U. S. Business Income Tax return

U. S. Business Income Tax Return

i8810

U. S. Business Income Tax return

OMB: 1545-0123

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2013

Instructions for Form 8810

Department of the Treasury
Internal Revenue Service

Corporate Passive Activity Loss and Credit Limitations
Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 8810 and its
instructions, such as legislation enacted after
they were published, go to www.irs.gov/
form8810.

General Instructions
Purpose of Form

Personal service corporations and closely
held corporations use Form 8810 to figure
the amount of any passive activity loss (PAL)
or credit for the current tax year and the
amount of losses and credits from passive
activities allowed on the corporation's tax
return. Form 8810 is also used to make the
election to increase the basis of credit
property when the corporation disposes of its
interest in an activity for which it has an
unused credit.
Generally, passive activities include trade
or business activities in which the
corporation did not materially participate for
the tax year, and rental activities regardless
of its participation.

Who Must File

Personal service corporations and closely
held corporations that have losses or credits
(including prior year unallowed losses and
credits) from passive activities must file Form
8810.
Passive activity loss (PAL). A personal
service corporation has a PAL for the year if
the total losses (including prior year
unallowed losses) from its passive activities
exceed the total income from its passive
activities. A closely held corporation has a
PAL for the year if the total losses (including
prior year unallowed losses) from all its
passive activities exceed the sum of the total
income from all its passive activities and its
net active income.
Passive activity credit. A personal service
corporation has a passive activity credit for
the year if its credits from passive activities
(including prior year unallowed credits)
exceed the tax attributable to net passive
income. A closely held corporation has a
passive activity credit for the year if its
credits from passive activities (including prior
year unallowed credits) exceed the sum of
the tax attributable to net passive income
and the tax attributable to net active income.
For more information, see Pub. 925,
Passive Activity and At-Risk Rules.
Oct 23, 2013

Definitions

Except as otherwise indicated, the following
terms are defined as shown below.
Personal service corporation. A personal
service corporation is a corporation whose
principal activity for the testing period
(defined below) for the tax year is the
performance of personal services. The
services must be substantially performed by
employee-owners. Employee-owners must
own more than 10% of the fair market value
(FMV) of the corporation's outstanding stock
on the last day of the testing period.
Testing period. Generally, the testing
period for a tax year is the prior tax year. The
testing period for a new corporation starts
with the first day of its first tax year and ends
on the earlier of:
The last day of its first tax year, or
The last day of the calendar year in which
the first tax year began.
Principal activity. The principal activity
of a corporation is considered to be the
performance of personal services if, during
the testing period, the corporation's
compensation costs for the performance of
personal services are more than 50% of its
total compensation costs.
Performance of personal services.
Personal services are those performed in the
health, law, engineering, architecture,
accounting, actuarial science, performing
arts, or consulting fields (as defined in
Temporary Regulations section
1.448-1T(e)). The term “performance of
personal services” includes any activity
involving the performance of personal
services in these areas.
Substantial performance by
employee-owners. Personal services are
substantially performed by employee-owners
if, for the testing period, more than 20% of
the corporation's compensation costs for the
performance of personal services are for
services performed by employee-owners.
Employee-owner. A person is
considered to be an employee-owner if the
person is an employee of the corporation on
any day of the testing period, and owns any
outstanding stock of the corporation on any
day of the testing period. Stock ownership is
determined under the attribution rules of
section 318, except that “any” is substituted
for “50 percent or more in value” in section
318(a)(2)(C).
Closely held corporation. A corporation is
a closely held corporation if at any time
during the last half of the tax year more than
50% in value of its outstanding stock is
Cat. No. 10357E

directly or indirectly owned, by or for not
more than five individuals, and the
corporation is not a personal service
corporation.
Certain organizations are treated as
individuals for this test (see section 542(a)).
For rules of determining stock ownership,
see section 544 (as modified by section
465(a)(3)).

Other Passive Activity Terms
Net income. The excess of current year
income over current year deductions from
the activity. This includes any current year
gains or losses from the disposition of assets
or an interest in the activity.
Net loss. The excess of current year
deductions over current year income from
the activity. This includes any current year
gains or losses from the disposition of assets
or an interest in the activity.
Overall gain. The excess of the “net
income” from the activity over the prior year
unallowed losses from the activity.
Overall loss. The excess of the prior year
unallowed losses from the activity over the
“net income” from the activity or the prior
year unallowed losses from the activity plus
the “net loss” from the activity.
Prior year unallowed losses. The
deductions and losses from an activity that
were disallowed under the PAL limitations in
a prior year and carried forward to the tax
year under section 469(b). See Regulations
section 1.469-1(f)(4).

Coordination With Other
Limitations

Generally, items of deduction or loss from a
passive activity are subject to other
limitations before they are subject to the PAL
limitations. Once a deduction or loss
becomes allowable under these other
limitations, the corporation must determine
whether the deduction or loss is limited
under the PAL rules. Examples include the
following.
Basis.
Section 163(j) interest deduction
limitations.
At risk limitations. See Form 6198, At-Risk
Limitations, for details on the at-risk rules.
In addition, certain allowances under the
PAL rules may be limited under other rules.
This includes the following.
Capital losses allowable under the PAL
rules may be limited under the capital loss
limitations of section 1211(a).

Percentage depletion deductions
allowable under the PAL rules may be limited
under section 613A(d).

Special Rules for
Consolidated Group

The passive activity loss and passive activity
credit of an affiliated group of corporations
filing a consolidated return for the tax year (a
consolidated group) are determined by
taking into account the following items of
each member of the group.
Passive activity gross income and
deductions.
Gain or loss on dispositions.
Net active income (for a consolidated
group treated as a closely held corporation).
Credits from passive activities.

Activities That Are Not
Passive Activities

The following are not classified as passive
activities. Generally, income, losses, and
credits from these activities are not entered
on Form 8810. However, losses and credits
from these activities may be subject to
limitations other than the passive activity loss
and credit rules.
1. Trade or business activities in which
the corporation materially participated for the
tax year.
2. Any rental real estate activity in which
the corporation materially participated if the
corporation was a closely held corporation
that derived more than 50% of its gross
receipts from real property trades or
businesses in which it materially participated.
For purposes of this rule, each interest in
rental real estate is a separate activity,
unless the corporation elects to treat all
interests in rental real estate as one activity.
The corporation makes the election by
attaching a statement to its original income
tax return for the tax year. See Regulations
section 1.469-9(g) for details on how to
make or revoke this election. For information
on making a late election, see Rev. Proc.
2011-34, 2011-24 I.R.B. 875, available at
www.irs.gov/irb/2011-24_IRB/ar07.html .
A real property trade or business is any
real property development, redevelopment,
construction, reconstruction, acquisition,
conversion, rental, operation, management,
leasing, or brokerage trade or business.
Note. If an activity qualifies for the exception
described above in 2013, but has a prior
year unallowed PAL, the prior year
unallowed loss is treated as a loss from a
former passive activity. See Former Passive
Activities, later.
3. A working interest in an oil or gas well
held directly or through an entity that does
not limit the corporation's liability (such as a
general partner's interest in a partnership). In
this case, it does not matter whether the
corporation materially participated in the
activity for the tax year.

