Form 8881 Credit for Small Employer Pensions Plan Startup Costs

8881

Form
(Rev. December 2006)

Credit for Small Employer Pension Plan
Startup Costs

Department of the Treasury
Internal Revenue Service

©

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Attachment
Sequence No.

Attach to your tax return.

Name(s) shown on return

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OMB No. 1545-1810

130

Identifying number

Qualified startup costs incurred during the tax year. Do not enter more
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than $1,000
Enter one-half of line 1
Credit for small employer pension plan startup costs from partnerships and S corporations
Add lines 2 and 3
Enter the smaller of line 4 or $500. Partnerships and S corporations, report this amount on
Schedule K; all others report this amount on the applicable line of Form 3800, (e.g., line 1m of
the 2006 Form 3800)

General Instructions
Section references are to the Internal Revenue Code.

What’s New
● The tax liability limit is no longer figured on this form. Instead,
it must be figured on Form 3800, General Business Credit.
● Taxpayers that are not partnerships or S corporations, and
whose only source of this credit is from those pass-through
entities, are not required to complete or file this form. Instead,
they can report this credit directly on line 1m of Form 3800.
● The IRS will revise this December 2006 version of the form
only when necessary. Continue to use this version for tax years
beginning after 2005 until a new revision is issued.

Purpose of Form
Eligible small employers use Form 8881 to claim the credit for
qualified startup costs incurred in establishing or administering
an eligible employer plan.
The credit is allowed under section 45E and is part of the
general business credit. You may elect, however, to have section
45E not apply for the tax year the credit is available by not
claiming it on your tax return for that year.

How To Figure the Credit
For an eligible small employer, the credit is 50% of the qualified
startup costs paid or incurred during the tax year. The credit is
limited to $500 per year for the first credit year and each of the
following 2 tax years. No credit is allowed for any other tax year.
Eligible small employer. To be an eligible small employer, you
must have had no more than 100 employees during the tax year
preceding the first credit year who received at least $5,000 of
compensation from you during that tax year. However, you are
not an eligible small employer if, during the 3 tax years
preceding the first credit year, you established or maintained a
qualified employer plan with respect to which contributions were
made, or benefits were accrued, for substantially the same
employees as are in the new qualified employer plan. See
section 45E(c) for rules for controlled groups and predecessor
employers.
Qualified startup costs. Qualified startup costs are expenses
paid or incurred in connection with: (a) establishing or
administering an eligible employer plan; or (b) the
retirement-related education of employees about the plan.
Eligible employer plan. An eligible employer plan is a qualified
employer plan (as defined in section 4972(d)) with at least one
employee eligible to participate who is not a highly compensated
employee. All eligible employer plans of the same employer are
treated as one eligible employer plan.

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First credit year. The first credit year generally is your tax year
that includes the date that the eligible employer plan becomes
effective. However, you may elect to have the preceding tax year
be the first credit year, and claim the credit for qualified startup
costs paid or incurred during that tax year. For example, a
calendar-year eligible small employer whose eligible plan is first
effective on January 1, 2007, may elect to treat 2006 as the first
credit year and claim the credit on its 2006 tax return for
qualified startup costs incurred in 2006.

No Deduction Allowed for Credit Amount
You must reduce your otherwise allowable deduction for startup
costs by the credit amount on line 2.

Controlled Groups
For purposes of figuring the credit, all members of a controlled
group of corporations (as defined in section 52(a)), all members
of a group of businesses under common control (as defined in
section 52(b)), and all members of an affiliated service group (as
defined in section 414(m)), are treated as a single employer. As a
member, compute your credit based on your proportionate share
of qualified startup costs giving rise to the group’s credit for
small employer pension plan startup costs. Enter your share of
the credit on line 2. Attach a statement showing how your share
of the credit was figured, and write “See Attached” next to the
entry space for line 2.
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 burden
for individual taxpayers filing this form is approved under OMB
control number 1545-0074 and is included in the estimates
shown in the instructions for their individual income tax return.
The estimated burden for all other taxpayers who file this form is
shown below.
Recordkeeping
5 hr., 58 min.
Learning about the law or the form
53 min.
Preparing and sending the form to the IRS
1 hr., 1 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.

Cat. No. 33435N

Form

8881

(Rev. 12-2006)