1120-S Instructions for Form 1120-S

2019

Instructions for Form 1120-S

Department of the Treasury
Internal Revenue Service

U.S. Income Tax Return for an S Corporation
Section references are to the Internal Revenue
Code unless otherwise noted.

Contents
Future Developments . . . . . . .
What's New . . . . . . . . . . . . .
Photographs of Missing Children
The Taxpayer Advocate Service
Direct Deposit of Refund . . . . .
How To Get Forms and
Publications . . . . . . . . . .
General Instructions . . . . . . . .
Purpose of Form . . . . . . .
How To Make the Election .
Who Must File . . . . . . . .
Termination of Election . . .
Electronic Filing . . . . . . .
When To File . . . . . . . . .
Where To File . . . . . . . . .
Who Must Sign . . . . . . . .
Paid Preparer Authorization
Assembling the Return . . .
Tax Payments . . . . . . . .
Electronic Deposit
Requirement . . . . . . .
Estimated Tax Payments .
Interest and Penalties . . . .
Accounting Methods . . . .
Accounting Period . . . . . .
Rounding Off to Whole
Dollars . . . . . . . . . . .
Recordkeeping . . . . . . . .
Amended Return . . . . . . .
Other Forms and
Statements That May Be
Required . . . . . . . . . .
Passive Activity Limitations
Net Investment Income Tax
Reporting Requirements
Extraterritorial Income
Exclusion . . . . . . . . .
Specific Instructions . . . . . . . .
Period Covered . . . . . . .
Name and Address . . . . .
Item B. Business Code . . .
Item C. Schedule M-3
Information . . . . . . . .
Item D. Employer
Identification Number
(EIN) . . . . . . . . . . . .
Item F. Total Assets . . . . .
Item H. Final Return, Name
Change, Address
Change, Amended
Return, or S Election
Termination or
Revocation . . . . . . . .
Income . . . . . . . . . . . . .
Deductions . . . . . . . . . .
Tax and Payments . . . . . .
Jan 16, 2020

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Contents
Schedule B . . . . . . . . . . . . . .
Schedules K and K-1 (General
Instructions) . . . . . . . . . . .
Specific Instructions
(Schedule K-1 Only) . . . . .
Specific Instructions (Schedules K
and K-1, Part III) . . . . . . . .
Schedule L . . . . . . . . . . . . . .
Schedule M-1 . . . . . . . . . . . . .
Schedule M-2 . . . . . . . . . . . . .
Principal Business Activity Codes
Index . . . . . . . . . . . . . . . . . .

Page
. . . 20

the instructions for line 18 and line 19
under Specific Instructions (Schedules K
and K-1, Part III), later.

. . . 21

AMT refundable credit provisions.
Line 23d has been reserved for future use.
The AMT refundable credit provisions do
not apply to S corporations. See sections
1371(b)(1) and 1374(b)(3)(B).

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Future Developments

For the latest information about
developments related to Form 1120-S and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form1120S.

What's New
Qualified business income (QBI) deduction. The Schedules K and K-1,
box 17, codes V through Z, related to the
QBI deduction, have been changed or
removed. New pass-through entity
reporting statements have been included
in these instructions to assist the S
corporation in reporting the proper QBI
items and other information to its
shareholders. These statements, or
substantially similar statements, must be
attached to each shareholder's
Schedule K-1 reporting their pro rata
share of each item and other information
as applicable. See Section 199A
information (code V).
Qualified opportunity fund investment.
If the corporation held a qualified
investment in a qualified opportunity fund
(QOF) at any time during the year, the
corporation must file Form 8997, Initial
and Annual Statement of Qualified
Opportunity Fund (QOF) Investments, with
its tax return. See the instructions for Form
8997.
New item J checkboxes added to Form
1120-S, page 1. Use the new
checkboxes if activities were aggregated
for at-risk purposes or grouped for passive
activity purposes. See the instructions for
item J, later.
New lines 18 and 19 checkboxes added to Schedule K-1, page 1. Use the
new checkboxes to alert shareholders to
statements attached to provide
information on more than one activity for
at-risk or passive activity purposes. See
Cat. No. 11515K

Increase in penalty for failure to file.
For returns that are due after 2019, the
minimum penalty for failure to file a return
that is over 60 days late has increased to
the smaller of the tax due or $435. See
Late filing of return, later.
Disaster relief. Code G of Schedule K-1
(Form 1120-S), box 12 is now used to
report qualified cash contributions for relief
efforts in certain disaster areas. See
Line 12a. Charitable Contributions under
the Specific Instructions for Schedules K
and K-1.
Eligible employers in certain disaster
areas can use Form 5884-A to report the
employee retention credit.
For more information on these and
other disaster relief provisions, see Pub.
976, Disaster Relief.

Reminders
Election by a small business corporation. Don't file Form 1120-S unless the
corporation has filed or is attaching Form
2553, Election by a Small Business
Corporation. For details, see the
Instructions for Form 2553.
Special rules for qualified opportunity
funds (QOFs). If the corporation is
operating as a QOF, see Other Forms and
Statements That May Be Required, later.
For additional information, see
Opportunity Zones Frequently Asked
Questions on IRS.gov.

Photographs of
Missing Children

The Internal Revenue Service is a proud
partner with the National Center for
Missing & Exploited Children® (NCMEC).
Photographs of missing children selected
by the Center may appear in these
instructions on pages that would otherwise
be blank. You can help bring these
children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.

The Taxpayer Advocate
Service

The Taxpayer Advocate Service (TAS) is
an independent organization within the
IRS that helps taxpayers and protects
taxpayer rights. TAS's job is to ensure that
every taxpayer is treated fairly and knows
and understands their rights under the
Taxpayer Bill of Rights.
As a taxpayer, the corporation has
rights that the IRS must abide by in its
dealings with the corporation. TAS can
help the corporation if:
• A problem is causing financial difficulty
for the business;
• The business is facing an immediate
threat of adverse action; or
• The corporation has tried repeatedly to
contact the IRS but no one has
responded, or the IRS hasn't responded
by the date promised.
TAS has offices in every state, the
District of Columbia, and Puerto Rico.
Local advocates' numbers are in their
local directories and at
TaxpayerAdvocate.IRS.gov. The
corporation can also call TAS at
1-877-777-4778.
TAS also works to resolve large-scale
or systemic problems that affect many
taxpayers. If the corporation knows of one
of these broad issues, please report it to
TAS through the Systemic Advocacy
Management System at IRS.gov/SAMS.
For more information, go to IRS.gov/
Advocate.

Direct Deposit of Refund

To request a direct deposit of the
corporation's income tax refund into an
account at a U.S. bank or other financial
institution, attach Form 8050, Direct
Deposit of Corporate Tax Refund. See the
instructions for line 27.

How To Get Forms
and Publications
Internet. You can access the IRS website
24 hours a day, 7 days a week, at IRS.gov
to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword;
• View Internal Revenue Bulletins (IRBs)
published in recent years; and
• Sign up to receive local and national tax
news by email.
Tax forms and publications. The
corporation can download or print all of the
forms and publications it may need on
IRS.gov/FormsPubs. Otherwise, the
corporation can go to IRS.gov/
OrderForms to place an order and have
forms mailed to it. The corporation should
receive its order within 10 business days.

General Instructions
Purpose of Form

Use Form 1120-S to report the income,
gains, losses, deductions, credits, and
other information of a domestic
corporation or other entity for any tax year
covered by an election to be an S
corporation.

How To Make the Election

For details about the election, see Form
2553, Election by a Small Business
Corporation, and the Instructions for Form
2553.

Who Must File

A corporation or other entity must file Form
1120-S if (a) it elected to be an S
corporation by filing Form 2553, (b) the
IRS accepted the election, and (c) the
election remains in effect. After filing Form
2553, you should have received
confirmation that Form 2553 was
accepted. If you didn't receive notification
of acceptance or nonacceptance of the
election within 2 months of filing Form
2553 (5 months if you checked box Q1 to
ask for a letter ruling), take follow-up
action by calling 1-800-829-4933. Don't
file Form 1120-S for any tax year before
the year the election takes effect.
Relief for late elections. If you haven't
filed Form 2553, or didn't file Form 2553
on time, you may be entitled to relief for a
late filed election to be an S corporation.
See the Instructions for Form 2553 for
details.

Termination of Election

Once the election is made, it stays in
effect until it is terminated. If the election is
terminated, the corporation (or a
successor corporation) can make another
election on Form 2553 only with IRS
consent for any tax year before the fifth tax
year after the first tax year in which the
termination took effect. See Regulations
section 1.1362-5 for details.
An election terminates automatically in
any of the following cases.
1. The corporation is no longer a small
business corporation as defined in section
1361(b). This kind of termination of an
election is effective as of the day the
corporation no longer meets the definition
of a small business corporation. Attach to
Form 1120-S for the final year of the S
corporation a statement notifying the IRS
of the termination and the date it occurred.
2. The corporation, for each of 3
consecutive tax years (a) has
accumulated earnings and profits, and (b)
derives more than 25% of its gross
receipts from passive investment income
as defined in section 1362(d)(3)(C). The
election terminates on the first day of the
first tax year beginning after the third
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consecutive tax year. The corporation
must pay a tax for each year it has excess
net passive income. See the line 22a
instructions for details on how to figure the
tax.
3. The election is revoked. An election
can be revoked only with the consent of
shareholders who, at the time the
revocation is made, hold more than 50%
of the number of issued and outstanding
shares of stock (including nonvoting
stock). The revocation can specify an
effective revocation date that is on or after
the day the revocation is filed. If no date is
specified, the revocation is effective at the
start of the tax year if the revocation is
made on or before the 15th day of the 3rd
month of that tax year. If no date is
specified and the revocation is made after
the 15th day of the 3rd month of the tax
year, the revocation is effective at the start
of the next tax year.
To revoke the election, the corporation
must file a statement with the appropriate
service center listed under Where To File
in the Instructions for Form 2553. In the
statement, the corporation must notify the
IRS that it is revoking its election to be an
S corporation. The statement must be
signed by each shareholder who consents
to the revocation and contain the
information required by Regulations
section 1.1362-6(a)(3).
A revocation can be rescinded before it
takes effect. See Regulations section
1.1362-6(a)(4) for details.
For rules on allocating income and
deductions between an S corporation's
short year and a C corporation's short year
and other special rules that apply when an
election is terminated, see section 1362(e)
and Regulations section 1.1362-3.
If an election was terminated under (1)
or (2) above, and the corporation believes
the termination was inadvertent, the
corporation can ask for permission from
the IRS to continue to be treated as an S
corporation. See Regulations section
1.1362-4 for the specific requirements that
must be met to qualify for inadvertent
termination relief.

Electronic Filing

Corporations can generally electronically
file (e-file) Form 1120-S, related forms,
schedules, statements, and attachments;
Form 7004 (automatic extension of time to
file); and Forms 940, 941, and 944
(employment tax returns). Form 1099 and
other information returns can also be
electronically filed. The option to e-file
doesn't, however, apply to certain returns.
Certain corporations with total assets of
$10 million or more that file at least 250
returns a year are required to e-file Form
1120-S. See Regulations section
301.6037-2. However, these corporations
can ask for a waiver of the electronic filing
requirements. See Notice 2010-13,
2010-4 I.R.B. 327.
Instructions for Form 1120-S (2019)

Where To File
File the corporation's return at the applicable IRS address listed below.
If the corporation's
principal business, office,
or agency is located in:
Connecticut, Delaware,
District of Columbia, Georgia,
Illinois, Indiana, Kentucky,
Maine, Maryland,
Massachusetts, Michigan,
New Hampshire, New Jersey,
New York, North Carolina,
Ohio, Pennsylvania, Rhode
Island, South Carolina,
Tennessee, Vermont, Virginia,
West Virginia, Wisconsin

And the total assets at
the end of the tax year
(Form 1120-S, page 1,
item F) are:
Less than $10 million and
Schedule M-3 isn't filed

$10 million or more, or
less than $10 million and
Schedule M-3 is filed

Alabama, Alaska, Arizona,
Arkansas, California,
Colorado, Florida, Hawaii,
Idaho, Iowa, Kansas,
Louisiana, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Mexico, North Dakota,
Oklahoma, Oregon, South
Dakota, Texas, Utah,
Washington, Wyoming
A foreign country or U.S.
possession

Use the following address:
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999-0013

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0013

corporation must be accompanied by a
copy of the order or instructions of the
court authorizing signing of the return or
form.
If an employee of the corporation
completes Form 1120-S, the paid preparer
space should remain blank. Anyone who
prepares Form 1120-S but doesn't charge
the corporation shouldn't complete that
section. Generally, anyone who is paid to
prepare the return must sign it and fill in
the “Paid Preparer Use Only” area.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer's signature, and
• Give a copy of the return to the
taxpayer.
A paid preparer may sign original

TIP or amended returns by rubber

stamp, mechanical device, or
computer software program.
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0013

Any amount

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

Any amount

For more information, visit IRS.gov/
Businesses.

When To File

Generally, an S corporation must file Form
1120-S by the 15th day of the 3rd month
after the end of its tax year. For calendar
year corporations, the due date is March
16, 2020 (March 15th falls on Sunday). A
corporation that has dissolved must
generally file by the 15th day of the 3rd
month after the date it dissolved.
If the due date falls on a Saturday,
Sunday, or legal holiday, the corporation
can file on the next day that isn’t a
Saturday, Sunday, or legal holiday.
If the S corporation election was
terminated during the tax year and the
corporation reverts to a C corporation, file
Form 1120-S for the S corporation's short
year by the due date (including
extensions) of the C corporation's short
year return.

Private Delivery Services

Corporations can use certain private
delivery services (PDS) designated by the
IRS to meet the “timely mailing as timely
filing” rule for tax returns. Go to
IRS.gov/PDS for the current list of
designated services.
The PDS can tell you how to get written
proof of the mailing date.
Instructions for Form 1120-S (2019)

For the IRS mailing address to use if
you are using PDS, go to IRS.gov/
PDSStreetAddresses.
Private delivery services can't
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service
to mail any item to an IRS P.O. box
address.

!

Extension of Time To File

File Form 7004, Application for Automatic
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns, to ask for an extension of
time to file. Generally, the corporation
must file Form 7004 by the regular due
date of the return. See the Instructions for
Form 7004.

Paid Preparer
Authorization

If the corporation wants to allow the IRS to
discuss its 2019 tax return with the paid
preparer who signed it, check the “Yes”
box in the signature area of the return.
This authorization applies only to the
individual whose signature appears in the
“Paid Preparer Use Only” section of the
return. It doesn't apply to the firm, if any,
shown in that section.
If the “Yes” box is checked, the
corporation is authorizing the IRS to call
the paid preparer to answer any questions
that may arise during the processing of its
return. The corporation is also authorizing
the paid preparer to:
• Give the IRS any information that is
missing from the return;
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s); and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The corporation isn't authorizing the
paid preparer to receive any refund check,
bind the corporation to anything (including
any additional tax liability), or otherwise
represent the corporation before the IRS.

Who Must Sign

The authorization will automatically end
no later than the due date (excluding
extensions) for filing the corporation's
2020 tax return. If the corporation wants to
expand the paid preparer's authorization
or revoke the authorization before it ends,
see Pub. 947, Practice Before the IRS and
Power of Attorney.

If a return is filed on behalf of a
corporation by a receiver, trustee, or
assignee, the fiduciary must sign the
return, instead of the corporate officer.
Returns and forms signed by a receiver or
trustee in bankruptcy on behalf of a

Assembling the Return

The return must be signed and dated by:
• The president, vice president, treasurer,
assistant treasurer, chief accounting
officer; or
• Any other corporate officer (such as tax
officer) authorized to sign.

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To ensure that the corporation's tax return
is correctly processed, attach all
schedules and other forms after page 5 of
Form 1120-S in the following order.

1. Schedule N (Form 1120), Foreign
Operations of U.S. Corporations.
2. Schedule D (Form 1120-S), Capital
Gains and Losses and Built-in Gains.
3. Form 8949, Sales and Other
Dispositions of Capital Assets.
4. Form 8996, Qualified Opportunity
Fund.
5. Form 8825, Rental Real Estate
Income and Expenses of a Partnership or
an S Corporation.
6. Form 1125-A, Cost of Goods Sold.
7. Form 8050, Direct Deposit of
Corporate Tax Refund.
8. Form 4136, Credit for Federal Tax
Paid on Fuels.
9. Form 8941, Credit for Small
Employer Health Insurance Premiums.
10. Form 6252, Installment Sale
Income.
11. Additional schedules in
alphabetical order.
12. Additional forms in numerical order.
Complete every applicable entry space
on Form 1120-S and Schedule K-1. Don't
enter “See Attached” or “Available Upon
Request” instead of completing the entry
spaces. If more space is needed on the
forms or schedules, attach separate
sheets using the same size and format as
the printed forms.

Services provided by a tax professional,
financial institution, payroll service, or
other third party may have a fee.
To get more information about EFTPS
or to enroll in EFTPS, visit
www.EFTPS.gov or call 1-800-555-4477
(TTY/TDD 1-800-733-4829).
Depositing on time. For any deposit
made by EFTPS to be on time, the
corporation must submit the deposit by 8
p.m. Eastern time the day before the date
the deposit is due. If the corporation uses
a third party to make deposits on its
behalf, they may have different cutoff
times.
Same-day wire payment option. If the
corporation fails to submit a deposit
transaction on EFTPS by 8 p.m. Eastern
time the day before the date a deposit is
due, it can still make its deposit on time by
using the Federal Tax Collection Service
(FTCS). To use the same-day wire
payment method, the corporation will need
to make arrangements with its financial
institution ahead of time regarding
availability, deadlines, and costs.
Financial institutions may charge a fee for
payment made this way. To learn more
about the information the corporation will
need to provide to its financial institution to
make a same-day wire payment, go to
IRS.gov/SameDayWire.

Estimated Tax Payments

If there are supporting statements and
attachments, arrange them in the same
order as the schedules or forms they
support and attach them last. Show the
totals on the printed forms. Enter the
corporation's name and EIN on each
supporting statement or attachment.

Generally, the corporation must make
installment payments of estimated tax for
the following taxes if the total of these
taxes is $500 or more: (a) the tax on
built-in gains, (b) the excess net passive
income tax, and (c) the investment credit
recapture tax.

Tax Payments

The amount of estimated tax required
to be paid annually is the smaller of: (a)
the total of the above taxes shown on the
return for the tax year (or if no return is
filed, the total of these taxes for the year),
or (b) the sum of (i) the investment credit
recapture tax and the built-in gains tax
shown on the return for the tax year (or if
no return is filed, the total of these taxes
for the tax year), and (ii) any excess net
passive income tax shown on the
corporation's return for the preceding tax
year. If the preceding tax year was less
than 12 months, the estimated tax must be
determined under (a).

Generally, the corporation must pay any
tax due in full no later than the due date for
filing its tax return (not including
extensions). See the instructions for
line 25. If the due date falls on a Saturday,
Sunday, or legal holiday, the payment is
due on the next day that isn't a Saturday,
Sunday, or legal holiday.

Electronic Deposit
Requirement

Corporations must use electronic funds
transfers to make all federal tax deposits
(such as deposits of employment, excise,
and corporate income tax). Generally,
electronic funds transfers are made using
the Electronic Federal Tax Payment
System (EFTPS). However, if the
corporation doesn't want to use EFTPS, it
can arrange for its tax professional,
financial institution, payroll service, or
other trusted third party to make deposits
on its behalf. Also, it may arrange for its
financial institution to submit a same-day
wire payment (discussed below) on its
behalf. EFTPS is a free service provided
by the Department of the Treasury.

The estimated tax is generally payable
in four equal installments. However, the
corporation may be able to lower the
amount of one or more installments by
using the annualized income installment
method or adjusted seasonal installment
method under section 6655(e).
For a calendar year corporation, the
payments are due for 2020 by April 15,
June 15, September 15, and December
15. For a fiscal year corporation, they are
due by the 15th day of the 4th, 6th, 9th,
and 12th months of the year. If any date
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falls on a Saturday, Sunday, or legal
holiday, the installment is due on the next
day that isn't a Saturday, Sunday, or legal
holiday.
The corporation must make the
payments using electronic funds transfers
as described earlier.
For information on penalties that may
apply if the corporation fails to make
required payments, see the Instructions
for Form 2220.

Interest and Penalties
If the corporation receives a notice
about penalties after it files its
CAUTION return, send the IRS an
explanation and we will determine if the
corporation meets reasonable-cause
criteria. Don't attach an explanation when
the corporation's return is filed.

!

Interest. Interest is charged on taxes
paid late even if an extension of time to file
is granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements from the due
date (including extensions) to the date of
payment. The interest charge is figured at
a rate determined under section 6621.
Late filing of return. A penalty may be
assessed if the return is filed after the due
date (including extensions) or the return
doesn't show all the information required,
unless each failure is due to reasonable
cause. See Caution, earlier. For returns on
which no tax is due, the penalty is $205 for
each month or part of a month (up to 12
months) the return is late or doesn't
include the required information, multiplied
by the total number of persons who were
shareholders in the corporation during any
part of the corporation's tax year for which
the return is due. If tax is due, the penalty
is the amount stated above plus 5% of the
unpaid tax for each month or part of a
month the return is late, up to a maximum
of 25% of the unpaid tax. The minimum
penalty for a return that is more than 60
days late is the smaller of the tax due or
$435.
Late payment of tax. A corporation that
doesn't pay the tax when due generally
may be penalized 1/2 of 1% of the unpaid
tax for each month or part of a month the
tax isn't paid, up to a maximum of 25% of
the unpaid tax. The penalty won't be
imposed if the corporation can show that
the failure to pay on time was due to
reasonable cause. See Caution, earlier.
Failure to furnish information timely.
For each failure to furnish Schedule K-1 to
a shareholder when due and each failure
to include on Schedule K-1 all the
information required to be shown (or the
inclusion of incorrect information), a $270
penalty may be imposed with respect to
Instructions for Form 1120-S (2019)

each Schedule K-1 for which a failure
occurs. If the requirement to report correct
information is intentionally disregarded,
each $270 penalty is increased to $550 or,
if greater, 10% of the aggregate amount of
items required to be reported. See
sections 6722 and 6724 for more
information.
The penalty won't be imposed if the
corporation can show that not furnishing
information timely was due to reasonable
cause. See Caution, earlier.
Trust fund recovery penalty. This
penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
aren't collected or withheld, or these taxes
aren't paid. These taxes are generally
reported on:
• Form 720, Quarterly Federal Excise
Tax Return;
• Form 941, Employer's QUARTERLY
Federal Tax Return;
• Form 943, Employer's Annual Federal
Tax Return for Agricultural Employees;
• Form 944, Employer's ANNUAL
Federal Tax Return; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are
determined by the IRS to have been
responsible for collecting, accounting for,
or paying over these taxes, and who acted
willfully in not doing so. The penalty is
equal to the full amount of the unpaid trust
fund tax. See the Instructions for Form
720, Pub. 15 (Circular E), Employer's Tax
Guide, or Pub. 51 (Circular A), Agricultural
Employer's Tax Guide, for details,
including the definition of responsible
persons.
Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

non-incidental, or (ii) to conform to the
taxpayer’s treatment of inventories in an
applicable financial statement (as defined
in section 451(b)(3)), or if the taxpayer
doesn’t have an applicable financial
statement, the method of accounting used
in the taxpayer’s books and records
prepared in accordance with the
taxpayer’s accounting procedures.
Generally, IRS consent is required for
changes in accounting methods. See Rev.
Proc. 2018-40 for the procedures by which
a small business taxpayer may obtain
automatic consent to change its method of
accounting to reflect the statutory changes
made in this area. Also, see Change in
accounting method, later.
• Special rules apply to long-term
contracts. See section 460.
• Generally, dealers in securities must
use the mark-to-market accounting
method. Dealers in commodities and
traders in securities and commodities can
elect to use the mark-to-market
accounting method. See section 475.
Small business taxpayer. A small
business taxpayer is a taxpayer that (a)
has average annual gross receipts of $26
million or less for the 3 prior tax years, and
(b) isn’t a tax shelter (as defined in section
448(d)(3)).
Change in accounting method.
Generally, the corporation must get IRS
consent to change either an overall
method of accounting or the accounting
treatment of any material item. To do so,
the corporation generally must file Form
3115, Application for Change in
Accounting Method. See the Instructions
for Form 3115 for more information and
exceptions. Also see Rev. Proc. 2018-31,
2018-22 I.R.B. 637 (or any successor),
and Pub. 538, Accounting Periods and
Methods.

Accounting Period

Accounting Methods

A corporation must figure its income on
the basis of a tax year. A tax year is the
annual accounting period a corporation
uses to keep its records and report its
income and expenses.

The following rules apply.

An S corporation must use one of the
following tax years.
• A tax year ending December 31.
• A natural business year.
• An ownership tax year.
• A tax year elected under section 444.
• A 52-53-week tax year that ends with
reference to a year listed above.
• Any other tax year (including a
52-53-week tax year) for which the
corporation establishes a business
purpose.

Figure income using the method of
accounting regularly used in keeping the
corporation's books and records. The
method used must clearly reflect income.
Permissible methods include cash,
accrual, or any other method authorized
by the Internal Revenue Code.

• Generally, an S corporation can't use

the cash method of accounting if it’s a tax
shelter (as defined in section 448(d)(3)).
See section 448 for details.
• A corporation must use an accrual
method for sales and purchases of
inventory items unless it is a small
business taxpayer (defined later). See the
Form 1125-A instructions. If you are a
small business taxpayer, you can adopt or
change your accounting method to
account for inventories (i) in the same
manner as materials and supplies that are
Instructions for Form 1120-S (2019)

A new S corporation must use Form
2553 to elect a tax year. To later change
the corporation's tax year, see Form 1128,
Application To Adopt, Change, or Retain a
Tax Year, and its instructions (unless the
corporation is making an election under
section 444, discussed next).
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Electing a tax year under section 444.
Under the provisions of section 444, an S
corporation can elect to have a tax year
other than a required year, but only if the
deferral period of the tax year isn't longer
than the shorter of 3 months or the deferral
period of the tax year being changed. This
election is made by filing Form 8716,
Election To Have a Tax Year Other Than a
Required Tax Year.
An S corporation may not make or
continue an election under section 444 if it
is a member of a tiered structure, other
than a tiered structure that consists
entirely of partnerships and S corporations
that have the same tax year. For the S
corporation to have a section 444 election
in effect, it must make the payments
required by section 7519. See Form 8752,
Required Payment or Refund Under
Section 7519.
A section 444 election ends if an S
corporation:
• Changes its accounting period to a
calendar year or some other permitted
year,
• Is penalized for willfully failing to comply
with the requirements of section 7519, or
• Terminates its S election (unless it
immediately becomes a personal service
corporation).
If the termination results in a short tax
year, enter at the top of the first page of
Form 1120-S for the short tax year,
“SECTION 444 ELECTION
TERMINATED.”