If, however, the corporation's liability was
limited for part of the year (for example, the
corporation converted its general partnership
interest to a limited partnership interest
during the year), some of the corporation's
income and losses from the working interest
may be treated as passive activity gross
income and passive activity deductions.
4. An activity of trading personal
property for the account of owners of
interests in the activity. For purposes of this
rule, personal property means property that
is actively traded, such as stocks, bonds,
and other securities.

Rental Activities

A rental activity is a passive activity even if
the corporation materially participated in the
activity unless it meets the requirements
described in item 2 in Activities That Are Not
Passive Activities above. In addition, if the
corporation meets any of the five exceptions
listed below, the rental of the property is not
treated as a rental activity. See Reporting
Income, Deductions, Losses, and Credits
From Rental Activities below, if the
corporation meets any of the exceptions.
An activity is a rental activity if tangible
property (real or personal) is used by
customers or held for use by customers and
the gross income (or expected gross
income) from the activity represents amounts
paid (or to be paid) mainly for the use of the
property. It does not matter whether the use
of the property is under a lease, a service
contract, or some other arrangement.

Exceptions

An activity is not a rental activity if any of the
following apply.
1. The average period of customer use
(see below) of the rental property is:
a. 7 days or less, or
b. 30 days or less and significant
personal services (see below) were provided
in making the rental property available for
customer use.
Figure the average period of customer
use for a class of property by dividing the
total number of days in all rental periods by
the number of rentals during the tax year. If
the activity involves renting more than one
class of property, multiply the average period
of customer use of each class by the ratio of
the gross rental income from that class to the
activity's total gross rental income. The
activity's average period of customer use
equals the sum of these class-by-class
average periods weighted by gross income.
See Regulations section 1.469-1(e)(3)(iii) for
more details.
Significant personal services include only
services performed by individuals. To
determine if personal services are
significant, all the relevant facts and
circumstances are taken into consideration,
including the frequency of the services, the
type and amount of labor required to perform
the services, and the value of the services
relative to the amount charged for the use of
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the property. Significant personal services
do not include excluded services.
2. Extraordinary personal services were
provided in making the rental property
available for customer use.
Extraordinary personal services are
services provided in making rental property
available for customer use only if they are
performed by individuals and the customers'
use of the property is incidental to their
receipt of the services.
3. Rental of the property is incidental to
a nonrental activity.
The rental of property is incidental to an
activity of holding property for investment if
the main purpose for holding the property is
to realize a gain from its appreciation and the
gross rental income is less than 2% of the
smaller of the unadjusted basis or the FMV
of the property.
Unadjusted basis is the cost of the
property without regard to depreciation
deductions or any other basis adjustment
described in section 1016.
The rental of property is incidental to a
trade or business activity if:
a. The corporation owned an interest in
the trade or business activity during the tax
year,
b. The rental property was mainly used
in the trade or business activity during the tax
year or during at least 2 of the 5 preceding
tax years, and
c. The gross rental income from the
property is less than 2% of the smaller of the
unadjusted basis or the FMV of the property.
Lodging provided for the employer's
convenience to an employee or the
employee's spouse or dependents is
incidental to the activity or activities in which
the employee performs services.
4. The corporation customarily makes
the rental property available during defined
business hours for nonexclusive use by
various customers.
5. The corporation provides property for
use in a nonrental activity of a partnership or
joint venture in its capacity as an owner of an
interest in the partnership or joint venture.
If a partner contributes the use of property
to a partnership, none of the partner's
distributive share of partnership income is
income from a rental activity unless the
partnership is engaged in a rental activity.
Also, a partner's gross income
attributable to a guaranteed payment under
section 707(c) is not income from a rental
activity. The determination of whether the
property used in the activity is provided in the
partner's capacity as an owner of an interest
in the partnership is made on the basis of all
the facts and circumstances.

Reporting Income, Deductions,
Losses, and Credits From
Rental Activities

If the corporation meets any of the five
exceptions listed above, the corporation's

Instructions for Form 8810 (2013)

rental of the property is not a rental activity.
The corporation then must determine:
1. Whether the rental of the property is a
trade or business activity (see Trade or
Business Activities, later) and, if so,
2. Whether the corporation materially
participated in the activity for the tax year.
To report income, deductions, losses, or
credits from a trade or business activity in
which the corporation did not materially
participate, see Trade or business activities
without material participation under
Reporting Income, Deductions, Losses, and
Credits From Trade or Business Activities,
later.
If the corporation meets any of the five
exceptions listed above and the activity is a
trade or business activity in which the
corporation materially participated, report
any income, deduction, loss, or credit from
the activity on the forms or schedules
normally used.

Worksheets 1 and 2 to determine the amount
to enter in Part I of Form 8810 for each trade
or business activity in which the corporation
did not materially participate. If, however, the
corporation held the activity through a PTP or
the activity is a significant participation
activity, special rules apply. See Publicly
Traded Partnerships (PTPs), later. See Pub.
925 for details about how to report income or
losses from significant participation passive
activities.
In general, if the corporation has credits
from passive activities, use Worksheet 5 to
figure the amount to enter in Part II of Form
8810. However, if the corporation held the
activity through a PTP, special rules apply.
See Credits From PTPs, later, for details
about how to report credits from these
activities.

Material Participation

If the rental activity did not meet any of
the five exceptions, it generally is a passive
activity. Special rules apply if the corporation
conducted the rental activity through a
publicly traded partnership (PTP) or if any of
the rules described under Recharacterization
of Passive Income, later, apply. See PAL
rules for partners in PTPs under Special
Instructions for PTPs, later.

Personal service corporations and closely
held corporations materially or significantly
participate in an activity if one or more
individuals (each of whom would materially
or significantly participate in the activity if the
corporation's activity were the individual's
activity) directly or indirectly own more than
50% (by value) of the corporation's
outstanding stock. For this purpose, an
individual's participation in all activities other
than activities of the corporation is
disregarded.

If none of the special rules apply, use
Worksheets 1 and 2 to determine the amount
to enter in Part I of Form 8810 for each
passive rental activity. If the corporation has
credits from passive rental activities, use
Worksheet 5 to figure the amount to enter in
Part II of Form 8810.

A closely held corporation also materially
participates in an activity if the corporation
satisfies the qualifying business
requirements of section 465(c)(7)(C) (without
regard to section 465(c)(7)(C)(iv) for the
excluded business exception from the at-risk
limitations).

Trade or Business
Activities

These requirements are met if:
1. During the entire 12-month period
ending on the last day of the tax year,
substantially all the services of at least one
full-time employee of the corporation were in
the active management of the activity;
2. During the same period, substantially
all the services of at least three full-time
nonowner employees were directly related to
the activity; and
3. The deductions attributable to the
activity and allowed solely under sections
162 and 404 exceed 15% of the gross
income from the activity for the tax year.

A trade or business activity is an activity
(other than a rental activity or an activity
treated as incidental to an activity of holding
property for investment) that:
1. Involves the conduct of a trade or
business (within the meaning of section
162),
2. Is conducted in anticipation of starting
a trade or business, or
3. Involves research or experimental
expenditures deductible under section 174
(or that would be if the corporation chose to
deduct rather than capitalize them).

