is any general
business credit arising in tax years for
which the corporation was a C
corporation or acquired in a
transferred-basis acquisition (defined
earlier). The 1374(b)(3) credit must be
figured and applied separately for each
separate group of assets. Section
1374(b)(3) business credit and minimum
tax credit carryforwards from C
corporation years are subject to the
business credit limitation in section 38(c)
and the AMT credit limitation in section
53(c), as modified by Regulations section
1.1374-6(b).
Corporations can elect to increase
these limitations for pre-2006 unused
research and minimum tax credits in lieu
of claiming the special depreciation
allowance for certain property (as defined
in section 168(k)(4)(D)) acquired after
March 31, 2008, and placed in service
before January 1, 2010. For details, see
Form 4562, Depreciation and
Amortization; Form 3800, General
Business Credit; Form 8827, Credit for
Prior Year Minimum Tax — Corporations;
and related instructions. Also, see Rev.
Proc. 2009-33, 2009-29 I.R.B. 150; Rev.
Proc. 2009-16, 2009-6 I.R.B. 449; and
Rev. Proc. 2008-65, 2008-44 I.R.B. 1082.
Caution. An S corporation that
makes this election can use the credit
carryforwards only against the built-in
gains tax. The refundable credit
provisions do not apply to S corporations.
Line 21. The built-in gains tax is treated
as a loss sustained by the corporation
during the same tax year. The character
of the deemed loss is determined by
allocating the loss proportionately among
the net recognized built-in gains giving
rise to the tax and attributing the
character of each net recognized built-in
gain to the allocable portion of the loss.
Deduct the tax attributable to:
• Short-term capital gain as short-term
capital loss on Schedule D, line 5.
• Long-term capital gain as long-term
capital loss on Schedule D, line 12.
• Other gain or income as a deduction for
taxes on Form 1120S, line 12.

Instructions for Schedule D (Form 1120S)