Rounding Off to
Whole Dollars

The corporation may enter decimal points
and cents when completing its return.
However, the corporation should round off
cents to whole dollars on its return, forms,
and schedules to make completing its
return easier. The corporation must either
round off all amounts on its return to whole
dollars, or use cents for all amounts. To
round, drop amounts under 50 cents and
increase amounts from 50 to 99 cents to
the next dollar. For example, $8.40 rounds
to $8 and $8.50 rounds to $9.
If two or more amounts must be added
to figure the amount to enter on a line,
include cents when adding the amounts
and round off only the total.

Recordkeeping

Keep the corporation's records for as long
as they may be needed for the
administration of any provision of the
Internal Revenue Code. Usually, records
that support an item of income, deduction,
or credit on the return must be kept for 3
years from the date each shareholder's
return is due or filed, whichever is later.
Keep records that verify the corporation's
basis in property for as long as they are
needed to figure the basis of the original or
replacement property.

The corporation should keep copies of
all filed returns. They help in preparing
future and amended returns.

For more information, see Regulations
section 1.6011-4. Also see the Instructions
for Form 8886.

Amended Return

Penalties. The corporation may have
to pay a penalty if it is required to disclose
a reportable transaction under section
6011 and fails to properly complete and
file Form 8886. Penalties may also apply
under section 6707A if the corporation
fails to file Form 8886 with its corporate
return, fails to provide a copy of Form
8886 to the Office of Tax Shelter Analysis
(OTSA), or files a form that fails to include
all the information required (or includes
incorrect information). Other penalties,
such as an accuracy-related penalty under
section 6662A, may also apply. See the
Instructions for Form 8886 for details on
these and other penalties.

To correct a previously filed Form 1120-S,
file an amended Form 1120-S and check
box H(4) on page 1. Attach a statement
that identifies the line number of each
amended item, the corrected amount or
treatment of the item, and an explanation
of the reasons for each change.
If the income, deductions, credits, or
other information provided to any
shareholder on Schedule K-1 is incorrect,
file an amended Schedule K-1 (Form
1120-S) for that shareholder with the
amended Form 1120-S. Also give a copy
of the amended Schedule K-1 to that
shareholder. Check the “Amended K-1”
box at the top of the Schedule K-1 to
indicate that it is an amended
Schedule K-1.
A change to the corporation's federal
return may affect its state return. This
includes changes made as the result of an
IRS examination. For more information,
contact the state tax agency for the
state(s) in which the corporation's return
was filed.

Other Forms and
Statements That May Be
Required
Reportable transaction disclosure
statement. Disclose information for each
reportable transaction in which the
corporation participated. Form 8886,
Reportable Transaction Disclosure
Statement, must be filed for each tax year
the corporation participated in the
transaction. The corporation may have to
pay a penalty if it is required to file Form
8886 and doesn't do so. The following are
reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to one of the types of
transactions that the IRS has determined
to be a tax avoidance transaction and
identified by notice, regulation, or other
published guidance as a listed
transaction.
2. Any transaction offered under
conditions of confidentiality for which the
corporation (or a related party) paid an
advisor a fee of at least $50,000.
3. Certain transactions for which the
corporation (or a related party) has
contractual protection against
disallowance of the tax benefits.
4. Certain transactions resulting in a
loss of at least $2 million in any single year
or $4 million in any combination of years.
5. Any transaction identified by the
IRS by notice, regulation, or other
published guidance as a “transaction of
interest.”

Reportable transactions by material
advisors. Material advisors to any
reportable transaction must disclose
certain information about the reportable
transaction by filing Form 8918, Material
Advisor Disclosure Statement, with the
IRS. For details, see the Instructions for
Form 8918.
Transfers to a corporation controlled
by the transferor. Every significant
transferor (as defined in Regulations
section 1.351-3(d)) that receives stock of
a corporation in exchange for property in a
nonrecognition event must include the
statement required by Regulations section
1.351-3(a) on or with the transferor's tax
return for the tax year of the exchange.
The transferee corporation must include
the statement required by Regulations
section 1.351-3(b) on or with its return for
the tax year of the exchange, unless all the
required information is included in any
statement(s) provided by a significant
transferor that is attached to the same
return for the same section 351 exchange.
Election to reduce basis under section
362(e)(2)(C). If property is transferred to
a corporation subject to section 362(e)(2),
the transferor and the acquiring
corporation may elect, under section
362(e)(2)(C), to reduce the transferor's
basis in the stock received instead of
reducing the acquiring corporation's basis
in the property transferred. Once made,
the election is irrevocable. For more
information, see section 362(e)(2) and
Regulations section 1.362-4. If an election
is made, a statement must be filed in
accordance with Regulations section
1.362-4(d)(3).
Regulations section 1.1411-10(g) (section 1411 election with respect to
CFCs and QEFs). A corporation that
directly or indirectly owns stock of a
controlled foreign corporation (CFC)
(within the meaning of section 953(c)(1)
(B) or section 957(a)) or a passive foreign
investment company (within the meaning
of section 1297(a)) that the corporation
treats as a qualified electing fund (QEF)
under section 1293 may make the election
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provided in Regulations section
1.1411-10(g). The election must be made
no later than the first tax year beginning
after 2013 during which the corporation: (i)
includes an amount in gross income for
chapter 1 purposes under section 951(a)
or section 1293(a) for the CFC or QEF,
and (ii) has a direct or indirect owner that
is subject to tax under section 1411 or
would have been if the election were
made. This election must be made on an
entity-by-entity basis, and applies only to
the particular CFCs and QEFs for which
an election is made. In general, for
purposes of section 1411, if an election is
in effect for a CFC or QEF, the amounts
included in income under section 951 and
section 1293 derived from the CFC or
QEF are included in net investment
income, and distributions described in
section 959(d) or section 1293(c) are
excluded from net investment income. An
election that is made under Regulations
section 1.1411-10(g) can't be revoked. For
more information regarding this election,
see Regulations section 1.1411-10(g).
The election must be made in a
statement that is filed with the
corporation's original or amended return
for the tax year in which the election is
made. An election can be made on an
amended return only if the tax year for
which the election is made, and all tax
years affected by the election, aren't
closed by the period of limitations on
assessments under section 6501. The
statement must include:
• The name and EIN of the corporation
making the election;
• A declaration that all of its shareholders
consent to each election made in the
statement;
• A declaration that the corporation elects
under Regulations section 1.1411-10(g) to
apply the rules in Regulations section
1.1411-10(g) to the CFCs and QEFs
identified in the statement; and
• The following information for each CFC
and QEF for which an election is made: (i)
the name of the CFC or QEF; and (ii)
either the EIN of the CFC or QEF, or, if the
CFC or QEF doesn't have an EIN, the
reference ID number of the CFC or QEF.
In addition, for each CFC or QEF held
by the corporation for which an election
under Regulations section 1.1411-10(g)
has already been made by the
corporation, the statement should include:
(i) the name of the CFC or QEF, and (ii)
either the EIN of the CFC or QEF, or, if the
CFC or QEF doesn't have an EIN, the
reference ID number of the CFC or QEF.
Annual information reporting by specified domestic entities under section
6038D. Certain domestic corporations
that are formed or availed of to hold
specified foreign financial assets
(“specified domestic entities”) must file
Form 8938. Form 8938 must be filed each
year the value of the corporation's
specified foreign financial assets meets or
Instructions for Form 1120-S (2019)

exceeds the reporting threshold. For more
information on domestic corporations that
are specified domestic entities and the
types of foreign financial assets that must
be reported, see the Instructions for Form
8938, generally, and in particular, Who
Must File, Specified Domestic Entity,
Reporting Thresholds, Specified Foreign
Financial Assets, Interests in Specified
Foreign Financial Assets, Assets Not
Required To Be Reported, and Exceptions
to Reporting.
In addition, a domestic corporation
required to file Form 8938 with its Form
1120-S for the tax year should check
“Yes” to Schedule N (Form 1120),
question 8, and also include that schedule
with its Form 1120-S.
Certification as a qualified opportunity
fund. If the corporation is organized to
invest in qualified opportunity zone
property, it must attach Form 8996 to
Form 1120-S to self-certify as a QOF. In
addition, the corporation files Form 8996
annually to report that the QOF meets the
investment standard of section 1400Z-2 or
to figure the penalty if it fails to meet the
investment standard. The corporation
must also complete line 15 of Schedule B.
For more information, see the Instructions
for Form 8996.
Qualified opportunity fund investment.
If the corporation deferred a capital gain in
a qualified opportunity fund (QOF), the
corporation must file its return with
Schedule D (Form 1120-S), Form 8949,
and Form 8997 attached. The corporation
will need to file Form 8997 annually until it
disposes of the investment. See the
instructions for Form 8997 for details.
Form 8975. Certain U.S. persons that
are the ultimate parent entity of a U.S.
multinational enterprise group with annual
revenue for the preceding reporting period
of $850 million or more are required to file
Form 8975. For more information, see the
Instructions for Form 8975.

Activities Covered by the
At-Risk Rules

If the S corporation is involved in one of
the following activities as a trade or
business or for the production of income,
the shareholder may be subject to the
at-risk rules.
1. Holding, producing, or distributing
motion picture films or video tapes.
2. Farming.
3. Leasing section 1245 property,
including personal property and certain
other tangible property that is depreciable
or amortizable.
4. Exploring for, or exploiting, oil and
gas.
5. Exploring for, or exploiting,
geothermal deposits (for wells started
after September 1978).
6. Any other activity not included in (1)
through (5) that is carried on as a trade or
business or for the production of income.

Aggregation of Activities

Activities described in (6) under Activities
Covered by the At-Risk Rules, earlier, that
constitute a trade or business are treated
as one activity if:
• You actively participate in the
management of the trade or business, or
• The trade or business is carried on by a
partnership or S corporation and 65% or
more of its losses for the tax year are
allocable to persons who actively
participate in the management of the trade
or business.
Similar rules apply to activities
described in (1) through (5) of that earlier
discussion. For more information, see
Pub. 925. If you aggregate your activities
under these rules for section 465
purposes, check the appropriate box in
item J.

At-Risk Activity Reporting
Requirements

Other forms and statements. See Pub.
542, Corporations, for a list of other forms
and statements a corporation may need to
file in addition to the forms and statements
discussed throughout these instructions.

If the corporate items of income, loss, or
deduction reported on Schedule K-1 are
from more than one activity covered by the
at-risk rules, the corporation must report
information separately for each activity.

At-Risk Limitations

The following information must be
provided on an attachment to
Schedule K-1 for each activity.
• A statement that the information is a
breakdown of the items of income, loss, or
deduction by at-risk activity.
• The identity of the at-risk activity; the
items of income, loss, or deduction for the
activity; other items of income, loss, or
deduction; and any other information that
relates to the activity (that is, distributions,
shareholder loans, etc.).

In general, section 465 limits the amount
of deductible net losses shareholders can
claim from certain activities. The at-risk
limitations don't apply to the corporation,
but instead apply to each shareholder's
share of net losses attributable to each
activity. Because the treatment of each
shareholder's share of corporate net
losses depends on the nature of the
activity that generated it, the corporation
must report the items of income, loss, and
deduction separately for each activity. See
Pub. 925, Passive Activity and At-Risk
Rules, for additional information.

Instructions for Form 1120-S (2019)

Passive Activity
Limitations

In general, section 469 limits the amount
of losses, deductions, and credits that
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shareholders can claim from “passive
activities.” The passive activity limitations
don't apply to the corporation. Instead,
they apply to each shareholder's share of
any income or loss and credit attributable
to a passive activity. Because the
treatment of each shareholder's share of
corporate income or loss and credit
depends on the nature of the activity that
generated it, the corporation must report
income or loss and credits separately for
each activity.
The following instructions and the
instructions for Schedules K and K-1,
later, explain the applicable passive
activity limitation rules and specify the type
of information the corporation must
provide to its shareholders for each
activity. If the corporation had more than
one activity, it must report information for
each activity on an attachment to
Schedules K and K-1.
Generally, passive activities include (a)
activities that involve the conduct of a
trade or business if the shareholder
doesn't materially participate in the
activity, and (b) all rental activities (defined
later) regardless of the shareholder's
participation. For exceptions, see
Activities That Are Not Passive Activities,
later. The level of each shareholder's
participation in an activity must be
determined by the shareholder.
The passive activity rules provide that
losses and credits from passive activities
can generally be applied only against
income and tax (respectively) from
passive activities. Thus, passive losses
can't be applied against income from
salaries, wages, professional fees, or a
business in which the shareholder
materially participates or against “portfolio
income” (defined later). Passive credits
can't be applied against the tax related to
any of these types of income.
Special rules require that net income
from certain activities that would otherwise
be treated as passive income must be
recharacterized as nonpassive income for
purposes of the passive activity
limitations. See Recharacterization of
Passive Income, later.
To allow each shareholder to correctly
apply the passive activity limitations, the
corporation must report income or loss
and credits separately by activity for each
of the following.
• Trade or business activities.
• Rental real estate activities.
• Rental activities other than rental real
estate.
• Portfolio income.

Activities That Are Not Passive
Activities

The following aren't passive activities.
1. Trade or business activities in
which the shareholder materially
participated for the tax year.

2. Any rental real estate activity in
which the shareholder materially
participated if the shareholder met both of
the following conditions for the tax year.
a. More than half of the personal
services the shareholder performed in
trades or businesses were performed in
real property trades or businesses in
which he or she materially participated.
b. The shareholder performed more
than 750 hours of services in real property
trades or businesses in which he or she
materially participated.
For purposes of this rule, each interest
in rental real estate is a separate activity
unless the shareholder elects to treat all
interests in rental real estate as one
activity.
If the shareholder is married filing
jointly, either the shareholder or his or her
spouse must separately meet both of the
above conditions, without taking into
account services performed by the other
spouse.
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. Services the
shareholder performed as an employee
aren't treated as performed in a real
property trade or business unless he or
she owned more than 5% of the stock in
the employer.
3. The rental of a dwelling unit used
by a shareholder for personal purposes
during the year for more than the greater
of 14 days or 10% of the number of days
that the residence was rented at fair rental
value.
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. See
Temporary Regulations section
1.469-1T(e)(6).
The section 469(c)(3) exception

TIP for a working interest in oil and gas

properties doesn't apply to an S
corporation because state law generally
limits the liability of shareholders.

Trade or Business Activities

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 you chose to
deduct rather than capitalize them).
If the shareholder doesn't materially
participate in the activity, a trade or
business activity of the corporation is a
passive activity for the shareholder.
Each shareholder must determine if he
or she materially participated in an activity.
As a result, while the corporation's
ordinary business income (loss) is
reported on page 1 of Form 1120-S, the
specific income and deductions from each
separate trade or business activity must
be reported on attachments to Form
1120-S. Similarly, while each
shareholder's allocable share of the
corporation's ordinary business income
(loss) is reported in box 1 of Schedule K-1,
each shareholder's allocable share of the
income and deductions from each trade or
business activity must be reported on
statements attached to each
Schedule K-1. See Passive Activity
Reporting Requirements, later, for more
information.

Rental Activities

Generally, except as noted below, if the
gross income from an activity consists of
amounts paid principally for the use of real
or personal tangible property held by the
corporation, the activity is a rental activity.

There are several exceptions to this
general rule. Under these exceptions, an
activity involving the use of real or
personal tangible property isn't a rental
activity if any of the following apply.
• The average period of customer use
(defined later) for such property is 7 days
or less.
• The average period of customer use for
such property is 30 days or less and
significant personal services (defined
later) are provided by or on behalf of the
corporation.
• Extraordinary personal services
(defined later) are provided by or on behalf
of the corporation.
• The rental of such property is treated as
incidental to a nonrental activity of the
corporation under Regulations section
1.469-1(e)(3)(vi).
• The corporation customarily makes the
property available during defined business
hours for nonexclusive use by various
customers.
• The corporation provides property for
use in a nonrental activity of a partnership
in its capacity as an owner of an interest in
such partnership. Whether the corporation
provides property used in an activity of a
partnership in the corporation's capacity
as an owner of an interest in the
partnership is determined on the basis of
all the facts and circumstances.
In addition, a guaranteed payment
described in section 707(c) is never
income from a rental activity.
Average period of customer use.
Figure the average period of customer use
-8-

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).
Significant personal services. Personal
services include only services performed
by individuals. To determine if personal
services are significant personal services,
consider all the relevant facts and
circumstances. Relevant facts and
circumstances include:
• How often the services are provided,
• The type and amount of labor required
to perform the services, and
• The value of the services in relation to
the amount charged for use of the
property.
The following services aren't
considered in determining whether
personal services are significant.
• Services necessary to permit the lawful
use of the rental property.
• Services performed in connection with
improvements or repairs to the rental
property that extend the useful life of the
property substantially beyond the average
rental period.
• Services provided in connection with
the use of any improved real property that
are similar to those commonly provided in
connection with long-term rentals of
high-grade commercial or residential
property. Examples include cleaning and
maintenance of common areas, routine
repairs, trash collection, elevator service,
and security at entrances.
Extraordinary personal services.
Services provided in connection with
making rental property available for
customer use are extraordinary personal
services only if the services are performed
by individuals and the customers' use of
the rental property is incidental to their
receipt of the services.
For example, a patient's use of a
hospital room generally is incidental to the
care received from the hospital's medical
staff. Similarly, a student's use of a
dormitory room in a boarding school is
incidental to the personal services
provided by the school's teaching staff.
Rental activity incidental to a nonrental activity. An activity isn't a rental
activity if the rental of the property is
incidental to a nonrental activity, such as
the activity of holding property for
investment, a trade or business activity, or
the activity of dealing in property.
Rental of property is incidental to an
activity of holding property for investment
if both of the following apply.
Instructions for Form 1120-S (2019)

• The main purpose for holding the
property is to realize a gain from the
appreciation of the property.
• The gross rental income from such
property for the tax year is less than 2% of
the smaller of the property's unadjusted
basis or its fair market value (FMV).
Rental of property is incidental to a
trade or business activity if all of the
following apply.
• The corporation owns an interest in the
trade or business at all times during the
year.
• 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.
• The gross rental income from the
property for the tax year is less than 2% of
the smaller of the property's unadjusted
basis or its FMV.
The sale or exchange of property that
is also rented during the tax year (in which
the gain or loss is recognized) is treated
as incidental to the activity of dealing in
property if, at the time of the sale or
exchange, the property was held primarily
for sale to customers in the ordinary
course of the corporation's trade or
business.
See Temporary Regulations section
1.469-1T(e)(3) and Regulations section
1.469-1(e)(3) for more information on the
definition of rental activities for purposes
of the passive activity limitations.
Reporting of rental activities. In
reporting the corporation's income or
losses and credits from rental activities,
the corporation must separately report
rental real estate activities and rental
activities other than rental real estate
activities.
Shareholders who actively participate
in a rental real estate activity may be able
to deduct part or all of their rental real
estate losses (and the deduction
equivalent of rental real estate credits)
against income (or tax) from nonpassive
activities. Generally, the combined amount
of rental real estate losses and the
deduction equivalent of rental real estate
credits from all sources (including rental
real estate activities not held through the
corporation) that may be claimed is limited
to $25,000.
Report rental real estate activity income
(loss) on Form 8825 and line 2 of
Schedule K and box 2 of Schedule K-1,
rather than on page 1 of Form 1120-S.
Report credits related to rental real estate
activities on lines 13c and 13d of
Schedule K (box 13, codes E and F, of
Schedule K-1) and low-income housing
credits on lines 13a and 13b of
Schedule K (box 13, codes A, B, C, and D
of Schedule K-1).
Report income (loss) from rental
activities other than rental real estate on
line 3 of Schedule K and credits related to
rental activities other than rental real
Instructions for Form 1120-S (2019)

estate on line 13e of Schedule K and in
box 13, code G, of Schedule K-1.

Portfolio Income

Generally, portfolio income includes all
gross income, other than income derived
in the ordinary course of a trade or
business, that is attributable to interest;
dividends; royalties; income from a real
estate investment trust, a regulated
investment company, a real estate
mortgage investment conduit, a common
trust fund, a controlled foreign corporation,
a qualified electing fund, or a cooperative;
income from the disposition of property
that produces income of a type defined as
portfolio income; and income from the
disposition of property held for investment.
See Self-Charged Interest, later, for an
exception.

Solely for purposes of the preceding
paragraph, gross income derived in the
ordinary course of a trade or business
includes (and portfolio income, therefore,
doesn't include) the following types of
income.
• Interest income on loans and
investments made in the ordinary course
of a trade or business of lending money.
• Interest on accounts receivable arising
from the performance of services or the
sale of property in the ordinary course of a
trade or business of performing such
services or selling such property, but only
if credit is customarily offered to
customers of the business.
• Income from investments made in the
ordinary course of a trade or business of
furnishing insurance or annuity contracts
or reinsuring risks underwritten by
insurance companies.
• Income or gain derived in the ordinary
course of an activity of trading or dealing
in any property if such activity constitutes
a trade or business (unless the dealer held
the property for investment at any time
before such income or gain is recognized).
• Royalties derived by the taxpayer in the
ordinary course of a trade or business of
licensing intangible property.
• Amounts included in the gross income
of a patron of a cooperative by reason of
any payment or allocation to the patron
based on patronage occurring with
respect to a trade or business of the
patron.
• Other income identified by the IRS as
income derived by the taxpayer in the
ordinary course of a trade or business.
See Temporary Regulations section
1.469-2T(c)(3) for more information on
portfolio income.
Report portfolio income and related
deductions on Schedule K rather than on
page 1 of Form 1120-S.

Self-Charged Interest

Certain self-charged interest income and
deductions may be treated as passive
activity gross income and passive activity
deductions if the loan proceeds are used
-9-

in a passive activity. Generally,
self-charged interest income and
deductions result from loans between the
corporation and its shareholders.
Self-charged interest also occurs in loans
between the corporation and another S
corporation or partnership if each owner in
the borrowing entity has the same
proportional ownership interest in the
lending entity.
The self-charged interest rules don't
apply to a shareholder's interest in an S
corporation if the S corporation makes an
election under Regulations section
1.469-7(g) to avoid the application of
these rules. To make the election, the S
corporation must attach to its original or
amended Form 1120-S a statement that
includes the name, address, EIN of the S
corporation, and a declaration that the
election is being made under Regulations
section 1.469-7(g). The election will apply
to the tax year for which it was made and
all subsequent tax years. Once made, the
election can only be revoked with the
consent of the IRS.
For more details on the self-charged
interest rules, see Regulations section
1.469-7.

Grouping Activities

Generally, one or more trade or business
or rental activities may be treated as a
single activity if the activities make up an
appropriate economic unit for
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:
• Similarities and differences in types of
trades or businesses,
• The extent of common control,
• The extent of common ownership,
• Geographical location, and
• Reliance between or among the
activities.
Example. The corporation has a
significant ownership interest in a bakery
and a movie theater in Baltimore and a
bakery and a movie theater in
Philadelphia. Depending on the relevant
facts and circumstances, there may be
more than one reasonable method for
grouping the corporation's 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 the corporation's grouping isn't
an appropriate economic unit and one of
the primary purposes for the grouping (or
failure to regroup as required under
Regulations section 1.469-4(e)) is to avoid
the passive activity limitations. If you
group your activities under these rules for
section 469 purposes, check the
appropriate box in item J.
Limitation on grouping certain activities. The following activities may not 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
b. Each owner of the trade or
business activity has the same
proportionate ownership interest in the
rental activity. If so, the portion of the
rental activity involving the rental of
property to be 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 461(k)(4)) 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. Once a partnership determines its
activities under these rules, the
corporation as a partner can use these
rules to group those activities with:
• Each other,
• Activities conducted directly by the
corporation, or
• Activities conducted through other
partnerships.
The corporation can't treat as separate
activities those activities grouped together
by a partnership.