Reporting Income, Deductions,
Losses, and Credits From
Trade or Business Activities
Trade or business activities with material
participation. If the corporation materially
participated in a trade or business activity,
that activity is not a passive activity. Report
the income, deductions, losses, and credits
from the activity on the form or schedule
normally used.
Trade or business activities without material participation. In general, use

Instructions for Form 8810 (2013)

Participation. For purposes of the material
participation tests listed below, participation
generally includes any work the individual
did (without regard to the capacity in which
the individual did it) in connection with an
activity in which the corporation owned an
interest at the time the individual did the
work.
Work is not treated as participation,
however, if the work is not work that an
owner of that type of activity would
customarily do, and if one of the individual's
main reasons for doing the work is to avoid
the disallowance of losses or credits from the
activity under the passive activity loss and
credit rules.
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Proof of participation. Participation in
an activity can be proved by any reasonable
means. Contemporaneous daily time
reports, logs, or similar documents are not
required if participation can be established
by other reasonable means. Reasonable
means for this purpose may include, but are
not limited to, the identification of services
performed over a period of time and the
approximate number of hours spent
performing the services during that period,
based on appointment books, calendars, or
narrative summaries.
Tests for investors. Work done as an
investor in an activity is not treated as
participation unless the individual was
directly involved in the day-to-day
management or operations of the activity.
For purposes of this test, work done as an
investor includes the following activities.
Studying and reviewing financial
statements or reports on operations of the
activity.
Preparing or compiling summaries or
analyses of the finances or operations of the
activity for the individual's own use.
Monitoring the finances or operations of
the activity in a nonmanagerial capacity.
If the individual is married for the tax year,
the individual's participation in an activity
includes any participation in the activity
during the tax year by that individual's
spouse, whether or not the spouse owned
any interest in the activity and whether or not
the individual and spouse file a joint return
for the tax year.
Tests for individuals. An individual would
materially participate in an activity of the
corporation if one or more of the following
tests are satisfied.
1. The individual participated in the
activity for more than 500 hours.
2. The individual's participation in the
activity for the tax year was substantially all
of the participation in the activity of all
individuals (including individuals who did not
own any interest in the corporation or the
activity) for the year.
3. The individual participated in the
activity for more than 100 hours during the
tax year, and that individual participated at
least as much as any other individual
(including individuals who did not own any
interest in the corporation or the activity) for
the year.
4. The activity is a significant
participation activity for the individual for the
tax year, and the individual participated in all
significant participation activities during the
year for more than 500 hours. For this
purpose, an individual's participation in all
activities other than activities of the
corporation is disregarded.
A significant participation activity is any
trade or business activity in which the
individual participated for more than 100
hours during the year and in which the
individual did not materially participate under
any of the material participation tests (other
than this fourth test). For more information

regarding significant participation, see Pub.
925.
5. The individual materially participated
in the activity for any 5 (whether or not
consecutive) of the 10 immediately
preceding tax years.
6. The activity is a personal service
activity in which the individual materially
participated for any 3 (whether or not
consecutive) preceding tax years.
An activity is a personal service activity if
it involves the performance of personal
services in the fields of health, law,
engineering, architecture, accounting,
actuarial science, performing arts or
consulting in any other trade or business in
which capital is not a material
income-producing factor.
7. Based on all the facts and
circumstances, the individual participated in
the activity on a regular, continuous, and
substantial basis during the tax year.
The individual did not materially
participate in the activity under this seventh
test, however, if the individual participated in
the activity for 100 hours or less during the
tax year. Participation in managing the
activity does not count in determining
whether the individual materially participated
under the test if:
a. Any person (except that individual)
received compensation for performing
services in the management of the activity, or
b. Any person in the activity spent more
hours during the tax year than that individual
spent performing services in the
management of the activity (regardless of
whether the individual was compensated for
the management services).
Special rules for limited partners.
Generally, a limited partner cannot materially
participate in an activity. However, the
corporation is considered to materially
participate in an activity in which it holds a
limited partnership interest if one or more
individuals (each of whom would materially
participate in the activity under test 1, 5, or 6,
discussed above, for the tax year if the
corporation's activity were the individual's
activity) directly or indirectly own more than
50% (by value) of the corporation's
outstanding stock.
The corporation is not treated as a limited
partner, however, if the corporation was a
general partner in the partnership at all times
during the partnership's tax year ending with
or within the corporation's tax year (or, if
shorter, during the portion of the
partnership's tax year in which the
corporation directly or indirectly owned a
limited partnership interest).
A limited partner's share of an electing
large partnership's taxable income or loss
and credits (including general business
credits) from all trade or business and rental
activities is treated as income or loss from
the conduct of a single passive trade or
business activity.

Consolidated groups. See Regulations
section 1.469-1(h)(4) for rules for
determining whether a consolidated group
materially or significantly participates.

Grouping of Activities

Generally, one or more trade or business
activities or rental activities may be treated
as a single activity if the activities make up
an appropriate economic unit for the
measurement of gain or loss under the
passive activity rules. Whether activities
make up an appropriate economic unit
depends on all the relevant facts and
circumstances. The factors given the
greatest weight in determining whether
activities make up an appropriate economic
unit are:
1. Similarities and differences in types of
trades or businesses,
2. The extent of common control,
3. The extent of common ownership,
4. Geographical location, and
5. Reliance between or among the
activities.

Example. A corporation has a significant
ownership interest in a bakery and a movie
theater in Baltimore and in a bakery and a
movie theater in Philadelphia. Depending on
all the relevant facts and circumstances,
there may be more than one reasonable
method for grouping the activities. For
instance, the following groupings may or may
not be permissible.
A single activity.
A movie theater activity and a bakery
activity.
A Baltimore activity and a Philadelphia
activity.
Four separate activities.
Once the corporation chooses a grouping
under these rules, it must continue using that
grouping in later tax years unless either:
The corporation determines that the
original grouping was clearly inappropriate;
or
A material change in the facts and
circumstances makes that grouping clearly
inappropriate.
The IRS may regroup the corporation's
activities if any of the activities resulting from
the corporation's groupings is not an
appropriate economic unit and one of the
primary purposes of the grouping (or failure
to regroup as required under Regulations
section 1.469-4(e)) is to avoid the underlying
purposes of the passive activity rules.
Limitation on grouping certain activities.
The following activities cannot be grouped
together.
1. A rental activity with a trade or
business activity unless the activities being
grouped together make up an appropriate
economic unit and:
a. The rental activity is insubstantial
relative to the trade or business activity or
vice versa, or

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b. Each owner of the trade or business
activity has the same proportionate
ownership interest in the rental activity. If so,
the rental activity portion involving the rental
of property used in the trade or business
activity can be grouped with the trade or
business activity.
2. An activity involving the rental of real
property with an activity involving the rental
of personal property (except personal
property provided in connection with the real
property or vice versa).
3. Any activity with another activity in a
different type of business and in which the
corporation holds an interest as a limited
partner or as a limited entrepreneur (as
defined in section 464(e)(2)) if that other
activity is holding, producing, or distributing
motion picture films or videotapes; farming;
leasing section 1245 property; or exploring
for or exploiting oil and gas resources or
geothermal deposits.
Activities conducted through partnerships and other C corporations subject
to section 469. Once a partnership or
corporation determines its activities under
these rules, a partner or shareholder can use
these rules to group those activities with:
Each other,
Activities conducted directly by the partner
or shareholder, or
Activities conducted through other
partnerships and corporations.
A partner or shareholder cannot treat as
separate activities those activities grouped
together by the partnership or corporation.
Partial disposition of an activity. The
corporation can, for the tax year in which
there is a disposition of substantially all of an
activity, treat the part disposed of as a
separate activity if it can prove with
reasonable certainty:
1. The prior year unallowed losses and
credits, if any, allocable to the part of the
activity disposed of, and
2. The net income or loss and any
credits for the year of disposition allocable to
the disposed part of the activity.