Recharacterization of Passive
Income
Under Temporary Regulations section
1.469-2T(f) and Regulations section
1.469-2(f), net passive income from

certain passive activities must be treated
as nonpassive income. Net passive
income is the excess of an activity's
passive activity gross income over its
passive activity deductions (current year
deductions and prior year unallowed
losses).
Any net passive income
recharacterized as nonpassive income is
treated as investment income for
purposes of figuring investment interest
expense limitations if it is from (a) an
activity of renting substantially
nondepreciable property from an
equity-financed lending activity, or (b) an
activity related to an interest in a
pass-through entity that licenses
intangible property.
The amount of income from the
activities in items (1) through (3) below
that any shareholder will be required to
recharacterize as nonpassive income may
be limited under Temporary Regulations
section 1.469-2T(f)(8). Because the
corporation won't have information
regarding all of a shareholder's activities, it
must identify all corporate activities
meeting the definitions in items (2) and (3)
as activities that may be subject to
recharacterization.
Income from the following six sources
is subject to recharacterization.
1. Significant participation passive
activities. A significant participation
passive activity is any trade or business
activity in which the shareholder
participated for more than 100 hours
during the tax year but didn't materially
participate. Because each shareholder
must determine his or her level of
participation, the corporation won't be able
to identify significant participation passive
activities.
2. Certain nondepreciable rental
property activities. Net passive income
from a rental activity is nonpassive income
if less than 30% of the unadjusted basis of
the property used or held for use by
customers in the activity is subject to
depreciation under section 167.
3. Passive equity-financed lending
activities. If the corporation has net
income from a passive equity-financed
lending activity, the smaller of the net
passive income or the equity-financed
interest income from the activity is
nonpassive income.
4. Rental of property incidental to
a development activity. Net rental
activity income is the excess of passive
activity gross income from renting or
disposing of property over passive activity
deductions (current year deductions and
prior year unallowed losses) that are
reasonably allocable to the rented
property. Net rental activity income is
nonpassive income for a shareholder if all
of the following apply.
a. The corporation recognizes gain
from the sale, exchange, or other
-10-

disposition of the rental property during
the tax year.
b. The use of the item of property in
the rental activity started less than 12
months before the date of disposition. The
use of an item of rental property begins on
the first day on which (a) the corporation
owns an interest in the property, (b)
substantially all of the property is either
rented or held out for rent and ready to be
rented, and (c) no significant
value-enhancing services remain to be
performed.
c. The shareholder materially or
significantly participated for any tax year in
an activity that involved performing
services to enhance the value of the
property (or any other item of property, if
the basis of the property disposed of is
determined in whole or in part by
reference to the basis of that item of
property).
Because the corporation can't
determine a shareholder's level of
participation, the corporation must identify
net income from property described above
(without regard to the shareholder's level
of participation) as income that may be
subject to recharacterization.
5. Rental of property to a
nonpassive activity. If a taxpayer rents
property to a trade or business activity in
which the taxpayer materially participates,
the taxpayer's net rental activity income
(defined in item (4)) from the property is
nonpassive income.
6. Acquisition of an interest in a
pass-through entity that licenses
intangible property. Generally, net
royalty income from intangible property is
nonpassive income if the taxpayer
acquired an interest in the pass-through
entity after the pass-through entity created
the intangible property or performed
substantial services or incurred substantial
costs in developing or marketing the
intangible property. Net royalty income is
the excess of passive activity gross
income from licensing or transferring any
right in intangible property over passive
activity deductions (current year
deductions and prior year unallowed
losses) that are reasonably allocable to
the intangible property. See Temporary
Regulations section 1.469-2T(f)(7)(iii) for
exceptions to this rule.

Passive Activity Reporting
Requirements

To allow shareholders to correctly apply
the passive activity loss and credit
limitation rules, the corporation must do
the following.
1. If the corporation carries on more
than one activity, provide an attached
statement for each activity conducted
through the corporation that identifies the
type of activity conducted (trade or
business, rental real estate, or rental

Instructions for Form 1120-S (2019)

activity other than rental real estate). See
Grouping Activities, earlier.
2. The attachment(s) must identify
each group. The attached group activity
description must be sufficient for the
shareholders to determine if their other
activities qualify to be added to any
groups provided by the corporation.
3. On the attached statement for each
activity, provide a statement, using the
same box numbers as shown on
Schedule K-1, detailing the net income
(loss), credits, and all items required to be
separately stated under section 1366(a)
(1) from each trade or business activity,
from each rental real estate activity, from
each rental activity other than a rental real
estate activity, and from investments.
4. Identify the net income (loss) and
the shareholder's share of corporation
interest expense from each activity of
renting a dwelling unit that any
shareholder uses for personal purposes
during the year for more than the greater
of 14 days or 10% of the number of days
that the residence is rented at fair rental
value.
5. Identify the net income (loss) and
the shareholder's share of interest
expense from each activity of trading
personal property conducted through the
corporation.
6. For any gain (loss) from the
disposition of an interest in an activity or of
an interest in property used in an activity
(including dispositions before 1987 from
which gain is being recognized after
1986):
a. Identify the activity in which the
property was used at the time of
disposition;
b. If the property was used in more
than one activity during the 12 months
preceding the disposition, identify the
activities in which the property was used
and the adjusted basis allocated to each
activity; and
c. For gains only, if the property was
substantially appreciated at the time of the
disposition and the applicable holding
period specified in Regulations section
1.469-2(c)(2)(iii)(A) wasn't satisfied,
identify the amount of the nonpassive gain
and indicate whether or not the gain is
investment income under Regulations
section 1.469-2(c)(2)(iii)(F).
7. Specify the amount of gross
portfolio income, the interest expense
properly allocable to portfolio income, and
expenses other than interest expense that
are clearly and directly allocable to
portfolio income.
8. Identify the ratable portion of any
section 481 adjustment (whether a net
positive or a net negative adjustment)
allocable to each corporate activity.
9. Identify any gross income from
sources specifically excluded from
passive activity gross income, including:
Instructions for Form 1120-S (2019)

a. Income from intangible property, if
the shareholder is an individual whose
personal efforts significantly contributed to
the creation of the property;
b. Income from state, local, or foreign
income tax refunds; and
c. Income from a covenant not to
compete, if the shareholder is an
individual who contributed the covenant to
the corporation.
10. Identify any deductions that aren't
passive activity deductions.
11. If the corporation makes a full or
partial disposition of its interest in another
entity, identify the gain (loss) allocable to
each activity conducted through the entity,
and the gain allocable to a passive activity
that would have been recharacterized as
nonpassive gain had the corporation
disposed of its interest in property used in
the activity (because the property was
substantially appreciated at the time of the
disposition, and the gain represented
more than 10% of the shareholder's total
gain from the disposition).
12. Identify the following items from
activities that may be subject to the
recharacterization rules (see
Recharacterization of Passive Income,
earlier).
a. Net income from an activity of
renting substantially nondepreciable
property.
b. The smaller of equity-financed
interest income or net passive income
from an equity-financed lending activity.
c. Net rental activity income from
property developed (by the shareholder or
the corporation), rented, and sold within
12 months after the rental of the property
commenced.
d. Net rental activity income from the
rental of property by the corporation to a
trade or business activity in which the
shareholder had an interest (either directly
or indirectly).
e. Net royalty income from intangible
property if the shareholder acquired the
shareholder's interest in the corporation
after the corporation created the intangible
property or performed substantial
services, or incurred substantial costs in
developing or marketing the intangible
property.
13. Identify separately the credits from
each activity conducted by or through the
corporation.
14. Identify the shareholder's pro rata
share of the corporation's self-charged
interest income or expense (see
Self-Charged Interest, earlier).
a. Loans between a shareholder
and the corporation. Identify the lending
or borrowing shareholder's share of the
self-charged interest income or expense.
If the shareholder made the loan to the
corporation, also identify the activity in
which the loan proceeds were used. If the
proceeds were used in more than one
-11-

activity, allocate the interest to each
activity based on the amount of the
proceeds used in each activity.
b. Loans between the corporation
and another S corporation or
partnership. If the corporation's
shareholders have the same proportional
ownership interest in the corporation and
the other S corporation or partnership,
identify each shareholder's share of the
interest income or expense from the loan.
If the corporation was the borrower, also
identify the activity in which the loan
proceeds were used. If the proceeds were
used in more than one activity, allocate
the interest to each activity based on the
amount of the proceeds used in each
activity.

Net Investment Income
Tax Reporting
Requirements
The information described in this

TIP section should be given directly to

the shareholder and shouldn't be
reported by the corporation to the IRS.

To allow shareholders to correctly
figure the net investment income tax
where a shareholder disposes of stock in
the corporation during the tax year, the
corporation may be required to provide the
shareholder with certain information. The
net investment income tax is a tax
imposed on an individual's, trust's, or
estate's net investment income. Net
investment income includes the net gains
or losses from the sale of stock in the
corporation. A shareholder who is actively
involved in one or more of the corporation
or subsidiary pass-through entities' trades
or businesses (other than trading in
financial instruments or commodities) can
reduce the amount of the gain or loss
included in its net investment income.
However, to figure its net investment
income, the active shareholder needs
certain information from the corporation.
Generally, the corporation must provide
certain information to the shareholder if
the corporation knows, or has reason to
know, the following.
1. The shareholder disposed of stock
in the corporation.
2. The shareholder materially
participates (within the meaning of the
passive activity loss rules (section 469)) in
one or more of the trades or businesses
(within the meaning of section 162) of the
corporation or a subsidiary pass-through
entity (other than trading in financial
instruments or commodities).
3. The shareholder doesn't qualify for
the optional simplified reporting method
for figuring its net investment income
associated with the disposition of the
stock. For more information, see the
instructions for Form 8960, line 5c.

Information to be provided to shareholder. Generally, the corporation must
provide the shareholder with its pro rata
share of the net gain and loss from the
deemed sale for fair market value of the
corporation's property, other than property
that relates to the trades or businesses in
which the shareholder materially
participates, as determined under the
passive activity loss rules applicable to the
transfer of an interest in a pass-through
entity. For more information, see the
instructions for Form 8960, line 5c.
If a shareholder, who qualifies for

TIP the optional simplified reporting

method, prefers to determine net
gain or loss under the general calculation,
the corporation may, but isn't obligated to,
provide the information to the shareholder
at the shareholder's request.

Extraterritorial Income
Exclusion
Generally, no exclusion is allowed
for transactions after 2006.
CAUTION However, transactions that meet
the transition rules may still be eligible for
the exclusion. See the Instructions for
Form 8873 for details.

!

For details and to figure the amount of
the exclusion, see Form 8873,
Extraterritorial Income Exclusion, and its
separate instructions. The corporation
must report the extraterritorial income
exclusion on its return as follows.
1. If the corporation met the foreign
economic process requirements explained
in the Instructions for Form 8873, it can
report the exclusion as a nonseparately
stated item on whichever of the following
lines apply to that activity.
• Form 1120-S, page 1, line 19.
• Form 8825, line 15.
• Form 1120-S, Schedule K, line 3b.
In addition, the corporation must report
as an item of information on Schedule K-1,
box 14, using code S, the shareholder's
pro rata share of foreign trading gross
receipts from Form 8873, line 15.
2. If the foreign trading gross receipts
of the corporation for the tax year are $5
million or less and the corporation didn't
meet the foreign economic process
requirements, it can't report the
extraterritorial income exclusion as a
nonseparately stated item on its return.
Instead, the corporation must report the
following separately stated items to the
shareholders on Schedule K-1, box 14.

• Foreign trading gross receipts (code S).
Report each shareholder's pro rata share
of foreign trading gross receipts from
line 15 of Form 8873 in box 14 using code
S.
• Extraterritorial income exclusion (code
T). Report each shareholder's pro rata
share of the extraterritorial income
exclusion from line 52 of Form 8873 in

box 14 using code T and identify on an
attached statement the activity to which
the exclusion relates. If the corporation is
required to complete more than one Form
8873, combine the exclusions and report a
single exclusion amount in box 14.
Upon request of a shareholder, the

TIP corporation should furnish a copy

of the corporation's Form 8873 if
that shareholder has a reduction for
international boycott operations, illegal
bribes, kickbacks, etc.

Specific Instructions
Period Covered

File the 2019 return for calendar year 2019
and fiscal years that begin in 2019 and
end in 2020. For a fiscal or short tax year
return, fill in the tax year space at the top
of the form.
The 2019 Form 1120-S can also be
used if:
• The corporation has a tax year of less
than 12 months that begins and ends in
2020, and
• The 2020 Form 1120-S isn't available at
the time the corporation is required to file
its return.
The corporation must show its 2020 tax
year on the 2019 Form 1120-S and take
into account any tax law changes that are
effective for tax years beginning after
December 31, 2019.

Name and Address

Enter the corporation's true name (as set
forth in the charter or other legal document
creating it) and address on the appropriate
lines. Enter the address of the
corporation's principal office or place of
business. Include the suite, room, or other
unit number after the street address. If the
post office doesn't deliver mail to the
street address and the corporation has a
P.O. box, show the box number instead.
Don't use the address of the

TIP registered agent for the state in

which the corporation is
incorporated. For example, if a business is
incorporated in Delaware or Nevada and
the corporation's principal office is located
in Little Rock, Arkansas, the corporation
should enter the Little Rock address.
If the corporation receives its mail in
care of a third party (such as an
accountant or an attorney), enter “C/O” on
the street address line, followed by the
third party's name and street address or
P.O. box.
If the corporation has a foreign
address, include the city or town, state or
province, country, and foreign postal
code. Don't abbreviate the country name.
Follow the country's practice for entering
the name of the state or province and
postal code.
-12-

Item B. Business Code

See Principal Business Activity Codes,
later.

Item C. Schedule M-3
Information

For 2019, a corporation that (a) is required
to file Schedule M-3 (Form 1120-S) and
has less than $50 million total assets at
the end of the tax year, or (b) isn't required
to file Schedule M-3 (Form 1120-S) and
voluntarily files Schedule M-3 (Form
1120-S), must either complete
Schedule M-3 (Form 1120-S) entirely or
complete Schedule M-3 (Form 1120-S)
through Part I and complete Form 1120-S,
Schedule M-1, instead of completing Parts
II and III of Schedule M-3 (Form 1120-S).
If a corporation chooses to complete Form
1120-S, Schedule M-1, instead of
completing Parts II and III of Schedule M-3
(Form 1120-S), line 1 of Form 1120-S,
Schedule M-1, must equal line 11 of Part I
of Schedule M-3 (Form 1120-S).
Any corporation that completes Parts II
and III of Schedule M-3 (Form 1120-S)
must complete all columns, without
exception.
If you are filing Schedule M-3, check
the “Check if Sch. M-3 attached” box. See
the Instructions for Schedule M-3 for more
details.

Item D. Employer
Identification Number
(EIN)

Enter the corporation's EIN. If the
corporation doesn't have an EIN, it must
apply for one. An EIN can be applied for in
the following ways.
• Online—Go to IRS.gov/EIN. The EIN is
issued immediately once the application
information is validated.
• By faxing or mailing Form SS-4,
Application for Employer Identification
Number.
If the corporation hasn't received its
EIN by the time the return is due, enter
“Applied for” and the date the corporation
applied in the space for the EIN. However,
if the corporation is filing its returns
electronically, an EIN is required at the
time the return is filed. For more
information, see the Instructions for Form
SS-4.

Item F. Total Assets

Enter the corporation's total assets (as
determined by the accounting method
regularly used in keeping the corporation's
books and records) at the end of the tax
year. If there were no assets at the end of
the tax year, enter -0-.
If the corporation is required to
complete Schedule L, enter total assets
from Schedule L, line 15, column (d), on
page 1, item F. If the S election terminated
during the tax year, see the instructions for
Instructions for Form 1120-S (2019)

Schedule L, later, for special rules that
may apply when figuring the corporation's
year-end assets.

Item H. Final Return, Name
Change, Address Change,
Amended Return, or S
Election Termination or
Revocation

• If this is the corporation's final return
and it will no longer exist, check the “Final
return” box. Also check the “Final K-1” box
on each Schedule K-1.
• If the corporation changed its name
since it last filed a return, check the “Name
change” box. Generally, a corporation
must also have amended its articles of
incorporation and filed the amendment
with the state in which it was incorporated.
• If the corporation has changed its
address since it last filed a return
(including a change to an “in care of”
address), check the “Address change”
box.
• If this amends a previously filed return,
check the “Amended return” box. If
Schedules K-1 are also being amended,
check the “Amended K-1” box on each
Schedule K-1.
• If the corporation has terminated or
revoked its S election, check the “S
election termination or revocation” box.
See Termination of Election, earlier.
If a change in address or

TIP responsible party occurs after the

return is filed, use Form 8822-B,
Change of Address or Responsible
Party — Business, to notify the IRS. See
the Instructions for Form 8822-B for
details.

Item J. Aggregation or
Grouping of Certain
Activities

For information about aggregating at-risk
activities, see Aggregation of Activities
under At-Risk Limitations, earlier. For
information about grouping passive
activities, see Grouping Activities under
Passive Activity Limitations, earlier.

Income
Report only trade or business
activity income on lines 1a through
CAUTION 5. Don't report rental activity
income or portfolio income on these lines.
See Passive Activity Limitations, earlier,
for definitions of rental income and
portfolio income. Rental activity income
and portfolio income are reported on
Schedules K and K-1. Rental real estate
activities are also reported on Form 8825.

!

Tax-exempt income. Don't include any
tax-exempt income on lines 1a through 5.
A corporation that receives any
tax-exempt income other than interest, or
holds any property or engages in any
Instructions for Form 1120-S (2019)

activity that produces tax-exempt income,
reports this income on line 16b of
Schedule K and in box 16 of Schedule K-1
using code B.
Report tax-exempt interest income,
including exempt-interest dividends
received as a shareholder in a mutual fund
or other regulated investment company,
on line 16a of Schedule K and in box 16 of
Schedule K-1 using code A.
See Deductions, later, for information
on how to report expenses related to
tax-exempt income.
Election to defer income from canceled debt. If the corporation elected
under section 108(i) to defer cancellation
of debt (COD) income, the exclusions for
COD income under section 108(a)(1)(A),
(B), (C), and (D) don't apply to the
deferred COD income for the tax year of
the election or any later year.
For more information, see section
108(i); Regulations section 1.108(i)-1;
Rev. Proc. 2009-37, 2009-36 I.R.B. 309;
and Regulations section 1.108(i)-2.
A corporation that receives a
Schedule K-1 from a partnership
containing information relating to a section
108(i) election must report on the
Schedules K-1 to its shareholders certain
information relative to the section 108(i)
election. See Rev. Proc. 2009-37 for
details. Also see Regulations section
1.108(i)-2.
Canceled debt exclusion. If the
corporation has had debt discharged
resulting from a title 11 bankruptcy
proceeding or while insolvent, see Form
982, Reduction of Tax Attributes Due to
Discharge of Indebtedness, and Pub. 908,
Bankruptcy Tax Guide.

Line 1a. Gross Receipts or
Sales

Enter on line 1a gross receipts or sales
from all business operations except for
amounts that must be reported on lines 4
and 5.
Special rules apply to certain income,
as discussed below.

Advance payments. In general, advance
payments are reported in the year of
receipt. For exceptions to this general rule
for corporations that use an accrual
method of accounting, see the following.
• To report income from long-term
contracts, see section 460.
• For rules that allow a limited deferral of
advance payments beyond the current tax
year, see Rev. Proc. 2004-34, 2004-22
I.R.B. 991, and Notice 2018-35, 2018-18
I.R.B. 520 (or any successors).
• For information on adopting or
changing to a permissible method for
reporting advance payments for goods
and services by an accrual method
corporation, see the Instructions for Form
3115.
-13-

Installment sales. Generally, the
installment method can't be used for
dealer dispositions of property. A “dealer
disposition” is any disposition of:
• Personal property by a person who
regularly sells or otherwise disposes of
personal property of the same type on the
installment plan, or
• Real property held for sale to customers
in the ordinary course of the taxpayer's
trade or business.
These restrictions on using the
installment method don't apply to
dispositions of property used or produced
in a farming business or sales of
timeshares and residential lots for which
the corporation elects to pay interest
under section 453(l)(3).
For sales of timeshares and residential
lots reported under the installment
method, each shareholder's income tax is
increased by the shareholder's pro rata
share of the interest payable under section
453(l)(3).
Enter on line 1a the gross profit on
collections from installment sales for any
of the following.
• Dispositions of property used or
produced in the trade or business of
farming.
• Certain dispositions of timeshares and
residential lots reported under the
installment method.
Attach a statement showing the
following information for the current and
the 3 preceding years.
• Gross sales.
• Cost of goods sold.
• Gross profits.
• Percentage of gross profits to gross
sales.
• Amount collected.
• Gross profit on the amount collected.

Line 1b. Returns and
Allowances

Enter cash and credit refunds the
corporation made to customers for
returned merchandise, rebates, and other
allowances made on gross receipts or
sales.

Line 2. Cost of Goods Sold

Complete and attach Form 1125-A, Cost
of Goods Sold, if applicable. Enter on
line 2 the amount from Form 1125-A,
line 8. See Form 1125-A and its
instructions.

Line 4. Net Gain (Loss) From
Form 4797
Include only ordinary gains or
losses from the sale, exchange, or
CAUTION involuntary conversion of assets
used in a trade or business activity.
Ordinary gains or losses from the sale,
exchange, or involuntary conversion of
rental activity assets are reported
separately on line 19 of Form 8825, or
line 3 of Schedule K, and box 3 of

!

Schedule K-1, generally as a part of the
net income (loss) from the rental activity.
A corporation that is a partner in a
partnership must include on Form 4797,
Sales of Business Property, its share of
ordinary gains (losses) from sales,
exchanges, or involuntary conversions
(other than casualties or thefts) of the
partnership's trade or business assets.
Corporations shouldn't use Form 4797
to report the sale or other disposition of
property if a section 179 expense
deduction was previously passed through
to any of its shareholders for that property.
Instead, report it in box 17 of
Schedule K-1 using code K. See
Dispositions of property with section 179
deductions (code K), later, for details.

Line 5. Other Income (Loss)

Enter any other trade or business income
(loss) not included on lines 1a through 4.
List the type and amount of income on an
attached statement.
Examples of other income include the
following.
• Interest income derived in the ordinary
course of the corporation's trade or
business, such as interest charged on
receivable balances. See Temporary
Regulations section 1.469-2T(c)(3).
• Recoveries of bad debts deducted in
prior years under the specific charge-off
method.
• Taxable income from insurance
proceeds.
• Any amount included in income from
line 2 of Form 6478, Biofuel Producer
Credit, if applicable.
• Any amount included in income from
line 8 of Form 8864, Biodiesel and
Renewable Diesel Fuels Credit, if
applicable.
• The recapture amount under section
280F if the business use of listed property
drops to 50% or less. To figure the
recapture amount, complete Part IV of
Form 4797.
• All section 481 income adjustments
resulting from changes in accounting
methods. Show the computation of the
section 481 adjustments on an attached
statement.
• Part or all of the proceeds received
from certain corporate-owned life
insurance contracts issued after August
17, 2006. Corporations that own one or
more employer-owned life insurance
contracts issued after this date must file
Form 8925, Report of Employer-Owned
Life Insurance Contracts. See section
101(j) for details.
Don't include items requiring separate
computations by shareholders that must
be reported on Schedules K and K-1. See
the instructions for Schedules K and K-1
later in these instructions.

Ordinary Income (Loss) From a
Partnership, Estate, or Trust
Enter the ordinary income (loss) shown on
Schedule K-1 (Form 1065) or
Schedule K-1 (Form 1041), or other
ordinary income (loss) from a foreign
partnership, estate, or trust. Show the
partnership's, estate's, or trust's name,
address, and EIN on a separate statement
attached to this return. If the amount
entered is from more than one source,
identify the amount from each source.
Don't include portfolio income or rental
activity income (loss) from a partnership,
estate, or trust on this line. Instead, report
these amounts on Schedules K and K-1,
or on line 20a of Form 8825 if the amount
is from a rental real estate activity.
Ordinary income or loss from a
partnership that is a publicly traded
partnership isn't reported on this line.
Instead, report the amount separately on
line 10 of Schedule K and in box 10 of
Schedule K-1 using code H.
Treat shares of other items separately
reported on Schedule K-1 issued by the
other entity as if the items were realized or
incurred by this corporation.
If there is a loss from a partnership, the
amount of the loss that may be claimed by
the S corporation is subject to the basis
limitations.
If the tax year of the S corporation
doesn't coincide with the tax year of the
partnership, estate, or trust, include the
ordinary income (loss) from the other
entity in the tax year in which the other
entity's tax year ends.

Deductions

!

CAUTION

Report only trade or business
activity deductions on lines 7
through 19.

Don't report the following expenses on
lines 7 through 19.
• Rental activity expenses. Report these
expenses on Form 8825 or line 3b of
Schedule K.
• Deductions allocable to portfolio
income. Report these deductions on
line 12d of Schedule K and in box 12 of
Schedule K-1 using code I or L.
• Nondeductible expenses (for example,
expenses connected with the production
of tax-exempt income). Report
nondeductible expenses on line 16c of
Schedule K and in box 16 of Schedule K-1
using code C.
• Qualified expenditures to which an
election under section 59(e) may apply.
The instructions for line 12c of Schedule K
and for Schedule K-1, box 12, code J,
explain how to report these amounts.
• Items the corporation must state
separately that require separate
computations by the shareholders.
-14-

Examples include expenses incurred for
the production of income instead of in a
trade or business, charitable contributions,
foreign taxes paid or accrued, intangible
drilling and development costs, soil and
water conservation expenditures,
amortizable basis of reforestation
expenditures, and exploration
expenditures. The pro rata shares of these
expenses are reported separately to each
shareholder on Schedule K-1.

Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A generally require
corporations to capitalize, or include in
inventory, certain costs incurred in
connection with the following.
• The production of real property and
tangible personal property held in
inventory or held for sale in the ordinary
course of business.
• Real property or personal property
(tangible and intangible) acquired for
resale.
• The production of real property and
tangible personal property by a
corporation for use in its trade or business
or in an activity engaged in for profit.
Tangible personal property produced
by a corporation includes a film, sound
recording, videotape, book, or similar
property.
The costs required to be capitalized
under section 263A aren't deductible until
the property to which the costs relate is
sold, used, or otherwise disposed of by
the corporation.
Exceptions. Section 263A doesn't
apply to the following.
• Inventoriable items accounted for in the
same manner as materials and supplies
that aren't incidental. See Form 1125-A
and its instructions for more details.
• A small business taxpayer (defined
earlier) isn’t required to capitalize costs
under section 263A. A taxpayer that wants
to discontinue capitalizing costs under
section 263A must change its method of
accounting. See section 263A(i) and
Change in accounting method, earlier.
• Timber.
• Most property produced under a
long-term contract.
• Certain property produced in a farming
business. See Special rules for certain
corporations engaged in farming, later.
• Geological and geophysical costs
amortized under section 167(h).
• Certain plants bearing fruits and nuts
depreciated under section 168(k)(5).
The corporation must report the
following costs separately to the
shareholders for purposes of
determinations under section 59(e).
• Research and experimental costs
under section 174.
• Intangible drilling costs for oil, gas, and
geothermal property.
Instructions for Form 1120-S (2019)

• Mining exploration and development
costs.

includible in the income of the related
party. See section 267 for details.

Indirect costs. Corporations subject
to the uniform capitalization rules are
required to capitalize not only direct costs
but an allocable part of most indirect costs
(including taxes) that benefit the assets
produced or acquired for resale, or are
incurred because of the performance of
production or resale activities.
For inventory, indirect costs that must
be capitalized include the following.
• Administration expenses.
• Taxes.
• Depreciation.
• Insurance.
• Compensation paid to officers
attributable to services.
• Rework labor.
• Contributions to pension, stock bonus,
and certain profit-sharing, annuity, or
deferred compensation plans.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate to
production or resale activities that must be
capitalized and those that may be
currently deductible.
Interest expense paid or incurred
during the production period of designated
property must be capitalized and is
governed by special rules. For more
details, see Regulations sections
1.263A-8 through 1.263A-15.
For more details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3.

Related party amounts paid or accrued in hybrid transactions or with
hybrid entities. A deduction for certain
interest or royalty paid or accrued to a
related party pursuant to a hybrid
transaction or by, or to, a hybrid entity may
be disallowed to the extent the related
party, under its tax laws, doesn’t include
the amount in income or is allowed a
deduction with respect to the amount. See
section 267A for more information.

Special rules for certain corporations
engaged in farming. For S corporations
not required to use an accrual method of
accounting, the rules of section 263A don't
apply to expenses of raising any:
• Animal, or
• Plant that has a preproductive period of
2 years or less.
Shareholders of S corporations not
required to use an accrual method of
accounting may elect to currently deduct
the preproductive period expenses of
certain plants that have a preproductive
period of more than 2 years. Because
each shareholder makes the election to
deduct these expenses, the corporation
shouldn't capitalize them. Instead, the
corporation should report the expenses
separately on line 12d of Schedule K and
report each shareholder's pro rata share in
box 12 of Schedule K-1 using code M.
See Uniform Capitalization Rules in
chapter 6 of Pub. 225, Farmer's Tax
Guide, sections 263A(d) and (e), and
Regulations section 1.263A-4 for
definitions and other details.

Time for making an election. The
corporation generally elects to deduct
start-up or organizational costs by
claiming the deduction on its income tax
return filed by the due date (including
extensions) for the tax year in which the
active trade or business begins. However,
for start-up or organizational costs paid or
incurred before September 9, 2008, the
corporation is required to attach a
statement to its return to elect to deduct
such costs.
For more details, including special
rules for costs paid or incurred before
September 9, 2008, see the Instructions
for Form 4562. Also see Pub. 535,
Business Expenses.
If the corporation timely filed its return
for the year without making an election, it
can still make an election by filing an
amended return within 6 months of the
due date of the return (excluding
extensions). Clearly indicate the election
on the amended return and write “Filed
pursuant to section 301.9100-2” at the top
of the amended return. File the amended
return at the same address the corporation
filed its original return. The election
applies when figuring taxable income for
the current tax year and all subsequent
years.
The corporation can choose to forgo
the elections above by clearly electing to

Transactions between related taxpayers. Generally, an accrual basis S
corporation can deduct business
expenses and interest owed to a related
party (including any shareholder) only in
the tax year of the corporation that
includes the day on which the payment is
Instructions for Form 1120-S (2019)

Business interest. Business interest
expense may be limited. See section
163(j) and Form 8990. Also see
Schedule B, questions 9 and 10, and the
related instructions for question 9 and
question 10, later.
Section 291 limitations. If the S
corporation was a C corporation for any of
the 3 immediately preceding years, the
corporation may be required to adjust
items such as deductions for depletion of
iron ore and coal, and the amortizable
basis of pollution control facilities. If this
applies, see section 291 to figure the
adjustment.
Business start-up and organizational
costs. A corporation can elect to deduct
a limited amount of start-up and
organizational costs it paid or incurred.
Any remaining costs generally must be
amortized over a 180-month period. See
sections 195 and 248 and the related
regulations.

-15-

capitalize its start-up or organizational
costs on its income tax return filed by the
due date (including extensions) for the tax
year in which the active trade or business
begins.
The election to either amortize or

TIP capitalize start-up costs is

irrevocable and applies to all
start-up costs that are related to the trade
or business.
Report the deductible amount of
start-up and organizational costs and any
amortization on line 19. For amortization
that begins during the current tax year,
complete and attach Form 4562,
Depreciation and Amortization.
Reducing certain expenses for which
credits are allowable. If the corporation
claims certain credits, it may need to
reduce the otherwise allowable
deductions for expenses used to figure the
credit. This applies to credits such as the
following.
• Work opportunity credit (Form 5884).
• Employee retention credit (Form
5884-A).
• Credit for increasing research activities
(Form 6765).
• Orphan drug credit (Form 8820).
• Disabled access credit (Form 8826).
• Empowerment zone employment credit
(Form 8844), if applicable.
• Indian employment credit (Form 8845),
if applicable.
• Credit for employer social security and
Medicare taxes paid on certain employee
tips (Form 8846).
• Credit for small employer pension plan
startup costs (Form 8881).
• Credit for employer-provided childcare
facilities and services (Form 8882).
• Low sulfur diesel fuel production credit
(Form 8896).
• Mine rescue team training credit (Form
8923), if applicable.
• Credit for employer differential wage
payments (Form 8932).
• Credit for small employer health
insurance premiums (Form 8941).
• Employer credit for paid family and
medical leave (Form 8994).
If the corporation has any of these
credits, figure the current year credit
before figuring the deduction for expenses
on which the credit is based. If the
corporation capitalized any costs on which
it figured the credit, it may need to reduce
the amount capitalized by the credit
attributable to these costs.
See the instructions for the form used
to figure the applicable credit for more
details.

Line 7. Compensation of
Officers and
Line 8. Salaries and Wages
Distributions and other payments
by an S corporation to a corporate
CAUTION officer must be treated as wages
to the extent the amounts are reasonable
compensation for services rendered to the
corporation.

!

Enter on line 7 the total compensation of
all officers paid or incurred in the trade or
business activities of the corporation. The
corporation determines who is an officer
under the laws of the state where it is
incorporated.
Enter on line 8 the total salaries and
wages paid or incurred to employees
(other than officers) during the tax year.
If the corporation claims a credit
for any wages paid or incurred, it
CAUTION may need to reduce the amounts
on lines 7 and 8. See Reducing certain
expenses for which credits are allowable,
earlier.

!

Don't include salaries and wages
reported elsewhere on the return, such as
amounts included in cost of goods sold,
elective contributions to a section 401(k)
cash or deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan.
If the corporation's total receipts
(page 1, line 1a, plus lines 4 and 5;
income reported on Schedule K, lines 3a,
4, 5a, and 6; income or net gain reported
on Schedule K, lines 7, 8a, 9, and 10; and
income or net gain reported on Form
8825, lines 2, 19, and 20a) are $500,000
or more, complete Form 1125-E,
Compensation of Officers. Enter on Form
1120-S, line 7, the amount from Form
1125-E, line 4.
Include fringe benefit expenditures
made on behalf of officers and employees
owning more than 2% of the corporation's
stock. Also report these fringe benefits as
wages in box 1 of Form W-2. Don't include
amounts paid or incurred for fringe
benefits of officers and employees owning
2% or less of the corporation's stock.
These amounts are reported on line 18.
See the instructions for that line for
information on the types of expenditures
that are treated as fringe benefits and for
the stock ownership rules.
Report amounts paid for health
insurance coverage for a more-than-2%
shareholder (including that shareholder's
spouse, dependents, and any children
under age 27 who aren't dependents) as
an information item in box 14 of that
shareholder's Form W-2. A more-than-2%
shareholder may be allowed to deduct
such amounts on Schedule 1 (Form 1040
or 1040-SR), line 16. To find out if the
shareholder can claim this deduction, see
Self-Employed Health Insurance

Deduction in chapter 6 of Pub. 535,
Business Expenses.
If a shareholder or a member of the
family of one or more shareholders of the
corporation renders services or furnishes
capital to the corporation for which
reasonable compensation isn’t paid, the
IRS may make adjustments in the items
taken into account by such individuals to
reflect the value of such services or
capital. See section 1366(e).

Line 9. Repairs and
Maintenance

Enter the cost of repairs and maintenance
not claimed elsewhere on the return, such
as labor and supplies, that don't add to the
value of the property or appreciably
prolong its life. The corporation can
deduct these repairs only to the extent
they relate to a trade or business activity.
See Regulations section 1.162-4. The
corporation may elect to capitalize certain
repair and maintenance costs consistent
with its books and records. See
Regulations section 1.263(a)-3(n) for
information on how to make the election.
New buildings, machinery, or
permanent improvements that increase
the value of the property aren't deductible
as repair and maintenance expenses.
These expenses must be capitalized and
depreciated or amortized. However,
amounts paid for routine maintenance on
property, including buildings, may be
deductible. See Regulations section
1.263(a)-3(i).

Line 10. Bad Debts

Enter the total debts that became
worthless in whole or in part during the tax
year, but only to the extent such debts
relate to a trade or business activity.
Report deductible nonbusiness bad debts
as a short-term capital loss on Form 8949,
Sales and Other Dispositions of Capital
Assets. A corporation that uses the cash
method of accounting can't claim a bad
debt deduction unless the amount was
previously included in income.

Line 11. Rents

Enter rent paid on business property used
in a trade or business activity. Don't
deduct rent for a dwelling unit occupied by
any shareholder for personal use.
If the corporation rented or leased a
vehicle, enter the total annual rent or lease
expense paid or incurred in the trade or
business activities of the corporation
during the tax year. Also complete Part V
of Form 4562. If the corporation leased a
vehicle for a term of 30 days or more, the
deduction for vehicle lease expense may
have to be reduced by including in gross
income an amount called the inclusion
amount. The corporation may have an
inclusion amount if:

-16-

The lease term began:

And the vehicle's
FMV on the first
day of the lease
exceeded:

Cars (excluding trucks
and vans)
After 12/31/17 but before
1/1/20 . . . . . . . . . .

$50,000

After 12/31/12 but before
1/1/18 . . . . . . . . . .

$19,000

After 12/31/07 but before
1/1/13 . . . . . . . . . .

$18,500

Trucks and vans
After 12/31/17 but before
1/1/20 . . . . . . . . . .

$50,000

After 12/31/13 but before
1/1/18 . . . . . . . . . .

$19,500

After 12/31/09 but before
1/1/14 . . . . . . . . . .

$19,000

After 12/31/08 but before
1/1/10 . . . . . . . . . .

$18,500

After 12/31/07 but before
1/1/09 . . . . . . . . . .

$19,000

See Pub. 463, Travel, Gift, and Car
Expenses, for instructions on figuring the
inclusion amount.
Note. The inclusion amount for lease
terms beginning in 2020 will be published
in early 2020.

Line 12. Taxes and Licenses

Enter taxes and licenses paid or incurred
in the trade or business activities of the
corporation, unless they are reflected
elsewhere on the return. Federal import
duties and federal excise and stamp taxes
are deductible only if paid or incurred in
carrying on the trade or business of the
corporation.

Don't deduct the following taxes on
line 12.
• Federal income taxes (except for the
portion of built-in gains tax allocable to
ordinary income) or taxes reported
elsewhere on the return.
• Section 901 foreign taxes. Report these
taxes on line 14p of Schedule K and in
box 14 of Schedule K-1 using codes P and
Q.
• Taxes allocable to a rental activity.
Report taxes allocable to a rental real
estate activity on Form 8825. Report taxes
allocable to a rental activity other than a
rental real estate activity on line 3b of
Schedule K.
• Taxes paid or incurred for the
production or collection of income, or for
the management, conservation, or
maintenance of property held to produce
income. Report these taxes separately on
line 12d of Schedule K and in box 12 of
Schedule K-1 using code S.

Instructions for Form 1120-S (2019)

See section 263A(a) for rules on
capitalization of allocable costs (including
taxes) for any property.

• Taxes not imposed on the corporation.
• Taxes, including state or local sales

taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes must
be treated as a part of the cost of the
acquired property or, in the case of a
disposition, as a reduction in the amount
realized on the disposition).
• Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
See section 164(d) for information on
apportionment of taxes on real property
between seller and purchaser.

Line 13. Interest

Include only interest incurred in the trade
or business activities of the corporation
that isn't claimed elsewhere on the return.

Don't include interest expense on the
following.
• On debt used to purchase rental
property or debt used in a rental activity.
Interest allocable to a rental real estate
activity is reported on Form 8825 and is
used in arriving at net income (loss) from
rental real estate activities on line 2 of
Schedule K and in box 2 of Schedule K-1.
Interest allocable to a rental activity other
than a rental real estate activity is included
on line 3b of Schedule K and is used in
arriving at net income (loss) from a rental
activity (other than a rental real estate
activity). This net amount is reported on
line 3c of Schedule K and in box 3 of
Schedule K-1.
• On debt used to buy property held for
investment. Interest that is clearly and
directly allocable to interest, dividend,
royalty, or annuity income not derived in
the ordinary course of a trade or business
is reported on line 12b of Schedule K and
in box 12 of Schedule K-1 using code H.
See the instructions for line 12b of
Schedule K; for box 12, code H of
Schedule K-1; and Form 4952, Investment
Interest Expense Deduction, for more
information on investment property.
• On debt proceeds allocated to
distributions made to shareholders during
the tax year. Instead, report such interest
on line 12d of Schedule K and in box 12 of
Schedule K-1 using code S. To determine
the amount to allocate to distributions to
shareholders, see Notice 89-35, 1989-1
C.B. 675.
• On debt required to be allocated to the
production of designated property.
Designated property includes real
property, personal property that has a
class life of 20 years or more, and other
tangible property requiring more than 2
years (1 year in the case of property with a
cost of more than $1 million) to produce or
construct. Interest allocable to designated
property produced by a corporation for its
own use or for sale must be capitalized. In
Instructions for Form 1120-S (2019)

addition, a corporation must also
capitalize any interest on debt allocable to
an asset used to produce designated
property. A shareholder may have to
capitalize interest that the shareholder
incurs during the tax year for the S
corporation's production expenditures.
Similarly, interest incurred by an S
corporation may have to be capitalized by
a shareholder for the shareholder's own
production expenditures. The information
required by the shareholder to properly
capitalize interest for this purpose must be
provided by the corporation on an
attachment for box 17 of Schedule K-1
using code P. See section 263A(f) and
Regulations sections 1.263A-8 through
1.263A-15.
Special rules apply to the following.

• Allocating interest expense among

activities so that the limitations on passive
activity losses, investment interest, and
personal interest can be properly figured.
Generally, interest expense is allocated in
the same manner as debt is allocated.
Debt is allocated by tracing disbursements
of the debt proceeds to specific
expenditures. Temporary Regulations
section 1.163-8T gives rules for tracing
debt proceeds to expenditures.
• Prepaid interest, which generally can
only be deducted over the term of the
debt. See Regulations sections 1.163-7,
1.446-2, and 1.1273-2(g) for details. Also
see section 461(g).
• Interest which is allocable to
unborrowed policy cash values of life
insurance, endowment, or annuity
contracts issued after June 8, 1997. See
section 264(f). Attach a statement
showing the computation of the deduction.
• Forgone interest on below-market-rate
loans (see section 7872).
Limitation on deduction. Business
interest expense is generally limited to the
sum of business interest income, 30% of
the adjusted taxable income and floor plan
financing interest. The limitation applies at
the S corporation level, and any excess
business interest expense is carried over
at the corporate level. Business interest
expense includes any interest paid or
accrued on indebtedness properly
allocable to a trade or business. A small
business taxpayer is a taxpayer that isn’t a
tax shelter (as defined in section 448(d)
(3)) and has average annual gross
receipts of $26 million or less for the 3
prior tax years under the gross receipts
test of section 448(c). Gross receipts
include the aggregate gross receipts from
all persons treated as a single employer
such as a controlled group of
corporations, commonly controlled
partnerships or proprietorships, and
affiliated service groups. If the corporation
fails to meet the gross receipts test, Form
8990, Limitation on Business Interest
Expense Under Section 163(j), is
generally required. Also see Schedule B,
questions 9 and 10.
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Line 14. Depreciation

Enter the depreciation claimed on assets
used in a trade or business activity less
any depreciation reported elsewhere (for
example, on Form 1125-A). See the
Instructions for Form 4562, or Pub. 946,
How To Depreciate Property, to figure the
amount of depreciation to enter on this
line.
Complete and attach Form 4562 only if
the corporation placed property in service
during the tax year or claims depreciation
on any car or other listed property.
Don't include any section 179 expense
deduction on this line. This amount isn't
deducted by the corporation. Instead, it is
passed through to the shareholders in
box 11 of Schedule K-1. However, reduce
the basis of any asset of the S corporation
by the amount of section 179 expense
elected by the S corporation, even if a
portion of that amount can't be passed
through to its shareholders this year and
must be carried forward because of
limitations at the S corporation level. See
Regulations section 1.179-1(f)(2).

Line 15. Depletion

If the corporation claims a deduction for
timber depletion, complete and attach
Form T (Timber), Forest Activities
Schedule.

Don't deduct depletion for oil and
gas properties. Each shareholder
CAUTION figures depletion on oil and gas
properties. See the instructions for
Schedule K-1, box 17, code R, for the
information on oil and gas depletion that
must be supplied to the shareholders by
the corporation.

!

Line 17. Pension,
Profit-Sharing, etc., Plans

Enter the deductible contributions not
claimed elsewhere on the return made by
the corporation for its employees under a
qualified pension, profit-sharing, annuity,
or simplified employee pension (SEP) or
SIMPLE IRA plan, or any other deferred
compensation plan.
If the corporation contributes to an
individual retirement arrangement (IRA)
for employees, include the contribution in
salaries and wages on page 1, line 8, or
Form 1125-A, line 3, and not on line 17.
Employers who maintain a pension,
profit-sharing, or other funded deferred
compensation plan, whether or not the
plan is qualified under the Internal
Revenue Code and whether or not a
deduction is claimed for the current tax
year, generally must file the applicable
form listed below.
• Form 5500, Annual Return/Report of
Employee Benefit Plan.
• Form 5500-SF, Short Form Annual
Return/Report of Small Employee Benefit
Plan. File this form instead of Form 5500
generally if there were under 100

participants at the beginning of the plan
year.
• Form 5500-EZ, Annual Return of A
One-Participant (Owners/Partners and
Their Spouses) Retirement Plan or A
Foreign Plan. File this form for a plan that
only covers the owner (or the owner and
his or her spouse) but only if the owner (or
the owner and his or her spouse) owns the
entire business.
Form 5500 and Form 5500-SF
TIP must be filed electronically under
the computerized ERISA Filing
Acceptance System (EFAST2). For more
information, see the EFAST2 website at
www.efast.dol.gov.
There are penalties for not filing these
forms on time and for overstating the
pension plan deduction. See sections
6652(e) and 6662(f).

Line 18. Employee Benefit
Programs

Enter amounts for fringe benefits paid or
incurred on behalf of employees owning
2% or less of the corporation's stock.
These fringe benefits include (a) employer
contributions to certain accident and
health plans, (b) the cost of up to $50,000
of group-term life insurance on an
employee's life, and (c) meals and lodging
furnished for the employer's convenience.
Don't deduct amounts that are an
incidental part of a pension, profit-sharing,
etc., plan included on line 17 or amounts
reported elsewhere on the return or on
Form 1125-A.
Report amounts for fringe benefits paid
on behalf of employees owning more than
2% of the corporate stock on line 7 or 8 (or
Form 1125-E), whichever applies. An
employee is considered to own more than
2% of the corporation's stock if that person
owns on any day during the tax year more
than 2% of the outstanding stock of the
corporation or stock possessing more than
2% of the combined voting power of all
stock of the corporation. See section 318
for attribution rules.

Line 19. Other Deductions

Enter the total allowable trade or business
deductions that aren't deductible
elsewhere on page 1 of Form 1120-S.
Attach a statement listing by type and
amount each deduction included on this
line.

Examples of other deductions include
the following.
• Amortization. See Part VI of Form 4562.
• Certain business start-up and
organizational costs (discussed earlier).
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the
business.
• Travel, meal, and entertainment
expenses. Special rules apply (discussed
later).

• Utilities.
• Deduction for certain costs of energy

efficient commercial building property
placed in service before January 1, 2021.
See section 179D.
• Any net negative section 481(a)
adjustment.
Don't deduct the following on line 19.

• Items that must be reported separately

on Schedules K and K-1.
• Fines or penalties paid to a government
for violating any law. However, see
exceptions (discussed later). Report these
expenses on Schedule K, line 16c.
• Expenses allocable to tax-exempt
income. Report these expenses on
Schedule K, line 16c.
• Amounts paid or incurred for any
settlement, payout, or attorney fees
related to sexual harassment or sexual
abuse, if such payments are subject to a
nondisclosure agreement. See section
162(q).

Special Rules
Commercial revitalization deduction. If
the corporation qualified for a commercial
revitalization deduction for a building
constructed, purchased, or substantially
rehabilitated in a renewal community and
placed in service before 2010, and it
elected to amortize qualified capital
expenditures, include any current year
amortization deduction for a nonrental
building on line 19. Include any current
year amortization deduction for a rental
real estate activity on Schedule K,
line 12d. See section 1400I (as in effect
before its repeal on March 23, 2018) for
details.
The commercial revitalization

TIP deduction isn't available for
2009.

buildings placed in service after

Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a corporation can
deduct ordinary and necessary travel and
meal expenses paid or incurred in its trade
or business. Generally, entertainment
expenses, membership dues, and
facilities used in connection with these
activities can't be deducted. Generally, no
deduction is allowed for qualified
transportation fringe benefits. Also,
special rules apply to deductions for gifts,
luxury water travel, and convention
expenses. See section 274, Pub. 463, and
Pub. 535 for details.
Travel. The corporation can't deduct
travel expenses of any individual
accompanying a corporate officer or
employee, including a spouse or
dependent of the officer or employee,
unless:
• That individual is an employee of the
corporation, and

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• His or her travel is for a bona fide
business purpose and would otherwise be
deductible by that individual.
Meals. Generally, the corporation can
deduct only 50% of the amount otherwise
allowable for meal expenses paid or
incurred in its trade or business. In
addition (subject to exceptions under
section 274(k)(2)):
• Meals must not be lavish or
extravagant, and
• An employee of the corporation must
be present at the meal.
See section 274(n)(3) for a special rule
that applies to expenses for meals
consumed by individuals subject to the
hours of service limits of the Department
of Transportation.
Qualified transportation fringes
(QTFs). Generally, under section 274(a)
(4), there is no deduction allowed with
respect to QTFs provided by employers to
their employees. QTFs are defined in
section 132(f)(1) to include:
• Transportation in a commuter highway
vehicle between the employee's residence
and place of employment,
• Any transit pass, and
• Qualified parking.
See section 274, Pub. 15-B, and Pub.
535 for details.
Membership dues. The corporation
can generally deduct amounts paid or
incurred for membership dues in civic or
public service organizations, professional
organizations (such as bar and medical
associations), business leagues, trade
associations, chambers of commerce,
boards of trade, and real estate boards.
However, no deduction is allowed if a
principal purpose of the organization is to
entertain or provide entertainment facilities
for members or their guests. In addition,
corporations can't deduct membership
dues in any club organized for business,
pleasure, recreation, or other social
purpose. This includes country clubs, golf
and athletic clubs, airline and hotel clubs,
and clubs operated to provide meals
under conditions favorable to business
discussion.
Entertainment facilities. The
corporation can't deduct an expense paid
or incurred for a facility (such as a yacht or
hunting lodge) used for an activity usually
considered entertainment, amusement, or
recreation.
Amounts treated as compensation.
The corporation may be able to deduct
otherwise nondeductible entertainment,
amusement, or recreation expenses if the
amounts are treated as compensation to
the recipient and reported on Form W-2
for an employee or on Form 1099-MISC
for an independent contractor.
However, if the recipient is an officer,
director, or beneficial owner (directly or
indirectly) of more than 10% of the
corporation's stock, the deductible
Instructions for Form 1120-S (2019)

expense is limited. See section 274(e)(2)
and Regulations sections 1.274-9 and
1.274-10.
Fines and penalties. Generally, no
deduction is allowed for fines and
penalties paid to a government or
specified nongovernmental entity for the
violation of any law except:
• Amounts that constitute restitution,
• Amounts paid to come into compliance
with the law,
• Amounts paid or incurred as the result
of certain court orders in which no
government or specified nongovernmental
agency is a party, and
• Amounts paid or incurred for taxes due
to the extent the amount would have been
allowed as a deduction if timely paid.
No deduction is allowed for the
restitution amount or amount paid to come
into compliance with the law unless the
amounts are specifically identified in the
settlement agreement or court order. Also,
any amount paid or incurred as
reimbursement to the government for the
costs of any investigation or litigation are
not eligible for the exceptions and are
nondeductible. See section 162(f).
Lobbying expenses. Generally,
lobbying expenses aren't deductible.
Report nondeductible expenses on
Schedule K, line 16c. These expenses
include:
• Amounts paid or incurred in connection
with influencing federal, state, or local
legislation; or
• Amounts paid or incurred in connection
with any communication with certain
federal executive branch officials in an
attempt to influence the official actions or
positions of the officials. See Regulations
section 1.162-29 for the definition of
“influencing legislation.”
Dues and other similar amounts paid to
certain tax-exempt organizations may not
be deductible. If certain in-house lobbying
expenditures don't exceed $2,000, they
are deductible. For information on
contributions to charitable organizations
that conduct lobbying activities, see
section 170(f)(9).
Certain corporations engaged in farming. Section 464(d) limits the deduction
for certain expenditures of S corporations
engaged in farming if they use the cash
method of accounting, and their prepaid
farm supplies are more than 50% of other
deductible farming expenses.
Prepaid farm supplies include
expenses for feed, seed, fertilizer, and
similar farm supplies not used or
consumed during the year. They also
include the cost of poultry that would be
allowable as a deduction in a later tax year
if the corporation were to (a) capitalize the
cost of poultry bought for use in its farm
business and deduct it ratably over the
lesser of 12 months or the useful life of the
poultry, and (b) deduct the cost of poultry

Instructions for Form 1120-S (2019)

bought for resale in the year it sells or
otherwise disposes of it.
If the limit applies, the corporation can
deduct prepaid farm supplies that don't
exceed 50% of its other deductible farm
expenses in the year of payment. The
excess is deductible only in the year the
corporation uses or consumes the
supplies (other than poultry, which is
deductible as explained above). For
exceptions and more details on these
rules, see Pub. 225.
Reforestation expenditures. If the
corporation made an election to deduct a
portion of its reforestation expenditures on
line 12d of Schedule K, it must amortize
over an 84-month period the portion of
these expenditures in excess of the
amount deducted on Schedule K (see
section 194). Deduct on line 19 only the
amortization of these excess reforestation
expenditures. See Reforestation expense
deduction (code O), later.