Disclosure Requirement

A corporation is required to report to the IRS
certain changes to the corporation’s
groupings that occur during the tax year. For
more information on these disclosure
requirements, see Rev. Proc. 2010-13,
2010-4 I.R.B. 329, available at www.irs.gov/
irb/2010-04_IRB/ar15.html.
New grouping. The corporation must file a
written statement with its original income tax
return for the first tax year in which two or
more activities are originally grouped as a
single activity. The statement must provide
the names, addresses, and employer
identification numbers (EINs), if applicable,
for the activities being grouped as a single
activity. In addition, the statement must
contain a declaration that the grouped
activities make up an appropriate economic

Instructions for Form 8810 (2013)

unit for the measurement of gain or loss
under the passive activity rules.
Addition to an existing grouping. The
corporation must file a written statement with
its original income tax return for the tax year
in which the corporation adds a new activity
to an existing grouping. The statement must
provide the name, address, and EIN, if
applicable, for the activity that is being added
and for the activities in the existing grouping.
In addition, the statement must contain a
declaration that the activities make up an
appropriate economic unit for the
measurement of gain or loss under the
passive activity rules.
Regrouping. The corporation must file a
written statement with its original income tax
return for the tax year in which the
corporation regroups activities under
Regulations section 1.469-4(e)(2). The
statement must provide the names,
addresses, and EINs, if applicable, for the
activities that are being regrouped. If the
corporation regroups two or more activities
into a single activity, the statement must
contain a declaration that the regrouped
activities make up an appropriate economic
unit for the measurement of gain or loss
under the passive activity rules. In addition,
the statement must contain an explanation of
why the original grouping was clearly
inappropriate or the nature of the material
change in the facts and circumstances that
made the original grouping clearly
inappropriate.
Reporting of pre-existing groupings required only upon change. The corporation
is not required to file a written statement
reporting the grouping of the trade or
business activities and rental activities that
have been made for tax years beginning
before January 25, 2010 (pre-existing
groupings), until the corporation makes a
change to the grouping.
Effect of failure to report. If the
corporation fails to report these changes,
each trade or business activity or rental
activity will be treated as a separate activity.
The corporation will be considered to have
made a timely disclosure if it has filed all
affected income tax returns consistent with
the claimed grouping and makes the
required disclosure on the income tax return
for the year in which the corporation first
discovered the failure to disclose. If the IRS
first discovers the failure to disclose,
however, the corporation must have
reasonable cause for not making the
required disclosure.

Passive Activity Income
and Deductions

Take into account only passive activity
income and passive activity deductions to
figure the corporation's overall gain or overall
loss from all passive activities or any passive
activity. In figuring the PAL, a closely held
corporation subtracts both passive activity
income and net active income from its
passive activity deductions. See the

Instructions for Form 8810 (2013)

instructions for line 2, later, for the definition
of net active income.

Self-Charged Interest

Certain “self-charged” interest income or
expense can be treated as passive activity
gross income or passive activity deductions
if the loan proceeds are used in a passive
activity. Generally, self-charged interest
income and expense result from loans
between the corporation and a partnership in
which the corporation had a direct or indirect
ownership interest. It also may result from
loans between one partnership and another
if each owner in the borrowing entity has the
same proportional ownership interest in the
lending entity. The self-charged interest rules
do not apply to the corporation's partnership
interest if the partnership made an election
under Regulations section 1.469-7(g) to
avoid the application of these rules. See
Regulations section 1.469-7 for details.

Passive Activity Income

Passive activity income includes all income
from passive activities, including (with certain
exceptions described in Temporary
Regulations section 1.469-2T(c)(2) and
Regulations section 1.469-2(c)(2)) gain from
the disposition of an interest in a passive
activity or property used in a passive activity
at the time of the disposition.
Passive activity income does not include
the following.
Income from an activity that is not a
passive activity.
Portfolio income, including interest,
dividends, annuities, and royalties not
derived in the ordinary course of a trade or
business, and gain or loss from the
disposition of property that produces
portfolio income or is held for investment
(see section 163(d)(5)). See Temporary
Regulations section 1.469-2T(c)(3). See
Self-Charged Interest above for an
exception.
Personal service income, including
commissions and income from trade or
business activities in which the corporation
materially participated for the tax year. See
Temporary Regulations section 1.469-2T(c)
(4).
Income from positive section 481
adjustments allocated to activities other than
passive activities. See Temporary
Regulations section 1.469-2T(c)(5).
Income or gain from investments of
working capital.
Income from an oil or gas property if the
corporation treated any loss from a working
interest in the property for any tax year
beginning after 1986 as a nonpassive loss
under the rule excluding working interests in
oil and gas wells from passive activities. See
Regulations section 1.469-2(c)(6).
Any income treated as income not from a
passive activity under Temporary
Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f). See
Recharacterization of Passive Income below.
Overall gain from any interest in a PTP.

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State, local, and foreign income tax
refunds.
Any reimbursement of a casualty or theft
loss included in income as recovery of all or
part of a prior year loss deduction, if the
deduction for the loss was not treated as a
passive activity deduction.
Cancellation of debt income to the extent
that at the time the debt was discharged it
was not properly allocable under Temporary
Regulations section 1.163-8T to passive
activities.

Recharacterization of Passive
Income
Certain income from passive activities can
be recharacterized and excluded from
passive activity income. The amount of
income recharacterized equals the net
income from the sources described below. If
during the tax year the corporation received
net income from any of these sources (either
directly or through a partnership), see Pub.
925 for details on reporting net income or
loss from these sources.
Income from the following sources may
be subject to the net income
recharacterization rules.
Significant participation passive activities.
A significant participation passive activity is
any trade or business activity (see Trade or
Business Activities, earlier), in which the
corporation is treated as having participated
for more than 100 hours during the tax year
but did not materially participate.
Rental of property when less than 30% of
the unadjusted basis of the property is
subject to depreciation.
Passive equity-financed lending activities.
Rental of property incidental to a
development activity.
Rental of property to a nonpassive activity.
Acquisition of an interest in a pass-through
entity that licenses intangible property.

Passive Activity Deductions

Passive activity deductions include all
deductions from activities that are passive
activities for the current tax year and all
deductions from passive activities that were
disallowed under the PAL rules in prior tax
years and carried forward to the current tax
year under section 469(b).
Passive activity deductions include
losses from dispositions of property used in
a passive activity at the time of the
disposition and losses from a disposition of
less than an entire interest in a passive
activity. See Dispositions below, for the
treatment of losses upon certain dispositions
of an entire interest in an activity.
Passive activity deductions do not include
the following.
Deductions for expenses (other than
interest expense) that are clearly and directly
allocable to portfolio income.
Dividends-received deductions for
dividends not included in passive activity
gross income.

Interest expense, other than interest
expense properly allocable under Temporary
Regulations section 1.163-8T to passive
activities or self-charged interest treated as a
passive activity deduction (see Self-Charged
Interest above). For example, capitalized
interest expense is not a passive activity
deduction.
Losses from dispositions of property that
produce portfolio income or property held for
investment.
State, local, and foreign income taxes.
Charitable contribution deductions.
Net operating loss deductions, percentage
depletion carryovers under section 613A(d),
and capital loss carrybacks and carryovers.
Deductions and losses that would have
been allowed for tax years beginning before
1987, but for basis or at-risk limitations.
Net negative section 481 adjustments
allocated to activities other than passive
activities. See Temporary Regulations
section 1.469-2T(d)(7).
Deductions for losses from fire, storm,
shipwreck, or other casualty, or from theft, if
losses similar in cause and severity do not
regularly recur in the activity.