Line 21. Ordinary Business
Income (Loss)

Enter this income or loss on line 1 of
Schedule K. Line 21 income is not used in
figuring the excess net passive income or
built-in gains taxes. See the instructions
for line 22a for figuring taxable income for
purposes of these taxes.

Tax and Payments
Line 22a. Excess Net Passive
Income and LIFO Recapture
Tax

These taxes can apply if the corporation
was previously a C corporation or if the
corporation engaged in a tax-free
reorganization with a C corporation.

Excess net passive income tax. If the
corporation has accumulated earnings
and profits (E&P) at the close of its tax
year, has passive investment income for
the tax year that is in excess of 25% of
gross receipts, and has excess net
passive income, the corporation must pay
a tax on the excess net passive income.
To make this determination, complete
lines 1 through 3 and line 9 of the Excess
Net Passive Income Tax Worksheet for
Line 22a. If line 2 is greater than line 3 and
the corporation has taxable income (see
the instructions for line 9 of the
worksheet), it must pay the tax. Complete
a separate statement using the format of
lines 1 through 11 of the worksheet to
figure the tax. Enter the tax on line 22a,
page 1, Form 1120-S, and attach the
computation statement to Form 1120-S.
Reduce each item of passive
investment income passed through to
shareholders by its portion of any excess
net passive income tax reported on
line 22a. See section 1366(f)(3).
LIFO recapture tax. The corporation
may be liable for the additional tax due to
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LIFO recapture under Regulations section
1.1363-2 if:
• The corporation used the LIFO
inventory pricing method for its last tax
year as a C corporation, or
• A C corporation transferred LIFO
inventory to the corporation in a
nonrecognition transaction in which those
assets were transferred basis property.
The additional tax due to LIFO
recapture is figured for the corporation's
last tax year as a C corporation or for the
tax year of the transfer, whichever applies.
See the Instructions for Form 1120 to
figure the tax.
The tax is paid in four equal
installments. The C corporation must pay
the first installment by the due date (not
including extensions) of Form 1120 for the
corporation's last tax year as a C
corporation or for the tax year of the
transfer, whichever applies. The S
corporation must pay each of the
remaining installments by the due date
(not including extensions) of Form 1120-S
for the 3 succeeding tax years. Include
this year's installment in the total amount
to be entered on line 22a. To the left of the
total on line 22a, enter the installment
amount and “LIFO tax.”

Line 22b. Tax From Schedule D
(Form 1120-S)

Enter the built-in gains tax from line 23 of
Part III of Schedule D. See the instructions
for Part III of Schedule D to determine if
the corporation is liable for the tax.

Line 22c

Include the following in the total for
line 22c.
Investment credit recapture tax. The
corporation is liable for any required
investment credit recapture attributable to
credits allowed for tax years for which the
corporation wasn't an S corporation. The
corporation is also liable for any required
qualifying therapeutic discovery project
grant recapture. Figure the corporation's
investment credit recapture tax and
qualifying therapeutic discovery project
grant recapture tax by completing Form
4255, Recapture of Investment Credit.
See the Instructions for Form 4255.
To the left of the line 22c total, enter the
amount of recapture tax and “Tax From
Form 4255.” Attach Form 4255 to Form
1120-S.
Interest due under the look-back method—Completed long-term contracts. If
the corporation owes this interest, attach
Form 8697, Interest Computation Under
the Look-Back Method for Completed
Long-Term Contracts. To the left of the
total on line 22c, enter the amount owed
and “From Form 8697.”
Interest due under the look-back method—Property depreciated under the
income forecast method. If the
corporation owes this interest, attach

Form 8866, Interest Computation Under
the Look-Back Method for Property
Depreciated Under the Income Forecast
Method. To the left of the total on line 22c,
enter the amount owed and “From Form
8866.”

Line 23e

If the corporation is the beneficiary of a
trust, and the trust makes a section 643(g)
election to credit its estimated tax
payments to its beneficiaries, include the
corporation's share of the payment in the
total for line 23e. Enter “T” and the amount
on the dotted line to the left of the entry
space.

Line 24. Estimated Tax Penalty

If Form 2220 is attached, check the box on
line 24 and enter the amount of any
penalty on this line.

Line 25. Amount Owed

If the corporation can't pay the full amount
of tax owed, it can apply for an installment
agreement online. The corporation can
apply for an installment agreement online
if:
• It can't pay the full amount shown on
line 25,
• The total amount owed is $25,000 or
less, and
• The corporation can pay the liability in
full in 24 months.
To apply using the Online Payment
Agreement Application, go to IRS.gov/
OPA.
Under an installment agreement, the
corporation can pay what it owes in
monthly installments. There are certain
conditions that must be met to enter into
and maintain an installment agreement,

such as paying the liability within 24
months and making all required deposits
and timely filing tax returns during the
length of the agreement.

another entity (corporation, partnership,
estate, or trust), the owned entity is
considered to be owned proportionately
by or for the owners (shareholders,
partners, or beneficiaries) of the owning
entity.

If the installment agreement is
accepted, the corporation will be charged
a fee and it will be subject to penalties and
interest on the amount of tax not paid by
the due date of the return.

Maximum percentage owned in partnership profit, loss, or capital. For the
purposes of question 4b, the term
“maximum percentage owned” means the
highest percentage of interest in a
partnership's profit, loss, or capital as of
the end of the partnership's tax year, as
determined under the partnership
agreement, when taking into account the
constructive ownership rules discussed
earlier. If the partnership agreement
doesn't express the partner's share of
profit, loss, and capital as fixed
percentages, use a reasonable method in
arriving at the percentage items for the
purposes of completing question 4b. Such
method must be consistent with the
partnership agreement. The method used
to figure a percentage share of profit, loss,
and capital must be applied consistently
from year to year. Maintain records to
support the determination of the share of
profits, losses, and share of capital.

Line 27
Direct deposit of refund. If the
corporation wants its refund directly
deposited into its checking or savings
account at any U.S. bank or other financial
institution instead of having a check sent
to the corporation, complete Form 8050
and attach it to the corporation's return.

Schedule B. Other
Information

Complete all items that apply to the
corporation.

Item 2

See Principal Business Activity Codes at
the end of these instructions and enter the
business activity and product or service.

Question 6

Question 4. Constructive
Ownership of Other Entities

Answer “Yes” if the corporation filed, or is
required to file, Form 8918, Material
Advisor Disclosure Statement. For details,
see the Instructions for Form 8918.

For purposes of determining the
corporation's constructive ownership of
other entities, the constructive ownership
rules of section 267(c) (excluding section
267(c)(3)) apply to ownership of interests
in partnerships and trusts as well as
corporate stock. Generally, if an entity (a
corporation, partnership, or trust) is
owned, directly or indirectly, by or for

Item 8

Complete item 8 if the corporation (a) was
a C corporation before it elected to be an
S corporation or the corporation acquired
an asset with a basis determined by
reference to its basis (or the basis of any

Keep for Your Records

Excess Net Passive Income Tax Worksheet for Line 22a
1. Enter gross receipts for the tax year
(see section 1362(d)(3)(B) for gross
receipts from the sale of capital
assets)* . . . . . . . . . . . . . . . . . . .
2. Enter passive investment income as
defined in section
1362(d)(3)(C)* . . . . . . . . . . . . . .
3. Multiply line 1 by 25% (0.25). (If
line 2 is less than line 3, stop here.
You aren't liable for this tax.) . . . . .

4. Excess passive investment
income—Subtract line 3 from
line 2 . . . . . . . . . . . . . . . . . . . . .

8. Excess net passive
income—Multiply line 6 by
line 7 . . . . . . . . . . . . . . . . . . .

5. Enter deductions directly connected
with the production of income on
line 2 (see section
1375(b)(2))* . . . . . . . . . . . . . . . .

9. Enter taxable income (see
instructions for taxable income
below) . . . . . . . . . . . . . . . . . .

6. Net passive income—Subtract line 5
from line 2 . . . . . . . . . . . . . . . . .

10. Enter smaller of line 8 or
line 9 . . . . . . . . . . . . . . . . . . .

7. Divide amount on line 4 by amount
on line 2 . . . . . . . . . . . . . . . . . . .

11. Excess net passive income
tax—Multiply line 10 by 21%
(0.21). Enter here and on Form
1120-S, line 22a . . . . . . . . . . .

%

*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form
1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.
Line 9 of Worksheet—Taxable Income
Taxable income, for this purpose, is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form 1120, U.S.
Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form 1120-S. You don't have to attach the
schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120 schedules, such as Schedule D (Form 1120), if you have
capital gains or losses.

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Instructions for Form 1120-S (2019)

other property) in the hands of a C
corporation, and (b) has net unrealized
built-in gain (defined below) in excess of
the net recognized built-in gain from prior
years.
The corporation is liable for section
1374 tax if (a) and (b) above apply and it
has a net recognized built-in gain (defined
in section 1374(d)(2)) for its tax year.
The corporation's net unrealized built-in
gain is the amount, if any, by which the fair
market value of the assets of the
corporation at the beginning of its first S
corporation year (or as of the date the
assets were acquired, for any asset with a
basis determined by reference to its basis
(or the basis of any other property) in the
hands of a C corporation) exceeds the
aggregate adjusted basis of such assets
at that time.
Enter the corporation's net unrealized
built-in gain reduced by the net recognized
built-in gain from prior years. See sections
1374(c)(2) and (d)(1).
If the corporation has more than one
pool of assets (as defined in Regulations
section 1.1374-3(b)(4)), attach a
statement showing for each pool of assets
the amount of the corporation's net
unrealized built-in gain reduced by the net
recognized built-in gain from prior years.

Question 9. Business Interest
Expense Election

The limitation on business interest
expense applies to every taxpayer with a
trade or business, unless the taxpayer
meets certain specified exceptions. A
taxpayer may elect out of the limitation for
certain businesses otherwise subject to
the business interest expense limitation.
Certain real property trades or
businesses and farming businesses
qualify to make an election not to limit
business interest expense. This is an
irrevocable election. If you make this
election, you are required to use the
alternative depreciation system to
depreciate certain property. Also, you
aren’t entitled to the special depreciation
allowance for that property. For a taxpayer
with more than one qualifying business,
the election is made with respect to each
business.
Check “Yes” if the taxpayer has an
election in effect to exclude a real property
trade or business or a farming business
from section 163(j). For more information,
see section 163(j) and the Instructions for
Form 8990.

Question 10. Conditions for
Filing Form 8990

A taxpayer that isn’t a small business
taxpayer (defined below) generally must
file Form 8990. In addition, any taxpayer
that owns an interest in a partnership with
current year, or prior year carryover,
excess business interest expense

Instructions for Form 1120-S (2019)

allocated from the partnership must file
Form 8990.
Exclusions from filing. A taxpayer isn’t
required to file Form 8990 if the taxpayer
is a small business taxpayer and doesn’t
have excess business interest expense
from a partnership. A taxpayer is also not
required to file Form 8990 if the taxpayer
only has business interest expense from
these excepted trades or businesses:
• An electing real property trade or
business,
• An electing farming business, or
• Certain utility businesses.
Small business taxpayer. A small
business taxpayer isn’t subject to the
business interest expense limitation and
isn’t required to file Form 8990. A small
business taxpayer is a taxpayer that (a)
isn’t a tax shelter (as defined in section
448(d)(3)) and (b) meets the gross
receipts test of section 448(c), discussed
next.
Gross receipts test. A taxpayer meets
the gross receipts test if the taxpayer has
average annual gross receipts of $26
million or less for the 3 prior tax years. A
taxpayer's average annual gross receipts
for the 3 prior tax years is determined by
adding the gross receipts for the 3 prior
tax years and dividing the total by 3. Gross
receipts include the aggregate gross
receipts from all persons treated as a
single employer, such as a controlled
group of corporations, commonly
controlled partnerships, or proprietorships,
and affiliated service groups. See section
448(c) and the Instructions for Form 8990
for additional information.

Question 11

Total receipts is the sum of the following
amounts.
• Gross receipts or sales (page 1,
line 1a).
• All other income (page 1, lines 4 and 5).
• Income reported on Schedule K, lines
3a, 4, 5a, and 6.
• Income or net gain reported on
Schedule K, lines 7, 8a, 9, and 10.
• Income or net gain reported on Form
8825, lines 2, 19, and 20a.

Question 13

Answer “Yes” if, during the tax year, the
corporation revoked a qualified
subchapter S (QSub) election or a QSub
election of the corporation was terminated.
If “Yes,” see Regulations section 1.1361-5
for additional information.

Questions 14a and 14b

If the corporation made any payment in
2019 that would require it to file any
Form(s) 1099, check the “Yes” box for
question 14a and answer question 14b.
Otherwise, check the “No” box for
question 14a and skip question 14b. See
Am I Required to File a Form 1099 or
Other Information Return on IRS.gov.

-21-

Question 15

To be certified as a qualified opportunity
fund, the S corporation must file Form
1120-S and attach Form 8996, even if the
corporation had no income or expenses to
report. If the S corporation is attaching
Form 8996, check the “Yes” box and enter
the amount from Form 8996, line 14, in the
entry space. See Certification as a
qualified opportunity fund, earlier.
The penalty reported on this line from
Form 8996, line 14, is not due with the
filing of this form. The IRS will separately
send to you a notice setting forth the due
date for the penalty payment and where
that payment should be sent.

Schedules K and K-1
(General Instructions)
Purpose of Schedules

The corporation is liable for taxes on lines
22a, 22b, and 22c on page 1 of Form
1120-S. Shareholders are liable for tax on
their shares of the corporation's income
(reduced by any taxes paid by the
corporation on income). Shareholders
must include their share of the income on
their tax return whether or not it is
distributed to them. Unlike most
partnership income, S corporation income
isn't self-employment income and isn't
subject to self-employment tax.

Schedule K. Schedule K is a summary
schedule of all shareholders' shares of the
corporation's income, deductions, credits,
etc. All corporations must complete
Schedule K.
Schedule K-1. Schedule K-1 shows each
shareholder's separate share. Attach a
copy of each Schedule K-1 to the Form
1120-S filed with the IRS. Keep a copy for
the corporation's records and give each
shareholder a copy.
Give each shareholder a copy of the
Shareholder's Instructions for
Schedule K-1 (Form 1120-S) or specific
instructions for each item reported on the
shareholder's Schedule K-1.

Substitute Forms

The corporation doesn't need IRS
approval to use a substitute Schedule K-1
if it is an exact copy of the IRS schedule.
The boxes must use the same numbers
and titles and must be in the same order
and format as on the comparable IRS
Schedule K-1. The substitute schedule
must include the OMB number. The
corporation must provide each
shareholder with the Shareholder's
Instructions for Schedule K-1 (Form
1120-S) or instructions that apply to the
specific items reported on the
shareholder's Schedule K-1.
The corporation must ask for IRS
approval to use other substitute
Schedules K-1.

Each shareholder's information must
be on a separate sheet of paper.
Therefore, separate all continuously
printed substitutes before you file them
with the IRS.
The corporation may be subject to a
penalty if it files a substitute Schedule K-1
that doesn't conform to the specifications
discussed in Pub. 1167, General Rules
and Specifications for Substitute Forms
and Schedules.
For more information, see Pub. 1167.

Shareholder's Pro Rata Share
Items
General Rule
Items of income, gain, loss, deduction, or
credit are allocated to a shareholder on a
daily basis, according to the number of
shares of stock held by the shareholder on
each day of the corporation's tax year.
See the detailed instructions for item F in
Part II. Information About the Shareholder,
later.
Shareholders who dispose of stock are
treated as shareholders for the day of their
disposition. Shareholders who die are
treated as shareholders for the day of their
death.

Special Rules
Termination of shareholder's interest.
If a shareholder terminates his or her
interest in a corporation during the tax
year, the corporation, with the consent of
all affected shareholders (including those
whose interest is terminated), may elect to
allocate income and expenses, etc., as if
the corporation's tax year consisted of 2
separate tax years, the first of which ends
on the date of the shareholder's
termination.
To make the election, the corporation
must attach a statement to a timely filed
original or amended Form 1120-S for the
tax year for which the election is made. In
the statement, the corporation must state
that it is electing under section 1377(a)(2)
and Regulations section 1.1377-1(b) to
treat the tax year as if it consisted of 2
separate tax years. The statement must
also explain how the shareholder's entire
interest was terminated (for example, sale
or gift), and state that the corporation and
each affected shareholder consent to the
corporation making the election. A single
statement may be filed for all terminating
elections made for the tax year. If the
election is made, enter “Section 1377(a)
(2) Election Made” at the top of each
affected shareholder's Schedule K-1.
For more details, see Regulations
section 1.1377-1(b).
Qualifying dispositions. If a qualifying
disposition takes place during the tax
year, the corporation may make an
irrevocable election to allocate income
and expenses, etc., as if the corporation's

tax year consisted of 2 tax years, the first
of which ends on the close of the day the
qualifying disposition occurs.
A qualifying disposition is:
1. A disposition by a shareholder of at
least 20% of the corporation's outstanding
stock in one or more transactions in any
30-day period during the tax year,
2. A redemption treated as an
exchange under section 302(a) or 303(a)
of at least 20% of the corporation's
outstanding stock in one or more
transactions in any 30-day period during
the tax year, or
3. An issuance of stock that equals at
least 25% of the previously outstanding
stock to one or more new shareholders in
any 30-day period during the tax year.
To make the election, the corporation
must attach a statement to a timely filed
original or amended Form 1120-S for the
tax year for which the election is made. In
the statement, the corporation must state
that it is electing under Regulations
section 1.1368-1(g)(2)(i) to treat the tax
year as if it consisted of 2 separate tax
years, give the facts relating to the
qualifying disposition (for example, sale,
gift, stock issuance, or redemption), and
state that each shareholder who held
stock in the corporation during the tax year
consents to the election. A single election
statement may be filed for all qualifying
disposition elections for the tax year.
For more details, see Regulations
section 1.1368-1(g)(2).

Specific Instructions
(Schedule K-1 Only)
General Information

Generally, the corporation is required to
prepare and give a Schedule K-1 to each
person who was a shareholder in the
corporation at any time during the tax
year. Schedule K-1 must be provided to
each shareholder on or before the day on
which the corporation's Form 1120-S is
required to be filed.

How To Complete Schedule K-1
If the return is for a fiscal year or a short
tax year, fill in the tax year space at the top
of each Schedule K-1. On each
Schedule K-1, enter the information about
the corporation and the shareholder in
Parts I and II (items A through F). In Part
III, enter the shareholder's pro rata share
of each item of income, deduction, and
credit and any other information the
shareholder needs to prepare his or her
tax return. Use 10-point Helvetica Light
Standard font (if possible) for all entries if
you are typing or using a computer to
complete Schedule K-1.
Codes. In box 10 and boxes 12 through
17, identify each item by entering a code
in the left column of the entry space.
-22-

These codes are identified in these
instructions and on the back of
Schedule K-1.
Attached statements. When attaching
statements to Schedule K-1 to report
additional information to the shareholder,
indicate there is a statement depending
upon the following.
• If an amount can be input on
Schedule K-1 but additional information is
required so the shareholder can determine
the proper reporting, enter an asterisk (*)
after the code in the left column of the
entry space.
• For items that can't be reported as a
single dollar amount, enter the code and
asterisk (*) in the left column and enter
“STMT” in the right column to indicate that
the information is provided on an attached
statement.
• If the corporation has more coded items
than the number of entry boxes (for
example, boxes 10, 12, 13 or boxes 15
through 17), don't enter a code or dollar
amount in the last box. Instead, enter an
asterisk (*) in the left column and enter
“STMT” in the entry space to the right.
More than one attached statement can
be placed on the same sheet of paper.
The information included in the statement
should be identified in alphanumeric order
by box number followed by the letter code
(if any), description, and dollar amount.
For example: “Box 13, code J—Work
opportunity credit—$1,000.” This can be
followed with any additional information
that the shareholder needs to determine
the proper tax treatment of the item.
For electronically filed returns, the
corporation must follow the
CAUTION instructions for attached
statements as described in Pub. 4164
when reporting the additional information
that may be required for each respective
box. See Pub. 4164 for more information.

!

Special Reporting Requirements
for At-Risk Activities
If items of income, loss, or deduction from
more than one at-risk activity are reported
on Schedule K-1, the corporation must
provide information separately for each
activity to its shareholders. See At-Risk
Activity Reporting Requirements under
At-Risk Limitations, earlier, for details.

Special Reporting Requirements
for Corporations With Multiple
Activities
If items of income, loss, deduction, or
credit from more than one activity
(determined for purposes of the passive
activity loss and credit limitations) are
reported on Schedule K-1, the corporation
must provide information separately for
each activity to its shareholders. See
Passive Activity Reporting Requirements,

Instructions for Form 1120-S (2019)

earlier, for details on the reporting
requirements.

Part I. Information About the
Corporation
On each Schedule K-1, enter the
corporation's name, address, and
identifying number.

Item C
If the corporation is filing its return
electronically, enter “e-file.” Otherwise,
enter the name of the IRS service center
where the corporation will file its return.
See Where To File, earlier.

Part II. Information About the
Shareholder

On each Schedule K-1, enter the
shareholder's name, address, identifying
number, and percentage of stock
ownership.

Truncating recipient's identification
number on Schedule K-1. The
corporation can truncate a shareholder's
identifying number on the Schedule K-1
the corporation sends to the shareholder.
Truncation isn't allowed on the
Schedule K-1 the corporation files with the
IRS. Also, the corporation can't truncate its
own identification number on any form.
To truncate, where allowed, replace the
first five digits of the nine-digit number with
asterisks (*) or Xs (for example, an SSN
xxx-xx-xxxx would appear as ***-**-xxxx or
XXX-XX-xxxx). For more information, see
Regulations section 301.6109-4.

Items D and E
For an individual shareholder, enter the
shareholder's social security number
(SSN) or individual taxpayer identification
number (ITIN) in item D. For all other
shareholders, enter the shareholder's EIN.
If stock of the corporation is held by a
nominee, guardian, custodian, or an
agent, enter the name, address, and
identifying number of the person for whom
the stock is held.
If a single-member limited liability
company (LLC) owns stock in the
corporation, and the LLC is treated as a
disregarded entity for federal income tax
purposes, enter the owner's identifying
number in item D and the owner's name
and address in item E. The owner must be
eligible to be an S corporation
shareholder. An LLC that elects to be
treated as a corporation for federal income
tax purposes isn't eligible to be an S
corporation shareholder.

Item F
Each shareholder's pro rata share items
are figured separately for each period on a
daily basis, based on the percentage of

Instructions for Form 1120-S (2019)

stock held by the shareholder on each
day.

income tax (Form 1120-S, page 1,
line 22a).

If there was no change in shareholders
or in the relative interest in stock the
shareholders owned during the tax year,
enter the percentage of total stock owned
by each shareholder during the tax year.
For example, if shareholders X and Y each
owned 50% for the entire tax year, enter
50% in item F for each shareholder. Each
shareholder's pro rata share items (boxes
1 through 17 of Schedule K-1) are figured
by multiplying the corresponding
Schedule K amount by the percentage in
item F.

Line 1. Ordinary Business Income
(Loss)

If there was a change in shareholders
or in the relative interest in stock the
shareholders owned during the tax year,
figure the percentage as follows.
• Each shareholder's percentage of
ownership is weighted for the number of
days in the tax year that stock was owned.
For example, A and B each held 50% for
half the tax year and A, B, and C held
40%, 40%, and 20%, respectively, for the
remaining half of the tax year. The
percentage of ownership for the year for
A, B, and C is figured as presented in the
illustration and is then entered in item F.
a

b

c (a × b)

% of total
stock
owned

% of tax
year held

% of
ownership
for the year

A

50
40

50
50

25
+20

45

B

50
40

50
50

25
+20

45

C

20

50

10

Total . . . . . . . . . . . . . . . . . . .

10
100%

• Each shareholder's pro rata share items
generally are figured by multiplying the
Schedule K amount by the percentage in
item F. However, if a shareholder
terminated his or her entire interest in the
corporation during the year or a qualifying
disposition took place, the corporation
may elect to allocate income and
expenses, etc., as if the tax year consisted
of 2 tax years, the first of which ends on
the day of the termination or qualifying
disposition. See Special Rules, earlier, for
more details.

Specific Instructions
(Schedules K and K-1, Part
III)
Income (Loss)
Reminder. Before entering income items
on Schedule K or K-1, reduce each item of
passive investment income (within the
meaning of section 1362(d)(3)(C)) by its
proportionate share of the net passive
-23-

Enter the amount from Form 1120-S,
page 1, line 21. Enter the income (loss)
without reference to the shareholder's:
• Basis in the stock of the corporation
and in any indebtedness of the
corporation to the shareholders (section
1366(d)),
• At-risk limitations, and
• Passive activity limitations.
These limitations, if applicable, are
determined at the shareholder level.
Line 1 shouldn't include rental activity
income (loss) or portfolio income (loss).
Schedule K-1. Enter each shareholder's
pro rata share of ordinary business
income (loss) in box 1 of Schedule K-1.
Identify on statements attached to
Schedule K-1 any additional information
the shareholder needs to correctly apply
the passive activity limitations. For
example, if the corporation has more than
one trade or business activity, identify the
amount from each activity. See Passive
Activity Reporting Requirements, earlier.