Former Passive Activities

A former passive activity is any activity that
was a passive activity in a prior tax year but
is not a passive activity in the current tax
year. A prior year unallowed loss from a
former passive activity is allowed to the
extent of current year income from the
activity. The following apply.
If the current year net income from the
activity is less than the prior year unallowed
loss, enter the prior year unallowed loss and
any current year net income from the activity
on Form 8810 and the applicable
worksheets.
If the current year net income from the
activity is more than or equal to the prior year
unallowed loss from the activity, report the
income and loss on the forms and schedules
normally used; do not enter the amounts on
Form 8810.
If the activity has a net loss for the current
year, enter the prior year unallowed loss (but
not the current year loss) on Form 8810 and
the applicable worksheets.
For rules about prior year unallowed
credits from former passive activities, see
section 469(f). To report a disposition of a
former passive activity, follow the rules under
Dispositions below.

Dispositions
Disposition of Less Than an
Entire Interest

Gains and losses from the disposition of less
than an entire interest in an activity are
treated as part of the net income or net loss
from the activity for the current year.
Note. A disposition of less than substantially
all of an entire interest does not trigger the
allowance of prior year unallowed losses.

Worksheet 1—Computation of Income,
Gains, Deductions, and Losses for
Worksheet 2

Keep for Your Records

Name of Activity:
1.

Gross receipts . . . . . . . . . . . .

Schedule D and Form 8949 gains
(see inst.) . . . . . . . . . . . . . . .

Form 4797 gains

Other passive income

Total income. Add lines 1 through
4. Enter the result here and in
Worksheet 2, column (a) . . . . .

Deductions:

Cost of goods sold . . . . . . . . .

. . . . . . . . . .
. . . . . . .

▶

. . . . . . . . . . . .

b. Compensation of officers
c.

Name of Activity:

Salaries and wages

. . . . .

. . . . . . . .

d. Repairs and
maintenance . . . . . . . . . . . . .
e.

Bad debts

Rents . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . .

g. Taxes and licenses . . . . . . . . .
h. Interest . . . . . . . . . . . . . . . .
i.

Depreciation . . . . . . . . . . . . .

Depletion . . . . . . . . . . . . . . .

Advertising . . . . . . . . . . . . . .

Other deductions . . . . . . . . . .

Total deductions. Add lines 6a
through 6l . . . . . . . . . . . . . .

Schedule D and Form 8949 losses
(see inst.) . . . . . . . . . . . . . . .

Form 4797 losses . . . . . . . . . .

10. Total deductions and losses.
Add lines 7 through 9. Enter the
result here and in Worksheet 2,
column (b) . . . . . . . . . . . . . .

▶

Disposition of an Entire Interest

If the corporation disposed of its entire
interest in a passive activity or a former
passive activity to an unrelated party in a
fully taxable transaction during the tax year,
the losses allocable to the activity for the
year are not limited by the PAL rules. A fully
taxable transaction is a transaction in which
all the realized gain or loss is recognized.

If the corporation is using the installment
method to report this kind of disposition,
figure the loss for the current year that is not
limited by the PAL rules by multiplying the
corporation's overall loss (which does not
include losses allowed in prior years) by the
following fraction.
Gain recognized in the current year
Unrecognized gain as of the beginning
of the current year

Unallowed passive activity credits, unlike
unallowed PALs, are not allowable when the
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corporation disposes of its interest in an
activity. However, the corporation can elect
to increase the basis of the credit property by
the amount of the original basis reduction of
the property to the extent that the credit has
not been allowed under the passive activity
rules. Unallowed passive activity credits that
are not used to increase the basis of the
credit property are carried forward until they
are allowed. To make the election, complete
Part III of Form 8810. No basis adjustment
can be elected on a partial disposition of the
corporation's interest in a passive activity.
A partner in a PTP is not treated as
having disposed of an entire interest in an
activity of a PTP until there is an entire
disposition of the partner's interest in the
PTP.

Reporting an Entire Disposition

When the corporation completely disposes
of an entire interest in a passive activity or a
former passive activity, there may be net

Instructions for Form 8810 (2013)

income or loss and prior year unallowed
losses from the activity. All the income,
gains, deductions, and losses are reported
on the forms and schedules normally used.
Combine all income, gains, deductions,
and losses (including any prior year
unallowed losses) from the activity for the tax
year to see if the corporation has an overall
gain or loss.
If the corporation has an overall gain from
a passive activity and also has other passive
activities to report on Form 8810, include the
income, gains, deductions, and losses
(including prior year unallowed losses) on
Worksheet 1. If this is the corporation's only
passive activity or a former passive activity,
report the income, gains, deductions, and
losses (including prior year unallowed
losses) on the forms and schedules normally
used, but do not enter them on the
worksheets or on Form 8810.
If the corporation has an overall loss
when combining all income, gains,
deductions, and losses (including any prior
year unallowed losses) from the activity,
report all the income, gains, deductions, and
losses on the forms and schedules normally
used, but do not enter them on the
worksheets or on Form 8810.
Note. Members of a consolidated group,
see Regulations section 1.469-1(h)(6) and
Temporary Regulations sections 1.469-1T(h)
(7) and (8) for rules on applying the PAL
rules to dispositions of property and other
intercompany transactions.

Specific Instructions

Note. Complete Worksheets 1 and 2 before
completing Form 8810, Part I.

Worksheet 1

Use Worksheet 1 to figure the total current
year income, gains, deductions, and losses
for each passive activity.

Lines 1 through 4. Enter on these lines the
gross receipts and other income from
passive activities and passive activity gains
reported on Schedule D (Form 1120) and
Form 8949, as applicable, and Form 4797,
Sales of Business Property.
Line 5. Enter total income on this line and in
Worksheet 2, column (a).
Lines 6a through 6l. Enter passive activity
deductions.
Lines 8 and 9. Enter on line 8 losses from
passive activities reported on Schedule D
(Form 1120) and Form 8949, as applicable.
Enter on line 9 losses from passive activities
reported on Form 4797.
Line 10. Enter total deductions and losses
on this line and in Worksheet 2, column (b).
Gross receipts, gains from the sale of
business assets, capital gains, and other

Instructions for Form 8810 (2013)

passive income should also be entered on
the forms and schedules normally used.
Allowable passive activity deductions and
losses are entered on the forms and
schedules after Form 8810 is completed and
the deductions and losses are allocated to
the activities.

Worksheet 2
Columns (a) and (b). Enter in column (a)
the total income for the current year shown
on Worksheet 1, line 5. Enter in column (b)
the total deductions and losses shown in
Worksheet 1, line 10 .
Column (c). Enter the prior year unallowed
losses from Worksheet 4, column (c),
located in the 2012 Instructions for Form
8810.
Totals. Enter the totals from Worksheet 2,
columns (a), (b), and (c) on Form 8810, lines
1a, 1b, and 1c.
Columns (d) and (e). Combine income,
deductions, and losses in columns (a)
through (c) for each activity. Enter any
overall gain in column (d) or any overall loss
in column (e). Do not enter the amounts from
columns (d) and (e) on Form 8810. These
amounts will be used when Form 8810 is
completed to figure the loss allowed for the
current year.