Line 2. Net Rental Real Estate
Income (Loss)
Enter the net income (loss) from rental real
estate activities of the corporation from
Form 8825. Attach the form to Form
1120-S.
Schedule K-1. Enter each shareholder's
pro rata share of net rental real estate
income (loss) in box 2 of Schedule K-1.
Identify on statements attached to
Schedule K-1 any additional information
the shareholder needs to correctly apply
the passive activity limitations. For
example, if the corporation has more than
one rental real estate activity, identify the
amount from each activity. Also, for
example, identify certain items from any
rental real estate activities that may be
subject to the recharacterization rules.
See Passive Activity Reporting
Requirements, earlier.

Line 3. Other Net Rental Income
(Loss)
Enter on line 3a gross income from rental
activities other than those reported on
Form 8825. Include on line 3a gain (loss)
from line 17 of Form 4797 that is
attributable to the sale, exchange, or
involuntary conversion of an asset used in
a rental activity other than a rental real
estate activity.
Enter on line 3b the deductible
expenses of the activity. Attach a

statement of these expenses to Form
1120-S.
Enter on line 3c the net income (loss).
See Rental Activities, earlier, and Pub.
925, Passive Activity and At-Risk Rules,
for more information on rental activities.
Schedule K-1. Enter in box 3 of
Schedule K-1 each shareholder's pro rata
share of other net rental income (loss)
reported on line 3c of Schedule K. Identify
on statements attached to Schedule K-1
any additional information the shareholder
needs to correctly apply the passive
activity limitations. For example, if the
corporation has more than one rental
activity reported in box 3, identify the
amount from each activity. See Passive
Activity Reporting Requirements, earlier.

Portfolio Income
See Portfolio Income, earlier, for a
definition of portfolio income.
Don't reduce portfolio income by
deductions allocated to it. Report such
deductions (other than interest expense)
on line 12d of Schedule K. Report each
shareholder's pro rata share of deductions
in box 12 of Schedule K-1 using codes I or
L.
Interest expense allocable to portfolio
income is generally investment interest
expense reported on line 12b of
Schedule K. Report each shareholder's
pro rata share of interest expense
allocable to portfolio income in box 12 of
Schedule K-1 using code H.

Line 4. Interest Income
Enter only taxable portfolio interest on this
line. Taxable interest is interest from all
sources except interest exempt from tax
and interest on tax-free covenant bonds.
Schedule K-1. Enter each shareholder's
pro rata share of interest income in box 4
of Schedule K-1.

Line 5a. Ordinary Dividends
Enter only taxable ordinary dividends on
line 5a, including any qualified dividends
reported on line 5b.
Schedule K-1. Enter each shareholder's
pro rata share of ordinary dividends in
box 5a of Schedule K-1.

Line 5b. Qualified Dividends
Enter qualified dividends on line 5b.
Except as provided below, qualified
dividends are dividends received from
domestic corporations and qualified
foreign corporations.
Exceptions. The following dividends
aren't qualified dividends.
• Dividends the corporation received on
any share of stock held for less than 61

days during the 121-day period that began
60 days before the ex-dividend date.
When determining the number of days the
corporation held the stock, don't count
certain days during which the
corporation's risk of loss was diminished.
The ex-dividend date is the first date
following the declaration of a dividend on
which the purchaser of a stock isn't
entitled to receive the next dividend
payment. When counting the number of
days the corporation held the stock,
include the day the corporation disposed
of the stock but not the day the
corporation acquired it.
• Dividends attributable to periods
totaling more than 366 days that the
corporation received on any share of
preferred stock held for less than 91 days
during the 181-day period that began 90
days before the ex-dividend date. When
determining the number of days the
corporation held the stock, don't count
certain days during which the
corporation's risk of loss was diminished.
Preferred dividends attributable to periods
totaling less than 367 days are subject to
the 61-day holding period rule above.
• Dividends that relate to payments that
the corporation is obligated to make with
respect to short sales or positions in
substantially similar or related property.
• Dividends paid by a regulated
investment company that aren't treated as
qualified dividend income under section
854.
• Dividends paid by a real estate
investment trust that aren't treated as
qualified dividend income under section
857(c).
See Pub. 550, Investment Income and
Expenses, for more details.
Qualified foreign corporation. A foreign
corporation is a qualified foreign
corporation if it is:
1. Incorporated in a possession of the
United States, or
2. Eligible for benefits of a
comprehensive income tax treaty with the
United States that the Secretary
determines is satisfactory for this purpose
and that includes an exchange of
information program. See Notice 2011-64,
2011-37 I.R.B. 231, for details.
If the foreign corporation doesn't meet
either (1) or (2), then it may be treated as a
qualified foreign corporation for any
dividend paid by the corporation if the
stock associated with the dividend paid is
readily tradable on an established
securities market in the United States.
However, qualified dividends don't
include dividends paid by an entity which
was a passive foreign investment
company (defined in section 1297) in
either the tax year of the distribution or the
preceding tax year.
See Notice 2004-71, 2004-45 I.R.B.
793, and Notice 2006-3, 2006-3 I.R.B.
306, for more details.
-24-

Schedule K-1. Enter each shareholder's
pro rata share of qualified dividends in
box 5b of Schedule K-1.
If any amounts from line 5b are
from foreign sources, see the
CAUTION instructions for lines 14d through
14h, later, for additional statements
required.

!

Line 6. Royalties
Enter the royalties received by the
corporation.
Schedule K-1. Enter each shareholder's
pro rata share of royalties in box 6 of
Schedule K-1.

Line 7. Net Short-Term Capital
Gain (Loss)
Enter the gain (loss) that is portfolio
income (loss) from Schedule D (Form
1120-S), line 7.
Schedule K-1. Enter each shareholder's
pro rata share of net short-term capital
gain (loss) in box 7 of Schedule K-1.

Line 8a. Net Long-Term Capital
Gain (Loss)
Enter the gain or loss that is portfolio
income (loss) from Schedule D (Form
1120-S), line 15.
Schedule K-1. Enter each shareholder's
pro rata share of net long-term capital gain
(loss) in box 8a of Schedule K-1.
If any gain or loss from line 7 or 15
of Schedule D is from the
CAUTION disposition of nondepreciable
personal property used in a trade or
business, it may not be treated as portfolio
income. Instead, report it on line 10 of
Schedule K and report each shareholder's
pro rata share in box 10 of Schedule K-1
using code H.

!

Line 8b. Collectibles (28%) Gain
(Loss)
Figure the amount attributable to
collectibles from the amount reported on
Schedule D (Form 1120-S), line 15. A
collectibles gain (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, metal (such as gold, silver, or
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 for more than 1
year and attributable to unrealized
appreciation of collectibles. For details,
see Regulations section 1.1(h)-1. Also
Instructions for Form 1120-S (2019)

attach the statement required under
Regulations section 1.1(h)-1(e).
Schedule K-1. Report each
shareholder's pro rata share of the
collectibles (28%) gain (loss) in box 8b of
Schedule K-1.

Line 8c. Unrecaptured Section
1250 Gain
The three types of unrecaptured section
1250 gain must be reported separately on
an attached statement to Form 1120-S.
From the sale or exchange of the corporation's business assets. Figure this
amount in Part III of Form 4797 for each
section 1250 property (except property for
which gain is reported using the
installment method on Form 6252,
Installment Sale Income) for which you
had an entry in Part I of Form 4797.
Subtract line 26g of Form 4797 from the
smaller of line 22 or line 24. Figure the
total of these amounts for all section 1250
properties. Generally, the result is the
corporation's unrecaptured section 1250
gain. However, if the corporation is
reporting gain on the installment method
for a section 1250 property held more than
1 year, see the next paragraph.
The total unrecaptured section 1250
gain for an installment sale of section 1250
property held more than 1 year is figured
in a manner similar to that used in the
preceding paragraph. However, the total
unrecaptured section 1250 gain must be
allocated to the installment payments
received from the sale. To do so, the
corporation generally must treat the gain
allocable to each installment payment as
unrecaptured section 1250 gain until all
such gain has been used in full. Figure the
unrecaptured section 1250 gain for
installment payments received during the
tax year as the smaller of (a) the amount
from line 26 or line 37 of Form 6252
(whichever applies), or (b) the total
unrecaptured section 1250 gain for the
sale reduced by all gain reported in prior
years (excluding section 1250 ordinary
income recapture).
If the corporation chose not to treat
all of the gain from payments
CAUTION received after May 6, 1997, and
before August 24, 1999, as unrecaptured
section 1250 gain, use only the amount
the corporation chose to treat as
unrecaptured section 1250 gain for those
payments to reduce the total unrecaptured
section 1250 gain remaining to be
reported for the sale. See Regulations
section 1.453-12.

!

From the sale or exchange of an interest in a partnership. Also report as a
separate amount any gain from the sale or
exchange of an interest in a partnership
attributable to unrecaptured section 1250
gain. See Regulations section 1.1(h)-1
and attach the statement required under
Regulations section 1.1(h)-1(e).
Instructions for Form 1120-S (2019)

From an estate, trust, REIT, or RIC. If
the corporation received a Schedule K-1
or Form 1099-DIV from an estate, a trust,
a real estate investment trust (REIT), or a
regulated investment company (RIC)
reporting “unrecaptured section 1250
gain,” don't add it to the corporation's own
unrecaptured section 1250 gain. Instead,
report it as a separate amount. For
example, if the corporation received a
Form 1099-DIV from a REIT with
unrecaptured section 1250 gain, report it
as “Unrecaptured section 1250 gain from
a REIT.”
Schedule K-1. Report each
shareholder's pro rata share of
unrecaptured section 1250 gain from the
sale or exchange of the corporation's
business assets in box 8c of
Schedule K-1. If the corporation is
reporting unrecaptured section 1250 gain
from an estate, trust, REIT, or RIC, or from
the corporation's sale or exchange of an
interest in a partnership (as explained
above), enter “STMT” in box 8c and an
asterisk (*) in the left column of the box
and attach a statement that separately
identifies the amount of unrecaptured
section 1250 gain from:
• The sale or exchange of the
corporation's business assets;
• The sale or exchange of an interest in a
partnership; and
• An estate, trust, REIT, or RIC.
If any amounts from line 8c are
from foreign sources, see the
CAUTION instructions for lines 14d through
14h for additional statements required.

!

Line 9. Net Section 1231 Gain
(Loss)
Enter the net section 1231 gain (loss) from
Form 4797, line 7.
Don't include net gain or loss from
involuntary conversions due to casualty or
theft. Report net loss from involuntary
conversions due to casualty or theft on
line 10 of Schedule K (box 10, code B, of
Schedule K-1). See the instructions for
line 10 on how to report net gain from
involuntary conversions.
Schedule K-1. Report each
shareholder's pro rata share of net section
1231 gain (loss) in box 9 of Schedule K-1.
If the corporation has more than one
rental, trade, or business activity, identify
on an attachment to Schedule K-1 the
amount of section 1231 gain (loss) from
each separate activity. See Passive
Activity Reporting Requirements, earlier.
If any amounts from line 9 are from
foreign sources, see the
CAUTION instructions for lines 14d through
14h for additional required statements.

!

-25-

Line 10. Other Income (Loss)
Enter any other item of income or loss not
included on lines 1 through 9. On the line
to the left of the entry space for line 10,
identify the type of income. If there is more
than one type of income, attach a
statement to Form 1120-S that separately
identifies each type and amount of income
for each of the following categories. The
codes needed for Schedule K-1 reporting
are provided for each category.
Other portfolio income (loss) (code A).
Portfolio income not reported on lines 4
through 8. Report and identify other
portfolio income or loss on an attachment
for line 10.
If the corporation holds a residual
interest in a Real Estate Mortgage
Investment Conduit (REMIC), report on an
attachment the shareholder's share of the
following.
• Taxable income (net loss) from the
REMIC (line 1b of Schedules Q (Form
1066)).
• Excess inclusion (line 2c of Schedules
Q (Form 1066)).
• Section 212 expenses (line 3b of
Schedules Q (Form 1066)).
Because Schedule Q (Form 1066) is a
quarterly statement, the corporation must
follow the Schedule Q instructions to
figure the amounts to report to
shareholders for the corporation's tax
year.
Involuntary conversions (code B).
Report net loss from involuntary
conversions due to casualty or theft. The
amount for this item is shown on Form
4684, Casualties and Thefts, line 38a or
38b.
Each shareholder's pro rata share must
be entered on Schedule K-1.
Enter the net gain from involuntary
conversions of property used in a trade or
business (line 39 of Form 4684) on line 3
of Form 4797.
If there was a gain (loss) from a
casualty or theft to property not used in a
trade or business or for income-producing
purposes, notify the shareholder. The
corporation shouldn't complete Form 4684
for this type of casualty or theft. Instead,
each shareholder will complete his or her
own Form 4684.
Section 1256 contracts and straddles
(code C). Report any net gain or loss
from section 1256 contracts from Form
6781, Gains and Losses From Section
1256 Contracts and Straddles.
Mining exploration costs recapture
(code D). Provide the information
shareholders need to recapture certain
mining exploration expenditures. See
Regulations section 1.617-3.
Reserved for future use (code E).
Code E is reserved for future use.

Section 965(a) inclusion (code F).
Enter the section 965(a) inclusion amount
from Form 965, line 3, on Schedule K,
line 10. You must also complete and
attach Form 965, Inclusion of Deferred
Foreign Income Upon Transition to
Participation Exemption System, and
applicable schedules.
Income under subpart F (other than inclusions under sections 951A and 965)
(code G). Provide information
shareholders need to figure the subpart F
income other than sections 951A and 965
inclusion.
Other income (loss) (code H). Include
any other type of income, such as the
following.
• Recoveries of tax benefit items (section
111).
• Gambling gains and losses subject to
the limitations in section 165(d). Indicate
on an attached statement whether or not
the corporation is in the trade or business
of gambling.
• Disposition of an interest in oil, gas,
geothermal, or other mineral properties.
Report the following information on a
statement attached to Schedule K-1: (a) a
description of the property; (b) the
shareholder's share of the amount
realized on the sale, exchange, or
involuntary conversion of each property
(fair market value of the property for any
other disposition, such as a distribution);
(c) the shareholder's share of the
corporation's adjusted basis in the
property (except for oil or gas properties);
and (d) total intangible drilling costs,
development costs, and mining
exploration costs (section 59(e)
expenditures) passed through to the
shareholder for the property. See
Regulations section 1.1254-4 for more
information.
• COD income deferred under section
108(i). Report COD income deferred
under section 108(i) that must be included
in income in the current tax year under
section 108(i)(1) or section 108(i)(5)(D)(i)
or (ii). For information on events that will
cause previously deferred income to be
reportable and allocating deferred income
to the shareholders, see section 108(i);
Regulations section 1.108(i)-1; Rev. Proc.
2009-37, 2009-36 I.R.B. 309; and
Regulations section 1.108(i)-2.
• Gain from the sale or exchange of
qualified small business (QSB) stock (as
defined in the Instructions for Schedule D)
that is eligible for the section 1202
exclusion. The section 1202 exclusion
applies only to QSB stock held by the
corporation for more than 5 years.
Additional limitations apply at the
shareholder level. Report each
shareholder's share of section 1202 gain
on Schedule K-1. Each shareholder will
determine if he or she qualifies for the
exclusion. Report on an attachment to
Schedule K-1 for each sale or exchange
(a) the name of the corporation that issued

the QSB stock, (b) the shareholder's pro
rata share of the corporation's adjusted
basis and sales price of the QSB stock,
and (c) the dates the QSB stock was
bought and sold.
• Gain eligible for section 1045 rollover
(replacement stock purchased by the
corporation). Include only gain from the
sale or exchange of QSB stock (as
defined in the Instructions for Schedule D)
that was deferred by the corporation under
section 1045 and reported on Schedule D.
See the Instructions for Schedule D for
more details. Additional limitations apply
at the shareholder level. Report each
shareholder's share of the gain eligible for
section 1045 rollover on Schedule K-1.
Each shareholder will determine if he or
she qualifies for the rollover. Report on an
attachment to Schedule K-1 for each sale
or exchange (a) the name of the
corporation that issued the QSB stock, (b)
the shareholder's pro rata share of the
corporation's adjusted basis and sales
price of the QSB stock, and (c) the dates
the QSB stock was bought and sold.
• Gain eligible for section 1045 rollover
(replacement stock not purchased by the
corporation). Include only gain from the
sale or exchange of QSB stock (as
defined in the Instructions for Schedule D)
the corporation held for more than 6
months but that wasn't deferred by the
corporation under section 1045. See the
Instructions for Schedule D for more
details. A shareholder may be eligible to
defer his or her pro rata share of this gain
under section 1045 if he or she purchases
other QSB stock during the 60-day period
that began on the date the QSB stock was
sold by the corporation. Additional
limitations apply at the shareholder level.
Report on an attachment to Schedule K-1
for each sale or exchange (a) the name of
the corporation that issued the QSB stock,
(b) the shareholder's pro rata share of the
corporation's adjusted basis and sales
price of the QSB stock, and (c) the dates
the QSB stock was bought and sold.
• Any gain or loss from line 7 or 15 of
Schedule D that isn't portfolio income (for
example, gain or loss from the disposition
of nondepreciable personal property used
in a trade or business).
Schedule K-1. Enter each shareholder's
pro rata share of the other income
categories listed above in box 10 of
Schedule K-1. Enter the applicable code
A, B, C, D, E, F, G, or H (as shown
earlier).
If you are reporting each shareholder's
pro rata share of only one type of income
under code H, enter the code with an
asterisk (H*) and the dollar amount in the
entry space in box 10 and attach a
statement that shows “Box 10, code H,”
and the type of income. If you are
reporting multiple types of income under
code H, enter the code with an asterisk
(H*) and enter “STMT” in the entry space
in box 10 and attach a statement that
-26-

shows “Box 10, code H,” and the dollar
amount of each type of income.
Provide information to the shareholders
to allow them to calculate their global
intangible low-taxed income (GILTI)
inclusion. See the Instructions for Form
8992 for details.
If the corporation has more than one
trade or business or rental activity (for
codes B through H), identify on an
attachment to Schedule K-1 the amount
from each separate activity. See Passive
Activity Reporting Requirements, earlier.

Deductions
Line 11. Section 179 Deduction
A corporation can elect to expense part or
all of the cost of certain property the
corporation purchased during the tax year
for use in its trade or business or certain
rental activities. See Pub. 946 for a
definition of what kind of property qualifies
for the section 179 expense deduction and
the Instructions for Form 4562 for
limitations on the amount of the section
179 expense deduction.
Complete Part I of Form 4562 to figure
the corporation's section 179 expense
deduction. The corporation doesn't take
the deduction itself, but instead passes it
through to the shareholders. Attach Form
4562 to Form 1120-S and show the total
section 179 expense deduction on
Schedule K, line 11.
Although the corporation can't take the
section 179 deduction, it generally must
still reduce the basis of the asset by the
amount of the section 179 deduction it
elected, regardless of whether any
shareholder can use the deduction.
However, the corporation doesn't reduce
the basis for any section 179 deduction
allocable to a trust or estate because they
aren't eligible to take the section 179
deduction. See Regulations section
1.179-1(f).
See the instructions for line 17d of
Schedule K for sales or other dispositions
of property for which a section 179
deduction has passed through to
shareholders and for the recapture rules if
the business use of the property dropped
to 50% or less.
Schedule K-1. Report each
shareholder's pro rata share of the section
179 expense deduction in box 11 of
Schedule K-1.
If the corporation has more than one
rental, trade, or business activity, identify
on an attachment to Schedule K-1 the
amount of section 179 deduction from
each separate activity. See Passive
Activity Reporting Requirements, earlier.
Don't complete box 11 of Schedule K-1
for any shareholder that is an estate or

Instructions for Form 1120-S (2019)

trust; estates and trusts aren't eligible for
the section 179 expense deduction.

Line 12a. Charitable Contributions
Cash contributions must be supported by
a dated bank record or receipt.
Generally, no deduction is allowed for
any contribution of $250 or more unless
the corporation obtains a written
acknowledgment from the charitable
organization that shows the amount of
cash contributed, describes any property
contributed, and gives an estimate of the
value of any goods or services provided in
return for the contribution. The
acknowledgment must be obtained by the
due date (including extensions) of the
corporation's return, or, if earlier, the date
the return is filed. Don't attach the
acknowledgment to the tax return, but
keep it with the corporation's records.
These rules apply in addition to the filing
requirements for Form 8283, Noncash
Charitable Contributions, described under
Contributions of property, later.
Enter charitable contributions made
during the tax year. Attach a statement to
Form 1120-S that separately identifies the
corporation's contributions for each of the
following categories. See Limits on
Deductions in Pub. 526, Charitable
Contributions, for information on adjusted
gross income (AGI) limitations on
deductions for charitable contributions.
The codes needed for Schedule K-1
reporting are provided for each category.
Cash contributions (60%) (code A).
Enter cash contributions subject to the
60% AGI limitation. Don’t include in the
amount reported using code A the cash
contributions reported using code G.
Cash contributions (30%) (code B).
Enter cash contributions subject to the
30% AGI limitation.
Noncash contributions (50%) (code
C). Enter noncash contributions subject to
the 50% AGI limitation. Don't include food
inventory contributions reported
separately on an attached statement. If
property other than cash is contributed
and the claimed deduction for one item or
group of similar items of property exceeds
$5,000, the corporation must give each
shareholder a copy of Form 8283 to attach
to the shareholder's return.
Food inventory contributions. Provide
the following information on a statement
attached to Schedule K-1.
• The shareholder's pro rata share of the
amount of the charitable contributions
under section 170(e)(3) for qualified food
inventory that was donated to charitable
organizations for the care of the ill, needy,
and infants. The food must meet all the
quality and labeling standards imposed by
federal, state, and local laws and
regulations. The charitable contribution for
Instructions for Form 1120-S (2019)

donated food inventory is the lesser of (a)
the basis of the donated food plus half of
the appreciation (gain if the donated food
were sold at fair market value (FMV) on
the date of the gift), or (b) twice the basis
of the donated food. A corporation that
doesn’t account for inventories and isn’t
required to capitalize indirect costs under
section 263A may elect to treat the basis
of the donated food as equal to 25% of the
FMV of the food. See section 170(e)(3)(C)
for more details.
• The shareholder's pro rata share of the
net income for the tax year from the
corporation's trades or businesses that
made the contributions of food inventory.
Qualified conservation contributions.
The AGI limit for qualified conservation
contributions under section 170(h)
generally is 50%. However, if the
corporation is a qualified farmer or rancher
(farm income is more than 50% of gross
income), the AGI limit for qualified
conservation contributions of property
used in agriculture or livestock production
(or available for such production) is 100%.
The carryover period is 15 tax years. See
section 170(b) and Notice 2007-50,
2007-25 I.R.B. 1430, for details. Report
qualified conservation contributions with a
50% AGI limitation on Schedule K-1 in
box 12 using code C. Report qualified
conservation contributions with a 100%
AGI limitation on a statement attached to
Schedule K-1 using code G.
Noncash contributions (30%) (code
D). Enter noncash contributions subject to
the 30% AGI limitation.
Capital gain property to a 50% organization (30%) (code E). Enter capital
gain property contributions subject to the
30% AGI limitation.
Capital gain property (20%) (code F).
Enter capital gain property contributions
subject to the 20% AGI limitation.
Contributions of property. See
Contributions of Property in Pub. 526 and
Pub. 561, Determining the Value of
Donated Property, for information on
noncash contributions and contributions of
capital gain property. If the deduction
claimed for noncash contributions
exceeds $500, complete Form 8283 and
attach it to Form 1120-S.
Shareholders can deduct their pro rata
share of the FMV of property
contributions, but will only need to adjust
their stock basis by their pro rata share of
the property's adjusted basis. Give each
shareholder a statement identifying their
pro rata share of both the FMV and
adjusted basis of the property.
If the corporation made a qualified
conservation contribution under section
170(h), also include the FMV of the
underlying property before and after the
donation, as well as the type of legal
interest contributed, and describe the
conservation purpose furthered by the
-27-

donation. Give a copy of this information
to each shareholder.
If the corporation made a contribution
of real property located in a registered
historic district, restrictions apply.
Generally, no deductions are allowed for
structures or land (deductions are only
allowed for buildings), and the charitable
contribution may be reduced if
rehabilitation credits were claimed for the
building. A $500 filing fee may apply to
certain deductions over $10,000. See
Pub. 526 for details.
Nondeductible contributions. Certain
contributions made to an organization
conducting lobbying activities aren't
deductible. See section 170(f)(9) for more
details. Also, see Contributions You Can’t
Deduct in Pub. 526 for more examples of
nondeductible contributions.
An accrual basis S corporation
can't elect to treat a contribution
CAUTION as having been paid in the tax year
the board of directors authorizes the
payment if the contribution isn't actually
paid until the next tax year.

!

Contributions (100%) (code G). Enter
cash contributions made before February
19, 2020, for relief efforts in certain
disaster areas. The corporation must
obtain a statement that includes
contemporaneous written
acknowledgment from the qualified
charitable organization that the
contribution was used (or will be used) for
this purpose. See Pub. 976, Disaster
Relief, for more information.
Qualified conservation
contributions of property used in
agriculture or livestock production. If
the corporation is a qualified farmer or
rancher (farm income is more than 50% of
gross income), attach a statement to
Schedule K-1 that shows the
shareholder's pro rata share of qualified
conservation contributions of property
used in agriculture or livestock production
(or available for such production). Don’t
include these contributions in the amounts
reported in box 12 of Schedule K-1
because shareholders must separately
determine if they qualify for the 50% or
100% AGI limitation for these
contributions. The contribution must be
subject to a restriction that the property
remain available for such production. See
section 170(b) for details.
Schedule K-1. Report each
shareholder's pro rata share of charitable
contributions in box 12 of Schedule K-1
using codes A through G for each of the
contribution categories shown earlier. See
Contributions of property, earlier, for
information on statements you may be
required to attach to Schedule K-1. The
corporation must attach a copy of its Form
8283 to the Schedule K-1 of each
shareholder if the deduction for any item
or group of similar items of contributed

property exceeds $5,000, even if the
amount allocated to any shareholder is
$5,000 or less.

Line 12b. Investment Interest
Expense
Include on this line the interest properly
allocable to debt on property held for
investment purposes. Property held for
investment includes property that
produces income (unless derived in the
ordinary course of a trade or business)
from interest, dividends, annuities, or
royalties; and gains from the disposition of
property that produces those types of
income or is held for investment.
Investment interest expense doesn't
include interest expense allocable to a
passive activity.
Investment income and investment
expenses other than interest are reported
on lines 17a and 17b, respectively. This
information is needed by shareholders to
determine the investment interest expense
limitation (see Form 4952 for details).
Schedule K-1. Report each
shareholder's pro rata share of investment
interest expense in box 12 of
Schedule K-1 using code H.

Lines 12c(1) and 12c(2). Section
59(e)(2) Expenditures
Generally, section 59(e) allows each
shareholder to make an election to deduct
their pro rata share of the corporation's
otherwise deductible qualified
expenditures ratably over 10 years (3
years for circulation expenditures). The
deduction is taken beginning with the tax
year in which the expenditures were made
(or for intangible drilling and development
costs, over the 60-month period beginning
with the month in which such costs were
paid or incurred).
The term “qualified expenditures”
includes only the following types of
expenditures paid or incurred during the
tax year.
• Circulation expenditures.
• Research and experimental
expenditures.
• Intangible drilling and development
costs.
• Mining exploration and development
costs.
If a shareholder makes the election,
these items aren't treated as alternative
minimum tax (AMT) tax preference items.
Because the shareholders make this
election, the corporation can't deduct
these amounts or include them as AMT
items on Schedule K-1. Instead, the
corporation passes through the
information the shareholders need to
figure their separate deductions.

On line 12c(1), enter the type of
expenditures claimed on line 12c(2). Enter
on line 12c(2) the qualified expenditures
paid or incurred during the tax year for
which a shareholder may make an
election under section 59(e). Enter this
amount for all shareholders whether or not
any shareholder makes an election under
section 59(e).
On an attached statement, identify the
property for which the expenditures were
paid or incurred. If the expenditures were
for intangible drilling or development costs
for oil and gas properties, identify the
month(s) in which the expenditures were
paid or incurred. If there is more than one
type of expenditure or more than one
property, provide the amounts (and the
months paid or incurred, if required) for
each type of expenditure separately for
each property.
Schedule K-1. Report each
shareholder's pro rata share of section
59(e) expenditures in box 12 of
Schedule K-1 using code J. Identify the
following information on an attached
statement.
• The type of expenditure.
• The property for which the expenditures
are paid or incurred.
• For oil and gas properties only, the
month in which intangible drilling costs
and development costs were paid or
incurred.
If there is more than one type of
expenditure or the expenditures are for
more than one property, provide each
shareholder's pro rata share of the
amounts (and the months paid or incurred
for oil and gas properties) for each type of
expenditure separately for each property.

Line 12d. Other Deductions
Enter deductions not included on line 11,
12a, 12b, 12c(2), or 14p. On the line to the
left of the entry space for line 12d, identify
the type of deduction. If there is more than
one type of deduction, attach a statement
to Form 1120-S that separately identifies
the type and amount of each deduction for
the following categories. The codes
needed for Schedule K-1 reporting are
provided for each category.
Deductions—Royalty income (code I).
Enter deductions related to royalty
income.
Section 965(c) deduction (code K).
Enter the section 965(c) deduction amount
from Form 965, line 17, on Schedule K,
line 12d.
Deductions—Portfolio (other) (code
L). Enter any other deductions related to
portfolio income.
No deduction is allowed under section
212 for expenses allocable to a
convention, seminar, or similar meeting.
Because these expenses aren't deductible
by shareholders, the corporation doesn't
-28-

report these expenses on line 12d of
Schedule K. The expenses are
nondeductible and are reported as such
on line 16c of Schedule K and in box 16 of
Schedule K-1 using code C.
Preproductive period expenses (code
M). If the corporation is required to use an
accrual method of accounting under
section 448(a)(3), it must capitalize these
expenses. If the corporation is permitted
to use the cash method, enter the amount
of preproductive period expenses that
qualify under section 263A(d). An election
not to capitalize these expenses must be
made at the shareholder level. See
Uniform Capitalization Rules in Pub. 225.
Commercial revitalization deduction
from rental real estate activities (code
N). Enter the commercial revitalization
deduction on line 12d only if it is for a
rental real estate activity. If the deduction
is for a nonrental building, enter it on
line 19 of Form 1120-S. See Special Rules
under Line 19. Other Deductions, earlier,
for more information.
Reforestation expense deduction
(code O). The corporation can elect to
deduct a limited amount of its reforestation
expenditures paid or incurred during the
tax year. The amount the corporation can
elect to deduct is limited to $10,000 for
each qualified timber property. See
section 194(c) for a definition of
reforestation expenditures and qualified
timber property. See Notice 2006-47,
2006-20 I.R.B. 892, for details on making
the election. The corporation must
amortize over 84 months any amount not
deducted. See Reforestation
expenditures, earlier.
Schedule K-1. Enter the
shareholder's pro rata share of allowable
reforestation expense in box 12 of
Schedule K-1 using code O and attach a
statement that provides a description of
the qualified timber property. If the
corporation is electing to deduct amounts
from more than one qualified timber
property, provide a description and the
amount for each property.
Codes P through R. Reserved for future
use.
Other deductions (code S). Include any
other deductions, such as the following.
• Amounts paid by the corporation that
would be allowed as itemized deductions
on any of the shareholders' income tax
returns if they were paid directly by a
shareholder for the same purpose. These
amounts include, but aren't limited to,
expenses under section 212 for the
production of income other than from the
corporation's trade or business. However,
don't enter expenses related to portfolio
income or investment interest expense
reported on line 12b of Schedule K on this
line.
• Soil and water conservation
expenditures (section 175). See Pub. 225.
Instructions for Form 1120-S (2019)

• Endangered species recovery
expenditures (section 175).
• Expenditures paid or incurred for the
removal of architectural and transportation
barriers to the elderly and disabled that
the corporation has elected to treat as a
current expense. See section 190.
• Interest expense allocated to
debt-financed distributions. See Notice
89-35, 1989-1 C.B. 675, or Pub. 535,
chapter 4, for more information.
• Contributions to a capital construction
fund. See Pub. 595, Capital Construction
Fund for Commercial Fishermen.
• Any penalty on early withdrawal of
savings because the corporation withdrew
funds from its time savings deposit before
its maturity.
• Film, television, and live theatrical
production expenses. The corporation can
elect to deduct certain costs of a qualified
film, television, or live theatrical production
commencing before January 1, 2021 (after
December 31, 2015, and before January
1, 2021, for a live theatrical production), if
the aggregate cost of the production
doesn't exceed $15 million. There is a
higher dollar limitation for productions in
certain areas. A live theatrical
performance commences on the date of
its first public performance for a paying
audience. Provide a description of the film,
television, or live theatrical production on
an attached statement. If the corporation
makes the election for more than one
production, attach a statement to
Schedule K-1 that shows each
shareholder's pro rata share of the
qualified expenditures separately for each
production. The deduction is subject to
recapture under section 1245 if the
election is voluntarily revoked or the
production fails to meet the requirements
for the deduction. See section 181 and the
related regulations.
• Current year section 108(i) original
issue discount (OID) deduction. In
general, if the corporation made a section
108(i) election for income from the COD
attributable to the reacquisition of an
applicable debt instrument and the
corporation issued a debt instrument with
OID that is subject to section 108(i)(2)
because of the election, the deduction for
all or a portion of the OID that accrues
before the first tax year the COD is
includible in income is deferred until the
COD is includible in income. The
aggregate amount of OID that is deferred
during this period generally is allowed as a
deduction ratably over the 5-year period
the COD is includible in income under
section 108(i). The amount deferred is
limited to the amount of COD subject to
the section 108(i) election.
• Domestic production activities
deduction (DPAD). If the corporation is a
recipient of the DPAD from a pass-through
entity (partnership, S corporation, estate,
trust, or cooperative) with a tax year
beginning before January 1, 2018, the
DPAD can be taken in limited
Instructions for Form 1120-S (2019)

circumstances. See Form 8903 and its
instructions for details.
Schedule K-1. Enter each shareholder's
pro rata share of the deduction categories
listed above in box 12 of Schedule K-1 or
provide the required information on an
attached statement. Enter the applicable
code shown above.
If you are reporting only one type of
deduction under code S, enter code S with
an asterisk (S*) and the dollar amount in
the entry space in box 12 and attach a
statement that shows the box number,
code, and type of deduction. If you are
reporting multiple types of deductions
under code S, enter the code with an
asterisk (S*), enter “STMT” in the dollar
amount entry space in box 12, and attach
a statement that shows the box number,
code, and dollar amount of each type of
deduction.
If the corporation has more than one
trade or business activity, identify on an
attachment to Schedule K-1 the amount
for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Credits
Don't attach Form 3800, General

TIP Business Credit, to Form 1120-S.

Low-Income Housing Credit
Section 42 provides a credit that can be
claimed by owners of low-income
residential rental buildings. To qualify for
the credit, the corporation must file Form
8609, Low-Income Housing Credit
Allocation and Certification, separately
with the IRS. Don't attach Form 8609 to
Form 1120-S. Complete and attach Form
8586, Low-Income Housing Credit, and
Form 8609-A, Annual Statement for
Low-Income Housing Credit, to Form
1120-S.

Line 13a. Low-Income Housing
Credit (Section 42(j)(5))

Line 13b. Low-Income Housing
Credit (Other)
Report on line 13b any low-income
housing credit not reported on line 13a.
This includes any credit reported to the
corporation in box 15 of Schedule K-1
(Form 1065) using code B or code D.
Schedule K-1. Report in box 13 of
Schedule K-1 each shareholder's pro rata
share of the low-income housing credit
reported on line 13b of Schedule K. Use
code B to report the portion of the credit
attributable to buildings placed in service
before 2008. Use code D to report the
portion of the credit attributable to
buildings placed in service after 2007. If
the corporation has credits from more than
one rental activity, identify on an
attachment to Schedule K-1 the amount
for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Line 13c. Qualified Rehabilitation
Expenditures (Rental Real Estate)
Enter on line 13c the total qualified
rehabilitation expenditures related to
rental real estate activities of the
corporation. See the Instructions for Form
3468 for details on qualified rehabilitation
expenditures.
Schedule K-1. Report each
shareholder's pro rata share of qualified
rehabilitation expenditures related to
rental real estate activities in box 13 of
Schedule K-1 using code E. Attach a
statement to Schedule K-1 that provides
the information and the shareholder's pro
rata share of the basis and expenditure
amounts the shareholder will need to
figure the amounts to report on lines 11b
through 11g of Form 3468. See the
Instructions for Form 3468 for details. If
the corporation has expenditures from
more than one rental real estate activity,
identify on an attachment to Schedule K-1
the information and amounts for each
separate activity. See Passive Activity
Reporting Requirements, earlier.

If the corporation invested in a partnership
to which the provisions of section 42(j)(5)
apply, report on line 13a the credit
reported to the corporation in box 15 of
Schedule K-1 (Form 1065) using code A
or code C.

Qualified rehabilitation
expenditures for property not
CAUTION related to rental real estate
activities must be reported in box 17 using
code C.

Schedule K-1. Report in box 13 of
Schedule K-1 each shareholder's pro rata
share of the low-income housing credit
reported on line 13a of Schedule K. Use
code A to report the portion of the credit
attributable to buildings placed in service
before 2008. Use code C to report the
portion of the credit attributable to
buildings placed in service after 2007. If
the corporation has credits from more than
one activity, identify on an attachment to
Schedule K-1 the amount for each
separate activity. See Passive Activity
Reporting Requirements, earlier.

Line 13d. Other Rental Real Estate
Credits

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!

Enter on line 13d any other credit (other
than credits reported on lines 13a through
13c) related to rental real estate activities.
On the dotted line to the left of the entry
space for line 13d, identify the type of
credit. If there is more than one type of
credit, attach a statement to Form 1120-S
that identifies the type and amount for
each credit. These credits may include
any type of credit listed in the instructions
for line 13g.

Schedule K-1. Report in box 13 of
Schedule K-1 each shareholder's pro rata
share of other rental real estate credits
using code F. If you are reporting each
shareholder's pro rata share of only one
type of rental real estate credit under code
F, enter the code with an asterisk (F*) and
the dollar amount in the entry space in
box 13 and attach a statement that shows
“Box 13, code F” and the type of credit. If
you are reporting multiple types of rental
real estate credit under code F, enter the
code with an asterisk (F*) and enter
“STMT” in the entry space in box 13 and
attach a statement that shows “Box 13,
code F” and the dollar amount of each
type of credit. If the corporation has credits
from more than one rental real estate
activity, identify on the attached statement
the amount of each type of credit for each
separate activity. See Passive Activity
Reporting Requirements, earlier.

Line 13e. Other Rental Credits
Enter on line 13e any other credit (other
than credits reported on lines 13a through
13d) related to rental activities. On the
dotted line to the left of the entry space for
line 13e, identify the type of credit. If there
is more than one type of credit, attach a
statement to Form 1120-S that identifies
the type and amount for each credit.
These credits may include any type of
credit listed in the instructions for line 13g.
Schedule K-1. Report in box 13 of
Schedule K-1 each shareholder's pro rata
share of other rental credits using code G.
If you are reporting each shareholder's pro
rata share of only one type of rental credit
under code G, enter the code with an
asterisk (G*) and the dollar amount in the
entry space in box 13 and attach a
statement that shows “Box 13, code G”
and the type of credit. If you are reporting
multiple types of rental credit under code
G, enter the code with an asterisk (G*) and
enter “STMT” in the entry space in box 13
and attach a statement that shows “Box
13, code G” and the dollar amount of each
type of credit. If the corporation has credits
from more than one rental activity, identify
on the attached statement the amount of
each type of credit for each separate
activity. See Passive Activity Reporting
Requirements, earlier.

Line 13f. Biofuel Producer Credit
Enter on line 13f any biofuel producer
credit attributable to trade or business
activities. If the credit is attributable to
rental activities, enter the amount on
line 13d or 13e.
Figure this credit on Form 6478, if
applicable. Attach it to Form 1120-S.
Include any amount shown on line 2 of
Form 6478 in the corporation's income on
line 5 of Form 1120-S.

See section 40(f) for an election the
corporation can make to have the credit
not apply.
Schedule K-1. Report in box 13 of
Schedule K-1 each shareholder's pro rata
share of the biofuel producer credit
reported on line 13f using code I. If the
corporation has credits from more than
one activity, identify on an attachment to
Schedule K-1 the amount for each
separate activity. See Passive Activity
Reporting Requirements, earlier.

Line 13g. Other Credits
Enter on line 13g any other credit, except
credits or expenditures shown or listed for
lines 13a through 13f or the credit for
federal tax paid on fuels (which is reported
on line 23c of page 1). On the line to the
left of the entry space for line 13g, identify
the type of credit. If there is more than one
type of credit, attach a statement to Form
1120-S that separately identifies each
type and amount of credit for the following
categories. The codes needed for box 13
of Schedule K-1 are provided in the
heading of each category.
Undistributed capital gains credit
(code H). This credit represents taxes
paid on undistributed capital gains by a
regulated investment company (RIC) or a
real estate investment trust (REIT). As a
shareholder of a RIC or REIT, the
corporation will receive notice of the
amount of tax paid on undistributed capital
gains on Form 2439, Notice to
Shareholder of Undistributed Long-Term
Capital Gains.
Work opportunity credit (code J).
Complete Form 5884 to figure the credit.
Attach it to Form 1120-S.
Disabled access credit (code K).
Complete Form 8826 to figure the credit.
Attach it to Form 1120-S.
Empowerment zone employment credit (code L). Complete Form 8844, if
applicable, to figure the credit. Attach it to
Form 1120-S.
Credit for increasing research activities (code M). Complete Form 6765 to
figure the credit. Attach it to Form 1120-S.
For more information, see the Instructions
for Form 6765.
The corporation should provide the

TIP information necessary for the

shareholder to determine whether
the corporation is an eligible small
business under section 38(c)(5)(A). If the
shareholder and the corporation meet the
requirements of section 38(c)(5)(A), the
research credit may be treated as a
specified credit.
Credit for employer social security and
Medicare taxes paid on certain employee tips (code N). Complete Form
8846 to figure the credit. Attach it to Form
1120-S.
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Backup withholding (code O). This
credit is for backup withholding on
dividends, interest, and other types of
income of the corporation.
Other credits (code P). Attach a
statement to Form 1120-S that identifies
the type and amount of any other credits
not reported elsewhere. Complete the
credit form identified below and attach it to
Form 1120-S.
• Unused investment credit from the
qualifying advanced coal project credit,
qualifying gasification project credit, or
qualifying advanced energy project credit
allocated from cooperatives.
• Unused investment credit from the
rehabilitation credit or energy credit
allocated from cooperatives.
• Employee retention credit (Form
5884-A), if applicable.
• Orphan drug credit (Form 8820).
• Enhanced oil recovery credit (Form
8830), if applicable.
• Renewable electricity, refined coal, and
Indian coal production credit (Form 8835).
Attach a statement to Form 1120-S and
Schedule K-1 showing the allocation of
the credit for production during the 4-year
period beginning on the date the facility
was placed in service and for production
after that period.
• Indian employment credit (Form 8845),
if applicable.
• Biodiesel and renewable diesel fuels
credit (Form 8864), if applicable. Include
any amount from line 8 of Form 8864 in
the corporation's income on line 5 of Form
1120-S. If this credit includes the small
agri-biodiesel producer credit, identify on
a statement attached to Schedule K-1 (a)
the small agri-biodiesel producer credit
included in the total credit allocated to the
shareholder, (b) the number of gallons for
which the corporation claimed the small
agri-biodiesel producer credit, and (c) the
corporation's productive capacity for
agri-biodiesel.
• New markets credit (Form 8874).
• Credit for small employer pension plan
startup costs (Form 8881).
• Credit for employer-provided childcare
facilities and services (Form 8882).
• Low sulfur diesel fuel production credit
(Form 8896).
• Qualified railroad track maintenance
credit (Form 8900), if applicable.
• Credit for oil and gas production from
marginal wells (Form 8904).
• Distilled spirits credit (Form 8906).
• Energy efficient home credit (Form
8908), if applicable.
• Alternative motor vehicle credit (Form
8910).
• Alternative fuel vehicle refueling
property credit (Form 8911), if applicable.
• Clean renewable energy bond credit
(Form 8912). The amount of this credit
(excluding any credits from partnerships,
estates, and trusts) is reported as interest
income on line 4 of Schedule K. In
addition, the amount of this credit is
reported on line 17d of Schedule K.
Instructions for Form 1120-S (2019)

• Qualified zone academy bond credit
(for bonds issued before October 4, 2008)
(Form 8912). The amount of this credit is
reported as interest income on line 4 of
Schedule K. In addition, the amount of this
credit is reported on line 17d of
Schedule K.
• New clean renewable energy bond
credit (Form 8912). The amount of this
credit (excluding any credits from
partnerships, estates, and trusts) is
reported as interest income on line 4 of
Schedule K. In addition, the amount of this
credit is reported as a property distribution
on line 16d of Schedule K.
• Qualified energy conservation bond
credit (Form 8912). The amount of this
credit (excluding any credits from
partnerships, estates, and trusts) is
reported as interest income on line 4 of
Schedule K. In addition, the amount of this
credit is reported as a property distribution
on line 16d of Schedule K.
• Qualified zone academy bond credit
(for bonds issued after October 3, 2008)
(Form 8912). The amount of this credit
(excluding any credits from partnerships,
estates, and trusts) is reported as interest
income on line 4 of Schedule K. In
addition, the amount of this credit is
reported as a property distribution on
line 16d of Schedule K.
• Qualified school construction bond
credit (Form 8912). The amount of this
credit (excluding any credits from
partnerships, estates, and trusts) is
reported as interest income on line 4 of
Schedule K. In addition, the amount of this
credit is reported as a property distribution
on line 16d of Schedule K.
• Build America bond credit (Form 8912).
The amount of this credit (excluding any
credits from partnerships, estates, and
trusts) is reported as interest income on
line 4 of Schedule K. In addition, the
amount of this credit is reported as a
property distribution on line 16d of
Schedule K.
• Mine rescue team training credit (Form
8923), if applicable.
• Credit for employer differential wage
payments (Form 8932).
• Carbon oxide sequestration credit
(Form 8933).
• Qualified plug-in electric drive motor
vehicle credit (Form 8936).
• Qualified two-wheeled plug-in electric
vehicle credit (Form 8936), if applicable.
• Credit for small employer health
insurance premiums (Form 8941).
• Employer credit for paid family and
medical leave (Form 8994).
Schedule K-1. Enter in box 13 of
Schedule K-1 each shareholder's pro rata
share of the credits listed above. See
additional Schedule K-1 reporting
information provided in the instructions
above. Enter the applicable code, H
through P, in the column to the left of the
dollar amount entry space.
If you are reporting each shareholder's
pro rata share of only one type of credit
Instructions for Form 1120-S (2019)

under code P, enter the code with an
asterisk (P*) and the dollar amount in the
entry space in box 13 and attach a
statement that shows “Box 13, code P”
and the type of credit. If you are reporting
multiple types of credit under code P,
enter the code with an asterisk (P*) and
enter “STMT” in the entry space in box 13
and attach a statement that shows “Box
13, code P” and the dollar amount of each
type of credit. If the corporation has credits
from more than one activity, identify on an
attachment to Schedule K-1 the amount of
each type of credit for each separate
activity. See Passive Activity Reporting
Requirements, earlier.

Foreign Transactions

Line 14b must be completed if a
shareholder may need this information to
figure a foreign tax credit. Lines 14a and
14c through 14r must be completed if the
corporation has foreign income,
deductions, or losses, or has paid or
accrued foreign taxes.
On Schedule K-1, for items that require
an attached statement, enter the code
followed by an asterisk and the
shareholder's pro rata share of the dollar
amount. Attach a statement to
Schedule K-1 providing the information
described below. If the corporation had
income from, or paid or accrued taxes to,
more than one country or U.S.
possession, see the requirement for an
attached statement in the instructions for
line 14a below. See Pub. 514, Foreign Tax
Credit for Individuals, and the Instructions
for Form 1116, Foreign Tax Credit, for
more information.

Line 14a. Name of Country or U.S.
Possession (Code A)
Enter the name of the foreign country or
U.S. possession from which the
corporation had income or to which the
corporation paid or accrued taxes. If the
corporation had income from, or paid or
accrued taxes to, more than one foreign
country or U.S. possession, enter “See
attached” and attach a statement for each
country for lines 14a through 14r (codes A
through R, code U, and code V of
Schedule K-1). On Schedule K-1, if there
is more than one country, enter code A
followed by an asterisk (A*), enter
“STMT,” and attach a statement to
Schedule K-1 for each country for the
information and amounts coded A through
R, code U, and code V.
RIC pass-through amounts. Aggregate
all income passed through from RICs and
report the total on a single line. Enter “RIC”
on line 14a and report the total on
line 14b. Note that the totals are being
reported on a single line because it isn't
necessary to report the RIC pass-through
amounts on a per-country basis.

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Line 14b. Gross Income From All
Sources (Code B)
Enter the corporation's gross income from
all sources (both U.S. and foreign).

Line 14c. Gross Income Sourced at
Shareholder Level (Code C)
Enter the total gross income of the
corporation that is required to be sourced
at the shareholder level. This includes
income from the sale of most personal
property, other than inventory, depreciable
property, and certain intangible property.
See Pub. 514 and section 865 for details.

!

CAUTION

You must attach a statement to
Form 1120-S showing the
following information.

• The amount of this gross income
(without regard to its source) in each
category identified in the instructions for
lines 14d through 14h.
• Specifically identify gains on the sale of
personal property other than inventory,
depreciable property, and certain
intangible property on which a foreign tax
of 10% or more was paid or accrued. Also
list losses on the sale of such property if
the foreign country would have imposed a
10% or higher tax had the sale resulted in
a gain. In addition, separately identify the
amounts of such gains or losses within
each separate limitation category that are
long-term capital gains and losses or
collectibles (28%) gains and losses. See
Determining the Source of Income From
the Sales or Exchanges of Certain
Personal Property in Pub. 514 and section
865.
Lines 14d–14h. Foreign Gross
Income Sourced at Corporate
Level
Separately report gross income from
sources outside the United States by
category of income as follows. See Pub.
514 and the Instructions for Form 1116 for
more information on the categories of
income.
You must attach a statement to
Form 1120-S that specifies foreign
CAUTION source qualified dividends,
unrecaptured section 1250 gains, and net
section 1231 gain (loss).

!

Line 14d. Reserved for future use.
Line 14e. Foreign branch category
(code E). Foreign branch category
foreign source income. Foreign branch
income is defined under section 904(d)(2)
(J)(i) as the business profits of a United
States person that are attributable to one
or more qualified business units (as
defined in section 989(a)) in one or more
foreign countries. Report all income that
would be foreign branch category income
of its shareholders if all of its shareholders

were U.S. persons that weren’t
pass-through entities.

U.S. dollars by using the applicable
exchange rate (see Pub. 514).

Line 14f. Passive category (code F).
Passive category foreign source income.

Foreign taxes paid (code P). If the
corporation used the cash method of
accounting, check the “Paid” box and
enter foreign taxes paid during the tax
year. Report each shareholder's pro rata
share in box 14 of Schedule K-1 using
code P.

Line 14g. General category (code G).
General category foreign source income.
Include all foreign income sourced at the
corporate level that isn't reported on lines
14d, 14e, 14f, and 14h.
Line 14h. Other (code H). Attach a
statement showing the amount of foreign
source income included in section 901(j)
income.This other category will override
the initial categorization of such income.

Lines 14i–14j. Deductions
Allocated and Apportioned at
Shareholder Level
Line 14i. Interest expense (code I).
Enter the corporation's total interest
expense (including interest equivalents
under Temporary Regulations section
1.861-9T(b)). Don't include interest
directly allocable under Temporary
Regulations section 1.861-10T to income
from a specific property. This type of
interest is allocated and apportioned at the
corporate level and is included on lines
14k through 14o.
Line 14j. Other (code J). Enter the total
of all other deductions or losses that are
required to be allocated at the shareholder
level. For example, include on line 14j
research and experimental expenditures
(see Regulations section 1.861-17(f)).