Part I. 2013
Passive Activity Loss
Lines 1d and 3

If line 1d or 3 shows net income or zero, all
the deductions and losses are allowed
including any prior year unallowed losses
entered on line 1c. Enter the deductions on
the appropriate lines of Form 1120, U.S.
Corporation Income Tax Return, and any
losses from Form 4797 or Form 8949 (and
Schedule D (Form 1120) if applicable) on
that form, if applicable, including any prior
year unallowed losses that are properly
entered on those forms.
If the prior year unallowed losses include
deductions that would have been reported
on Form 1120, page 1, instead of on Form
4797 or Form 8949 (and Schedule D, (Form
1120), if applicable), include the prior year
unallowed losses on the appropriate line
along with any current year deduction or loss
from that line.
Example. The corporation had $1,000 of
deductions for current year repairs and
maintenance and $500 of deductions for
prior year unallowed repairs and
maintenance. Enter $1,500 as the deduction
for repairs and maintenance allowed from
passive activities on the proper line.

Line 2. Closely Held
Corporations

Closely held corporations can offset the loss,
if any, on line 1d with net active income. Net

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active income is the corporation's taxable
income for the tax year, determined without
regard to the following items.
Net passive income or loss.
Portfolio income. See Passive Activity
Income, earlier.
Deductions attributable to portfolio income
described in Temporary Regulations section
1.469-2T(d)(2)(i), (ii), and (iv).
Interest expense allocated under
Temporary Regulations section 1.163-8T to
a portfolio expenditure (within the meaning of
Temporary Regulations section 1.163-8T(b)
(6)).
Gain on the disposition of substantially
appreciated property formerly held for
investment. See Regulations section
1.469-2(c)(2)(iii)(F).
Gross income from certain oil or gas
properties treated under Regulations section
1.469-2(c)(6) as not from a passive activity.
Gross income and deductions from any
trade or business activity of trading certain
personal property described in Temporary
Regulations section 1.469-1T(e)(6), but only
if the corporation did not materially
participate in the activity for the tax year.
If the corporation disposed of its entire
interest in a passive activity to an unrelated
party in a fully taxable transaction, figure net
active income by taking into account an
overall loss from that activity only to the
extent it exceeds overall gain from all other
passive activities (the gain, if any, shown on
Form 8810, line 1d).
If there is an overall loss from all other
passive activities (Form 8810, line 1d, is a
loss), figure net active income by taking into
account all of the overall loss from that
activity.

Line 4. Total Deductions and
Losses Allowed

Worksheet 2, columns (d) and (e), show
whether an activity had an overall gain or
loss.
Overall gain. A corporation with an overall
gain in Worksheet 2, column (d), will report
all of the deductions and losses listed in
Worksheet 1 and any prior year unallowed
losses in Worksheet 2 for those activities on
the appropriate lines of Form 1120 and on
Form 8949 and Schedule D (Form 1120), as
applicable, or Form 4797, if applicable.
Overall loss. A corporation uses
Worksheets 3 and 4 for activities that show
an overall loss in column (e). Use Worksheet
3 to figure the unallowed deductions and
losses to be carried forward to Worksheet 4.
Use Worksheet 4 to figure the allowed
deductions and losses to report on the forms
and schedules for 2013.

Keep for Your Records

Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c
Current Year
Name of Activity

Totals. Enter on Form 8810,
lines 1a, 1b, and 1c . . . . . . . . . .

(a) Income
(Line 1a)

Prior Year

(b) Deductions and
Losses (Line 1b)

Overall Gain or Loss
(d) Gain

(e) Loss

▶

Worksheet 3—Allocation of Unallowed Deductions and Losses

Keep for Your Records

If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed
deductions and losses for each activity.
If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year
unallowed losses) for that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any losses
on Form 4797, Form 8949, or Schedule D (Form 1120), as applicable.
Prior year unallowed losses from 2012. If there were prior year unallowed losses from 2012, include the prior year unallowed
losses on the appropriate line along with any current year deduction or loss for that line. See the example in the instructions for lines
1d and 3 above. Prior year unallowed losses from Form 4797 and Form 8949 should have been kept separate in 2012, and should
be identified as “prior year unallowed losses” on Form 4797 and Form 8949.
Column (a). Enter the loss from Worksheet 2, column (e).
Column (b). Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for each
of the activities in column (b). The total of all the ratios should equal 1.00.
Column (c). Multiply the unallowed loss from Form 8810, line 3, by each of the ratios in column (b) and enter the results in
column (c).
(a) Loss From
Worksheet 2, Column (e)

Name of Activity

Totals . . . . . . . . . . . . . . . . . . . . . . . . . .

▶

(b) Ratio

1.00

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Instructions for Form 8810 (2013)

Keep for Your Records

Worksheet 4—Allowed Deductions and Losses
Name of Activity:

(a) Deductions and
Losses

(b) Ratio

(d) Allowed
Deductions and
Losses

1. Form 1120 deductions:
a. Cost of goods sold . . . . . . . . . . . . . .
b. Compensation of officers . . . . . . . .
c. Salaries and wages . . . . . . . . . . . . .
d. Repairs and maintenance
e. Bad debts . . . . . . . . . . . . . . . . . . . . .
f. Rents . . . . . . . . . . . . . . . . . . . . . . . . .
g. Taxes and licenses . . . . . . . . . . . . .
h. Interest . . . . . . . . . . . . . . . . . . . . . . .
i. Depreciation . . . . . . . . . . . . . . . . . . .
j. Depletion . . . . . . . . . . . . . . . . . . . . . .
k. Advertising . . . . . . . . . . . . . . . . . . . .
l. Other deductions . . . . . . . . . . . . . . . .
Total Form 1120 deductions: . . . . .

▶

1.00

2. Schedule D and Form 8949
losses . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Form 4797 losses . . . . . . . . . . . . . . . . .
Name of Activity:

(a) Deductions and
Losses

(b) Ratio

▶

1.00

2. Schedule D and Form 8949
losses . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Form 4797 losses . . . . . . . . . . . . . . . . .

Instructions for Form 8810 (2013)

-9-

Worksheet 4

Use Worksheet 4 to allocate the unallowed
deductions and losses for each activity
among Form 1120 deductions and any
losses to be reported on Form 4797 and
Form 8949 (and Schedule D (Form 1120), as
applicable).
If the unallowed loss is reported on one
form or schedule, skip the following example
and complete Worksheet 4.
If the unallowed loss is from losses
reported on more than one form or schedule,
allocate the unallowed loss from among the
net losses as follows.
Example. The corporation has one passive
activity. The activity has an unallowed loss of
$18,000 in Worksheet 3, column (c), and the
following net losses and net gain.
Gross receipts
Deductions

Form 1120

Net loss

$100,000
120,000
($20,000)

Form 8949
Form 4797
Gain
$1,000 Gain
$5,000
Loss
(2,000) Loss
(2,000)
Net loss

($1,000) Net gain

$3,000

Add the net losses of $20,000 and
$1,000, for a total of $21,000. Divide the net
loss reported on each form by the total of the
net losses, and multiply the result by the
unallowed loss of $18,000, as shown below.
Form
1120:
Form 8949:

$20,000
x $18,000= $17,143
$21,000
$1,000
x $18,000 = $857
$21,000

On Form 4797, report the $2,000 loss and
the $5,000 gain. On Worksheet 4, enter the
$17,143 of unallowed deductions allocated
to Form 1120 in column (c) on the line for
total Form 1120 deductions. Enter the $857
of unallowed Form 8949 losses in column (c)
of line 2. Use Worksheet 4 to allocate the
$17,143 to the Form 1120 deductions and
show the allowed and unallowed Form 8949
loss.
Line 1, column (a). Enter the current year
deductions for each Form 1120 expense
(Worksheet 1, lines 6a through 6l) plus any
prior year unallowed Form 1120 deduction
for that activity. For example, if Worksheet 1,
line 6i shows current year depreciation for
the activity of $2,200, and the activity had
prior year unallowed depreciation of $1,200,
enter $3,400 on Worksheet 4, line 1i, column
(a).
Line 2, column (a). Enter any Form 8949
losses (or any Schedule D (Form 1120)
losses, as applicable) from Worksheet 1,
line 8, plus any prior year unallowed losses
from the 2012 Form 8949 for that activity.
Line 3, column (a). Enter any Form 4797
losses from Worksheet 1, line 9, plus any

prior year unallowed Form 4797 losses for
that activity.
Line 1, column (b). Divide each of the
individual Form 1120 deductions shown in
column (a) by the total of all of the Form
1120 deductions in column (a) and enter the
ratio for each of the deductions in column
(b). The total of the ratios must equal 1.00.
Column (c). Allocate the portion of the loss
in Worksheet 3, column (c), among the Form
1120 deductions by multiplying the
unallowed loss attributable to the total Form
1120 deductions by each of the ratios in
column (b). Enter the portion of the
unallowed loss in Worksheet 3, column (c),
that is attributable to a Form 8949 (or
Schedule D (Form 1120)) or Form 4797 loss
in column (c) of this worksheet.
Column (d). Subtract column (c) from
column (a) and enter the results in this
column. Enter the deductions allowed for
Form 1120 on the proper lines of Form 1120.
Enter the allowed losses on the appropriate
forms.

Publicly Traded
Partnerships (PTPs)

A PTP is a partnership whose interests are
traded on an established securities market or
are readily tradable on a secondary market
(or its substantial equivalent).
An established securities market includes
any national securities exchange and any
local exchange registered under the
Securities Exchange Act of 1934 or
exempted from registration because of the
limited volume of transactions. It also
includes any over-the-counter market.
A secondary market generally exists
where a person stands ready to make a
market in the interest. An interest is treated
as readily tradable if the interest is regularly
quoted by persons, such as brokers or
dealers, who are making a market in the
interest.
The substantial equivalent of a secondary
market exists where there is no identifiable
market maker, but holders of interests have a
readily available, regular, and ongoing
opportunity to sell or exchange interests
through a public means of obtaining or
providing information on offers to buy, sell, or
exchange interests. Similarly, the substantial
equivalent of a secondary market exists
where prospective buyers and sellers have
the opportunity to buy, sell, or exchange
interests in a timeframe and with the
regularity and continuity that the existence of
a market maker would provide.

Special Instructions for PTPs
Section 469(k) provides that the PAL
limitations must be applied separately to
items from each PTP.

Losses from passive activities the
corporation holds through a PTP generally
can be used only to offset income or gain
from passive activities of the same PTP. Any
unallowed loss from a PTP passive activity is
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carried forward and allowed in a tax year
when the corporation has passive income
from the same PTP or when the corporation
disposes of its entire interest in that PTP.
Income from passive activities the
corporation holds through a PTP cannot be
used to offset losses from passive activities
the corporation holds through another PTP
or losses from any other passive activities.
PAL rules for partners in PTPs. Do not
include any income, gains, deductions, or
losses from PTP passive activities on Form
8810. Instead, use the following rules to
figure and report income, gains, deductions,
and losses from passive activities held
through each PTP that the corporation
owned an interest in during the tax year.
1. Combine any current year income, gains,
deductions, and losses, and prior year
unallowed losses to see if there is an overall
gain or loss. Include only the same types of
income and losses that would be included in
figuring net income or loss from a non-PTP
passive activity (see Passive Activity Income
and Deductions, earlier).
2. If there is an overall gain, the net gain
portion (total income in excess of total
deductions and losses) is nonpassive
income. Report the income, deductions, and
losses on the forms and schedules normally
used.
3. If there is an overall loss (other than in a
year in which the corporation disposed of its
entire interest in the PTP), the deductions
and losses are allowed to the extent of the
income, and the excess deductions and
losses are carried forward for use in a future
year when there is income to offset them.
Report the income and the loss allowed to
the extent of income on the form or schedule
normally used.

Part II. 2013 Passive
Activity Credits

Use Form 8810, Part II, to figure the amount
of credits allowed from passive activities for
the current year and the amount that is
unallowed and carried forward.

Worksheet 5

Complete Worksheet 5 before completing
Part II. Use Worksheet 5 to figure the
amounts to enter on Form 8810, lines 5a and
5b.
Column (a). Convert any current year
qualified expenditures into credits and
complete Form 3800, General Business
Credit, before beginning Worksheet 5. See
Cooperatives next for special instructions for
certain cooperatives.
Enter the credits from Form 3800, lines 2,
23, and 32, in Worksheet 5, column (a) .
Enter "Form 3800, line" followed by the
appropriate line number (2, 23, or 32) in the
“From Form” column. Separate the credits by
activity and by type before making entries in
the worksheet. For example, a corporation
has a distilled spirits credit from each of two
passive activities. Enter each distilled spirits

Instructions for Form 8810 (2013)

Worksheet 5—For Form 8810, Lines 5a and 5b
Name of Activity

Totals. Enter on Form 8810, lines 5a and 5b . . . . . . . . . . . . . . . . . . .

credit on separate lines in Worksheet 5,
column (a). A corporation has a distilled
spirits credit and a disabled access credit
from the same passive activity. Enter the
distilled spirits credit and the disabled
access credit on separate lines in Worksheet
5, column (a).
Cooperatives. A closely held cooperative
that is allocating part or all of a general
business credit to patrons will need to enter
the credits being allocated on Worksheet 5
so that the passive activity rules can be
applied before any part of the credit is
allocated to patrons. For this purpose, Form
3800 should be completed using only credits
that will not be allocated to patrons. Credits
that are being allocated to patrons should be
picked up from the separate credit forms.
Column (b). In figuring this year's passive
activity credit, the corporation must take into
account any credits from passive activities
disallowed for prior years and carried
forward to this year adjusted, if required, for
items such as recaptured credits (see
Regulations section 1.469-3(f)). Enter in
Worksheet 5, column (b), the prior year
unallowed credits from Worksheet 6, column
(c), located in the 2012 Instructions for Form
8810 (adjusted if required).
For rules about prior year unallowed
credits from former passive activities, see
section 469(f).

Line 7

If any of the following apply, enter -0- on
line 7 and do not complete Part I or Part II of
the Computation for Line 7 below.
The corporation is a personal service
corporation with a loss or zero on Form
8810, line 1d.
The corporation is a personal service
corporation with net passive income on Form
8810, line 1d, and the corporation has an
overall loss from the entire disposition of a

Instructions for Form 8810 (2013)

(a) Current Year
Credits (Line 5a)

From Form

Keep for Your Records
(b) Prior Year
Unallowed Credits
(Line 5b)

▶

passive activity that is equal to or greater
than the net income on line 1d.
The corporation is a closely held
corporation with a loss or zero on Form
8810, line 1d, and that amount is equal to or
greater than the net active income on Form
8810, line 2.
The corporation is a closely held
corporation with net income on Form 8810,
line 3, and the corporation has an overall
loss from an entire disposition that is equal to
or greater than the net income on line 3.

Computation for Line 7
Part I. Tax Attributable to Net
Passive Income
A. Income tax before credits from Form
1120 (Schedule J, line 2) . . . . . .
B. Taxable income from Form
1120 . . . . . . . . . . . . .
C. Net passive income. See
instructions for line C . . . .
D. Subtract line C from line B. If
zero or less, enter -0- here and
on line E . . . . . . . . . . .
E. Tax attributable to line D. Figure the
tax on the line D amount as if it were
the corporation's only taxable
income . . . . . . . . . . . . . . . .
F. Tax attributable to net passive
income. Subtract line E from line A.
Closely held corporations that do not
have net active income and personal
service corporations enter the amount
here and on Form 8810, line 7 . . .

Part II. Tax Attributable to Net
Active Income
G. Enter amount from line E if Part I is
completed. Otherwise, enter income
tax before credits from Form 1120
(Schedule J, line 2) . . . . . . . . .
H. Taxable income from Form
1120 . . . . . . . . . . . . .
I. Net active income . . . . . .
J. Net passive income or loss.
See instructions for line
J . . . . . . . . . . . . . . .
K. Combine lines I and J. If less
than zero, enter as a negative
amount . . . . . . . . . . . .
L. Subtract line K from line H. If
zero or less, enter -0- here and
on line M . . . . . . . . . . .
M. Tax attributable to line L. Figure the
tax on the line L amount as if it were
the corporation's only taxable
income . . . . . . . . . . . . . . . .
N. Subtract line M from line G. If zero or
less, enter -0- here and on line
P . . . . . . . . . . . . . . . . . . .
O. Enter the corporation's nonpassive
credits without regard to the tax
liability limitations . . . . . . . . . .
P. Tax attributable to net active income.
Subtract line O from line N . . . . .
Q. Tax attributable to net passive
income and net active income. Add
lines F and P. Enter the result here
and on Form 8810, line 7 . . . . . .

Computation for Line 7, Part I. This part is
used by personal service corporations and
closely held corporations with net passive
income.
Computation for Line 7, Part II. This part
is used by closely held corporations that
have net active income. See the instructions
for line 2, earlier, for the definition of net
active income. If the corporation has both net

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Worksheet 6—Allowed and Unallowed Credits

Keep for Your Records

Use Worksheet 6 to allocate the allowed and unallowed credits for each activity.
Column (a). Enter the total credits from Worksheet 5, column (c).
Column (b). Divide each of the credits in column (a) by the total of all credits in column (a). The total of the ratios should equal 1.00.
Column (c). Multiply Form 8810, line 8, by the ratios in column (b) and enter the results in column (c). These are the unallowed credits for 2013.
Keep a record of these amounts, so the credits can be carried to the next year.
Column (d). Subtract column (c) from column (a). These are the allowed credits for 2013. The amounts in this column are generally reported on
Form 3800. See Reporting Allowed Credits on Tax Return, below.
Name of Activity

Form To Be
Reported On

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

passive income and net active income,
complete Part I and Part II and enter the
amount from line Q on Form 8810, line 7.
Note. When using taxable income in the
computation for line 7, it is not necessary to
refigure items based on taxable income,
such as the contributions deduction,
dividends-received deduction, and the net
operating loss deduction.
Use the applicable tax rates in section 11
when figuring the tax attributable amounts.
Also, see how to figure tax in the instructions
for the tax return filed.
Line C. Enter the net income, if any, from
Form 8810, line 1d. If the corporation has an
overall loss from the entire disposition of a
passive activity, the amount to enter on line
C is the net income from line 1d reduced by
the overall loss, but not below zero. If the
result is zero, skip the rest of the Part I
computation.
Line J. If the corporation has net passive
income, enter the amount from line C on this
line. If the corporation has a net loss from
Form 8810, line 1d, enter that amount on line
J as a negative amount.

Line 9

If the corporation has one type of credit, the
amount on line 9 is the credit allowed for the
year. See Reporting Allowed Credits on Tax
Return below.
If the corporation has more than one type
of credit or has credits from more than one
activity, use Worksheet 6 to figure how much
of the credit on line 9 is allowed for each

(a) Credits

▶

(b) Ratio

(d) Allowed Credits

1.00

activity. Keep a record of the unallowed
credit and the activity to which it belongs to
figure the credit allowed next year.

Reporting Allowed Credits on
Tax Return
Form 3800. Include on the applicable line
(3, 24, or 33) of Form 3800 each passive
activity general business credit allowed from
Worksheet 6, column (d).
Cooperatives. A closely held cooperative
that is allocating part or all of a general
business credit to patrons will show any
allocation of the credit allowed from
Worksheet 6, column (d), on the applicable
lines of the separate credit forms.

Credits From PTPs

A credit from a passive activity held through
a PTP is allowed to the extent of the tax
attributable to net passive income from that
PTP. See Publicly Traded Partnerships
(PTPs), earlier, for the definition of a PTP.
Do not enter credits from PTPs on Form
8810 or the worksheets. Instead, use the
following steps to figure the allowed and
unallowed credits from passive activities
held through PTPs.
1. Figure the tax attributable to net
passive income for each PTP with current
year passive activity credits or prior year
unallowed credits.
2. Use the smaller of the tax attributable
to net income from passive activities of the
PTP or the credit (including prior year
unallowed credits) from passive activities of
-12-

the PTP as the amount allowed. Report the
allowed credits on the form normally used
and keep a record of the unallowed credits to
be carried to the next year.

Part III. Election To
Increase Basis of Credit
Property
Line 10

Check the box on this line if the corporation
elects to increase the basis of credit property
it used in a passive activity or former passive
activity by the unallowed credit that reduced
the property's basis.
The election is available for a fully taxable
disposition of an entire interest in an activity
for which a basis adjustment was made as a
result of placing in service property for which
a credit was taken. The corporation can elect
to increase the basis of the credit property
immediately before the disposition (by an
amount no greater than the amount of the
original basis reduction) to the extent that the
credit has not previously been allowed
because of the passive credit limitations. The
amount of the unallowed credit that can then
be applied against tax is reduced by the
amount of the basis adjustment.
No basis adjustment can be elected on a
partial disposition of the corporation's
interest in a passive activity or if the
disposition is not fully taxable. The amount of
any unallowed credit, however, may remain
available to offset the tax attributable to net
passive and net active income.

Instructions for Form 8810 (2013)

Paperwork Reduction Act Notice. We ask for the information on this form 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.
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 this form will vary depending on individual circumstances. The estimated average time is:
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26 hr., 18 min.

Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 hr., 15 min.

Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5 hr., 55 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to
hear from you. See the instructions for the tax return with which this form is filed.

Instructions for Form 8810 (2013)

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File Type	application/pdf
File Title	2013 Instructions for Form 8810
Subject	Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations
Author	W:CAR:MP:FP
File Modified	2013-11-05
File Created	2013-10-23