Lines 14k–14o. Deductions
Allocated and Apportioned at
Corporate Level to Foreign Source
Income
Separately report corporate deductions
that are apportioned at the corporate level
to:
• Foreign branch category foreign source
income,
• Passive category foreign source
income,
• General category foreign source
income, and
• Other foreign source income (see the
instructions for lines 14d–14h).
Attach a statement showing the amount of
deductions allocated and apportioned at
the corporate level to each of the listed
categories from line 14h. See Pub. 514
and the Instructions for Form 1116 for
more information.
Line 14k. Reserved for future use.

Line 14p. Total Foreign Taxes Paid
or Accrued
Enter in U.S. dollars the total foreign taxes
(described in section 901 or section 903)
that were paid or accrued according to the
corporation's method of accounting for
such taxes. Translate these amounts into

Foreign taxes accrued (code Q). If the
corporation used an accrual method of
accounting, check the “Accrued” box and
enter foreign taxes accrued. Report each
shareholder's pro rata share in box 14 of
Schedule K-1 using code Q.
A corporation reporting foreign taxes
using the cash method can make an
irrevocable election to report the taxes
using an accrual method for the year of
the election and all future years. Make this
election by reporting all foreign taxes
using an accrual method on line 14p and
checking the “Accrued” box (see
Regulations section 1.905-1).
Attach a statement reporting the
following information.
1. The total amount of foreign taxes
(including foreign taxes on income
sourced at the shareholder level) relating
to each category of income (see the
instructions for lines 14d–14h).
2. The dates on which the taxes were
paid or accrued, the exchange rates used,
and the amounts in both foreign currency
and U.S. dollars, for the following:
a. Taxes withheld at source on
interest,
b. Taxes withheld at source on
dividends,
c. Taxes withheld at source on rents
and royalties, and
d. Other foreign taxes paid or
accrued.

Line 14q. Reduction in Taxes
Available for Credit (Code R)
Enter the total reduction in taxes available
for credit. Attach a statement showing the
reductions for:
• Taxes on foreign mineral income
(section 901(e)),
• Taxes on foreign oil and gas extraction
income and foreign oil-related income
(section 907(a)),
• Taxes attributable to boycott operations
(section 908),
• Failure to timely file (or furnish all of the
information required on) Forms 5471 and
8865,
• Foreign income taxes paid or accrued
during the current tax year that have been
suspended under section 909, and
• Any other items (specify).

-32-

Line 14r. Other Foreign Tax
Information
Foreign trading gross receipts (code
S). Report each shareholder's pro rata
share of foreign trading gross receipts
from line 15 of Form 8873 in box 14 using
code S. See Extraterritorial Income
Exclusion, earlier.
Extraterritorial income exclusion
(code T). If the corporation isn't permitted
to deduct the extraterritorial income
exclusion as a nonseparately stated item,
attach a statement to Schedule K-1
showing the shareholder's pro rata share
of the extraterritorial income exclusion
reported on line 52 of Form 8873. Also
identify the activity to which the exclusion
is related.
Section 965 information (code U).
Report foreign income tax information for
the calculation of creditable foreign
income taxes related to the section 965(a)
inclusion. Attach Form 965, including
Schedules F, G, and H, to the
Schedule K-1.
Other foreign transactions (code V).
Report any other foreign transaction
information the shareholders need to
prepare their tax returns. Attach a
statement that separately identifies any
arrangement, along with the taxes paid or
accrued in connection with the
arrangement, in which the corporation
participates that would qualify as a splitter
arrangement under section 909 if one or
more shareholders are covered persons
with respect to an entity that took into
account related income from the
arrangement. Also indicate whether the
corporation has taken into account any
related income from any such splitter
arrangement. (See section 909 and the
regulations thereunder.)

Alternative Minimum Tax (AMT)
Items

Lines 15a through 15f must be completed
for all shareholders.

Enter items of income and deductions
that are adjustments or tax preference
items for the AMT. For more information,
see Form 6251, Alternative Minimum
Tax—Individuals, or Schedule I (Form
1041), Alternative Minimum Tax—Estates
and Trusts.
Don't include as a tax preference item
any qualified expenditures to which an
election under section 59(e) may apply.
Instead, report these expenditures on
line 12(c)(2). Because these expenditures
are subject to an election by each
shareholder, the corporation can't figure
the amount of any tax preference related
to them. Instead, the corporation must
pass through to each shareholder in
box 12, code J of Schedule K-1, the
information needed to figure the
deduction.
Instructions for Form 1120-S (2019)

Schedule K-1. Report each
shareholder's pro rata share of amounts
reported on lines 15a through 15f in
box 15 of Schedule K-1 using codes A
through F, respectively.
If the corporation is reporting items of
income or deduction for oil, gas, and
geothermal properties, you may be
required to identify these items on a
statement attached to Schedule K-1 (see
the instructions for lines 15d and 15e).
Also see the requirement for an attached
statement in the instructions for line 15f.

Line 15a. Post-1986 Depreciation
Adjustment
Figure the adjustment for line 15a based
only on tangible property placed in service
after 1986 (and tangible property placed in
service after July 31, 1986, and before
1987, for which the corporation elected to
use the Modified Accelerated Cost
Recovery System (MACRS)). Don't make
an adjustment for motion picture films,
videotapes, sound recordings, certain
public utility property (see section 168(f)
(2)), property depreciated under the
unit-of-production method (or any other
method not expressed in a term of years),
qualified Indian reservation property,
property eligible for a special depreciation
allowance, qualified revitalization
expenditures, or the section 179 expense
deduction.
For property placed in service before
1999, refigure depreciation for the AMT as
follows (using the same convention used
for the regular tax).
• For section 1250 property (generally,
residential rental and nonresidential real
property), use the straight line method
over 40 years.
• For tangible property (other than
section 1250 property) depreciated using
the straight line method for the regular tax,
use the straight line method over the
property's class life. Use 12 years if the
property has no class life.
• For any other tangible property, use the
150% declining balance method,
switching to the straight line method the
first tax year it gives a larger deduction,
over the property's AMT class life. Use 12
years if the property has no class life.
See Pub. 946 for a table of class
TIP lives.

Figure the adjustment by subtracting
the AMT deduction for depreciation from
the regular tax deduction and enter the
result on line 15a. If the AMT deduction is
more than the regular tax deduction, enter
the difference as a negative amount.
Depreciation capitalized to inventory must
also be refigured using the AMT rules.
Include on this line the current year
adjustment to income, if any, resulting
from the difference.

Line 15b. Adjusted Gain or Loss
If the corporation disposed of any tangible
property placed in service after 1986 (or
after July 31, 1986, if an election was
made to use the General Depreciation
System), or if it disposed of a certified
pollution control facility placed in service
after 1986, refigure the gain or loss from
the disposition using the adjusted basis for
the AMT. The property's adjusted basis for
the AMT is its cost or other basis minus all
depreciation or amortization deductions
allowed or allowable for the AMT during
the current tax year and previous tax
years. Enter on this line the difference
between the regular tax gain (loss) and the
AMT gain (loss). If the AMT gain is less
than the regular tax gain, or the AMT loss
is more than the regular tax loss, or there
is an AMT loss and a regular tax gain,
enter the difference as a negative amount.
If any part of the adjustment is allocable
to net short-term capital gain (loss), net
long-term capital gain (loss), or net section
1231 gain (loss), attach a statement that
identifies the amount of the adjustment
allocable to each type of gain or loss.
For a net long-term capital gain (loss),
also identify the amount of the adjustment
that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also
identify the amount of adjustment that is
unrecaptured section 1250 gain.

Line 15c. Depletion (Other Than Oil
and Gas)
Don't include any depletion on oil and gas
wells. The shareholders must figure their
oil and gas depletion deductions and
preference items separately under section
613A.

For property placed in service after
1998, refigure depreciation for the AMT
only for property depreciated for the
regular tax using the 200% declining
balance method. For the AMT, use the
150% declining balance method,
switching to the straight line method the
first tax year it gives a larger deduction,
and the same convention and recovery
period used for the regular tax.

Refigure the depletion deduction under
section 611 for mines, wells (other than oil
and gas wells), and other natural deposits
for the AMT. Percentage depletion is
limited to 50% of the taxable income from
the property as figured under section
613(a), using only income and deductions
for the AMT. Also, the deduction is limited
to the property's adjusted basis at the end
of the year as figured for the AMT. Figure
this limit separately for each property.
When refiguring the property's adjusted
basis, take into account any AMT
adjustments made this year or in previous

Instructions for Form 1120-S (2019)

-33-

years that affect basis (other than the
current year's depletion).
Enter the difference between the
regular tax and AMT deduction. If the AMT
deduction is greater, enter the difference
as a negative amount.

Oil, Gas, and Geothermal
Properties—Gross Income and
Deductions
Generally, the amounts to be entered on
lines 15d and 15e are only the income and
deductions for oil, gas, and geothermal
properties that are used to figure the
corporation's ordinary business income
(loss) on line 21, page 1, Form 1120-S.
If there are any items of income or
deductions for oil, gas, and geothermal
properties included in the amounts that
are required to be passed through
separately to the shareholders on
Schedule K-1 (items not reported in box 1
of Schedule K-1), give each shareholder a
statement that shows, for the box in which
the income or deduction is included, the
amount of income or deductions included
in the total amount for that box. Don't
include any of these direct pass-through
amounts on line 15d or 15e. The
shareholder is told in the Shareholder's
Instructions for Schedule K-1 (Form
1120-S) to adjust the amounts in box 15,
code D or E, for any other income or
deductions from oil, gas, or geothermal
properties included in boxes 2 through 12,
16, or 17 of Schedule K-1 in order to
determine the total income and
deductions from oil, gas, and geothermal
properties for the corporation.
Figure the amounts for lines 15d and
15e separately for oil and gas properties
that aren't geothermal deposits and for all
properties that are geothermal deposits.
Give each shareholder a statement that
shows the separate amounts included in
the computation of the amounts on lines
15d and 15e of Schedule K.

Line 15d. Oil, Gas, and Geothermal
Properties—Gross Income
Enter the total amount of gross income
(within the meaning of section 613(a))
from all oil, gas, and geothermal
properties received or accrued during the
tax year and included on page 1, Form
1120-S.

Line 15e. Oil, Gas, and Geothermal
Properties—Deductions
Enter any deductions allowed for the AMT
that are allocable to oil, gas, and
geothermal properties.

Line 15f. Other AMT Items

Line 16c. Nondeductible Expenses

Attach a statement to Form 1120-S and
Schedule K-1 that shows other items not
shown on lines 15a through 15e that are
adjustments or tax preference items or
that the shareholder needs to complete
Form 6251 or Schedule I (Form 1041).
See these forms and their instructions to
determine the amount to enter.

Enter on line 16c nondeductible expenses
paid or incurred by the corporation.

Other AMT items include the following.

• Accelerated depreciation of real

property under pre-1987 rules.
• Accelerated depreciation of leased
personal property under pre-1987 rules.
• Long-term contracts entered into after
February 28, 1986. Except for certain
home construction contracts, the taxable
income from these contracts must be
figured using the percentage of
completion method of accounting for the
AMT.
• Losses from tax shelter farm activities.
No loss from any tax shelter farm activity
is allowed for the AMT.
• Any amount from Form 6478 reported
as other income on Form 1120-S, line 5.
• Any amount from Form 8864 reported
as other income on Form 1120-S, line 5.
Schedule K-1. If you are reporting each
shareholder's pro rata share of only one
type of AMT item under code F, enter the
code with an asterisk (F*) and the dollar
amount in the entry space in box 15 and
attach a statement that shows the type of
AMT item. If you are reporting multiple
types of AMT items under code F, enter
the code with an asterisk (F*) and enter
“STMT” in the entry space in box 15 and
attach a statement that shows the dollar
amount of each type of AMT item.

Items Affecting Shareholder
Basis
Line 16a. Tax-Exempt Interest
Income

Don't include separately stated
deductions shown elsewhere on
Schedules K and K-1, capital
expenditures, or items for which the
deduction is deferred to a later tax year.
Generally, under section 1367(a)(2)(D),
the basis of the shareholder's stock is
decreased by the amount shown on this
line.

Line 16d. Distributions
Enter the total distributions (including
cash) made to each shareholder other
than dividends reported on line 17c of
Schedule K. Include the shareholder's pro
rata share of any amounts included in
interest income with respect to new clean
renewable energy, qualified energy
conservation, qualified zone academy (for
bonds issued after October 3, 2008),
qualified school construction, or build
America bonds. Distributions of
appreciated property are valued at fair
market value. If property other than cash
was distributed, attach a statement to
provide the following information.
• The date the property was acquired.
• The date the property was distributed.
• The property's FMV on the date of
distribution.
• The corporation's basis in the property.
See Distributions, later, for the ordering
rules.

Line 16e. Repayment of Loans
From Shareholders
Enter any repayments made to
shareholders during the current tax year.

Enter on line 16a tax-exempt interest
income, including any exempt-interest
dividends received from a mutual fund or
other regulated investment company.
Individual shareholders must report this
information on line 2a of Form 1040 or
1040-SR. Generally, under section
1367(a)(1)(A), the basis of the
shareholder's stock is increased by the
amount shown on this line.

Schedule K-1. Report each
shareholder's pro rata share of amounts
reported on lines 16a, 16b, and 16c
(concerning items affecting shareholder
basis) in box 16 of Schedule K-1 using
codes A through C, respectively. Report
property distributions (line 16d) and
repayment of loans from shareholders
(line 16e) on the Schedule K-1 of the
shareholder(s) that received the
distributions or repayments (using codes
D and E).

Line 16b. Other Tax-Exempt
Income

Lines 17a and 17b. Investment
Income and Expenses

Enter on line 16b all income of the
corporation exempt from tax other than
tax-exempt interest (for example, life
insurance proceeds, but see section
101(j) for limits and reporting
requirements). Generally, under section
1367(a)(1)(A), the basis of the
shareholder's stock is increased by the
amount shown on this line.

Other Information

Enter on line 17a the investment income
included on lines 4, 5a, 6, and 10 of
Schedule K. Don't include other portfolio
gains or losses on this line.
Enter on line 17b the investment
expense included on line 12d of
Schedule K.

-34-

Investment income includes gross
income from property held for investment,
the excess of net gain attributable to the
disposition of property held for investment
over net capital gain from the disposition
of property held for investment, any net
capital gain from the disposition of
property held for investment that each
shareholder elects to include in
investment income under section 163(d)
(4)(B)(iii), and any qualified dividend
income that the shareholder elects to
include in investment income. Generally,
investment income and investment
expenses don't include any income or
expenses from a passive activity. See
Regulations section 1.469-2(f)(10) for
exceptions.
Property subject to a net lease isn't
treated as investment property because it
is subject to the passive loss rules. Don't
reduce investment income by losses from
passive activities.
Investment expenses are deductible
expenses (other than interest) directly
connected with the production of
investment income. See the Instructions
for Form 4952 for more information.
Schedule K-1. Report each
shareholder's pro rata share of amounts
reported on lines 17a and 17b (investment
income and expenses) in box 17 of
Schedule K-1 using codes A and B,
respectively.
If there are other items of investment
income or expense included in the
amounts that are required to be passed
through separately to the shareholders on
Schedule K-1, such as net short-term
capital gain or loss, net long-term capital
gain or loss, and other portfolio gains or
losses, give each shareholder a statement
identifying these amounts.

Line 17c. Dividend Distributions
Paid From Accumulated Earnings
and Profits (Schedule K Only)
Enter total dividends paid to shareholders
from accumulated earnings and profits.
Report these dividends to shareholders on
Form 1099-DIV. Don't report them on
Schedule K-1.

Line 17d. Other Items and
Amounts
Report the following information on a
statement attached to Form 1120-S. On
Schedule K-1, enter the appropriate code
in box 17 for each information item
followed by an asterisk in the left-hand
column of the entry space (for example,
C*). In the right-hand column, enter
“STMT.” The codes are provided for each
information category.
Qualified rehabilitation expenditures
(other than rental real estate) (code C).
Enter total qualified rehabilitation
Instructions for Form 1120-S (2019)

expenditures from activities other than
rental real estate activities. See the
Instructions for Form 3468 for details on
qualified rehabilitation expenditures.
Report qualified rehabilitation

TIP expenditures related to rental real
estate activities on line 13c.

Schedule K-1. Report each
shareholder's pro rata share of qualified
rehabilitation expenditures related to
activities other than rental real estate
activities in box 17 of Schedule K-1 using
code C. Attach a statement to
Schedule K-1 that provides the
information and the shareholder's pro rata
share of the basis and expenditure
amounts the shareholder will need to
figure the amounts to report on lines 11b
through 11g of Form 3468. See the
Instructions for Form 3468 for details. If
the corporation has expenditures from
more than one activity, identify on a
statement attached to Schedule K-1 the
information and amounts for each
separate activity. See Passive Activity
Reporting Requirements, earlier.
Basis of energy property (code D). In
box 17 of Schedule K-1, enter code D
followed by an asterisk and enter “STMT”
in the entry space for the dollar amount.
Attach a statement to Schedule K-1 that
provides the shareholder's pro rata share
of the basis and capacity amounts the
shareholder will need to figure the
amounts to report on lines 12a–12e, 12g,
12h, 12j, 12k, 12m, 12n, 12p, 12q, 12s,
and 12u–12aa of Form 3468. See the
Instructions for Form 3468 for details.
Recapture of low-income housing
credit (codes E and F). If recapture of
part or all of the low-income housing credit
is required because (a) the prior year
qualified basis of a building decreased or
(b) the corporation disposed of a building
or part of its interest in a building, see
Form 8611, Recapture of Low-Income
Housing Credit. Complete lines 1 through
7 of Form 8611 to figure the amount of the
credit to recapture.
Use code E on Schedule K-1 to report
recapture of the low-income housing credit
from a section 42(j)(5) partnership. Use
code F to report recapture of any other
low-income housing credit. See the
instructions for lines 13a and 13b, earlier,
for more information.
If a shareholder's ownership
TIP interest in a building decreased
because of a transaction at the
shareholder level, the corporation must
provide the necessary information to the
shareholder to enable the shareholder to
figure the recapture.
The disposal of a building or an
interest therein will generate a
CAUTION credit recapture unless it is
reasonably expected that the building will
continue to be operated as a qualified

!

Instructions for Form 1120-S (2019)

low-income building for the remainder of
the building's compliance period.

3, to its shareholders. See the Instructions
for Form 8697 for more information.

See Form 8586, Form 8611, and
section 42 for more information.

Look-back interest—Income forecast
method (code J). If the corporation is
closely held (defined in section 460(b)(4)
(C)(iii)) and it depreciated certain property
placed in service after September 13,
1995, under the income forecast method,
it must attach to Form 1120-S the
information specified in the instructions for
Form 8866, line 2, for the 3rd and 10th tax
years beginning after the tax year the
property was placed in service. It must
also report the line 2 amounts to its
shareholders. See the Instructions for
Form 8866 for more details.

Recapture of investment credit (code
G). Complete and attach Form 4255 if,
before the end of the recapture period,
investment credit property is disposed of
or no longer qualifies for the credit or if
credit recapture is otherwise required. See
the Instructions for Form 4255 for details
about when credit recapture is required.
State the type of property at the top of
Form 4255, and complete lines 2, 3, 4, 10,
and 11, whether or not any shareholder is
subject to recapture of the credit.
Attach to each Schedule K-1 a
separate statement providing the
information the corporation is required to
show on Form 4255, but list only the
shareholder's pro rata share of the basis
of the property subject to recapture. Also
indicate the lines of Form 4255 on which
the shareholders should report these
amounts.
The corporation itself is liable for
investment credit recapture in certain
cases. See Investment credit recapture
tax, earlier, for details.
Recapture of other credits (code H).
On an attached statement to
Schedule K-1, provide any information
shareholders will need to report recapture
of credits (other than recapture of
low-income housing credit and investment
credit reported on Schedule K-1 using
codes E, F, and G). The following are
examples of credits subject to recapture
and reported using code H.
• The qualified plug-in electric drive
motor vehicle credit. See section 30D(f)(5)
for details.
• The new markets credit. See Form
8874 and Form 8874-B, Notice of
Recapture Event for New Markets Credit,
for details.
• The Indian employment credit. See
section 45A(d) for details.
• The credit for employer-provided
childcare facilities and services. See
section 45F(d) for details.
• The alternative motor vehicle credit.
See section 30B(h)(8) for details.
• The alternative fuel vehicle refueling
property credit. See section 30C(e)(5) for
details.
Look-back interest—Completed
long-term contracts (code I). If the
corporation is closely held (defined in
section 460(b)(4)(C)(iii)) and it entered
into any long-term contracts after February
28, 1986, that are accounted for under
either the percentage of
completion-capitalized cost method or the
percentage of completion method, it must
attach a statement to Form 1120-S
showing the information required in items
(a) and (b) of the instructions for lines 1
and 3 of Part II of Form 8697. It must also
report the amounts for Part II, lines 1 and
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Dispositions of property with section
179 deductions (code K). This
represents gain or loss on the sale,
exchange, or other disposition of property
for which a section 179 deduction has
been passed through to shareholders. The
corporation must provide all the following
information with respect to such
dispositions (see the instructions for Form
1120-S, line 4, earlier).
• Description of the property.
• Date the property was acquired and
placed in service.
• Date of the sale or other disposition of
the property.
• The shareholder's pro rata share of the
gross sales price or amount realized.
• The shareholder's pro rata share of the
cost or other basis plus expense of sale
(reduced as explained in the instructions
for Form 4797, line 21).
• The shareholder's pro rata share of the
depreciation allowed or allowable,
determined as described in the
instructions for Form 4797, line 22, but
excluding the section 179 deduction.
• The shareholder's pro rata share of the
section 179 deduction (if any) passed
through for the property and the
corporation's tax year(s) in which the
amount was passed through.
• If the disposition is due to a casualty or
theft, a statement indicating so, and any
additional information needed by the
shareholder.
• For an installment sale, any information
the shareholder needs to complete Form
6252. The corporation must also
separately report the shareholder's pro
rata share of all payments received for the
property in future tax years. (Installment
payments received for installment sales
made in prior tax years should be reported
in the same manner used in prior tax
years.) See the Instructions for Form 6252
for details.
Recapture of section 179 deduction
(code L). This amount represents
recapture of the section 179 deduction if
business use of the property dropped to
50% or less before the end of the
recapture period. If the business use of
any property (placed in service after 1986)
for which a section 179 deduction was
passed through to shareholders dropped

to 50% or less (for a reason other than
disposition), the corporation must provide
all the following information.
• The shareholder's pro rata share of the
original basis and depreciation allowed or
allowable (not including the section 179
deduction).
• The shareholder's pro rata share of the
section 179 deduction (if any) passed
through for the property and the
corporation's tax year(s) in which the
amount was passed through.
See Regulations section 1.179-1(e) for
details.
Section 453(l)(3) information (code M).
Supply any information needed by a
shareholder to figure the interest due
under section 453(l)(3). If the corporation
elected to report the dispositions of certain
timeshares and residential lots on the
installment method, each shareholder's
tax liability must be increased by the
shareholder's pro rata share of the interest
on tax attributable to the installment
payments received during the tax year.
Section 453A(c) information (code N).
Supply any information needed by a
shareholder to figure the interest due
under section 453A(c). If an obligation
arising from the disposition of property to
which section 453A applies is outstanding
at the close of the year, each
shareholder's tax liability must be
increased by the tax due under section
453A(c) on the shareholder's pro rata
share of the tax deferred under the
installment method.
Section 1260(b) information (code O).
Supply any information needed by a
shareholder to figure the interest due
under section 1260(b). If the corporation
had gain from certain constructive
ownership transactions, each
shareholder's tax liability must be
increased by the shareholder's pro rata
share of interest due on any deferral of
gain recognition. See section 1260(b) for
details, including how to figure the interest.
Interest allocable to production expenditures (code P). Supply any information
needed by a shareholder to properly
capitalize interest as required by section
263A(f). See Section 263A uniform
capitalization rules, earlier, for more
information.
CCF nonqualified withdrawal (code Q).
Report nonqualified withdrawals by the
corporation from a capital construction
fund. Attach a statement to the
shareholder's Schedule K-1 providing
details of the withdrawal. See Pub. 595.
Depletion information—Oil and gas
(code R). Report gross income and other
information relating to oil and gas well
properties to shareholders to allow them to
figure the depletion deduction for oil and
gas well properties. Allocate to each
shareholder a proportionate share of the
adjusted basis of each corporate oil or gas

well property. See section 613A(c)(11) for
details.
The corporation can't deduct depletion
on oil and gas wells. Each shareholder
must determine the allowable amount to
report on his or her return. See Pub. 535
for more information.
Section 108(i) information (code T).
Report the shareholder's pro rata share of
the following.
• Any COD income deferred under
section 108(i) that hasn't been included in
income in the current or prior tax years.
• Any OID deduction deferred under
section 108(i)(2)(A)(i) that hasn't been
deducted in the current or prior tax years.
For information on allocating these
items to shareholders, see section 108(i);
Regulations section 1.108(i)-1; Rev. Proc.
2009-37, 2009-36 I.R.B. 309; and
Regulations section 1.108(i)-2.
Net investment income (code U). Use
code U to report any information that may
be relevant for shareholders to figure their
net investment income tax when the
information isn't otherwise identifiable
elsewhere on Schedule K-1. Attach a
statement that shows a description and
dollar amount of each relevant item.
Examples of items reported using code
U may include the following.
• Net rental real estate income reported
on Form 1120-S, Schedule K, line 2, and
other net rental income reported on Form
1120-S, Schedule K, line 3c, derived from
a section 212 for-profit activity (and not
from a section 162 trade or business).
• Gains and losses from dispositions of
assets attributable to a section 212
for-profit activity (and not from a section
162 trade or business).
• Gain reported on the installment sale
basis (or attributable to a private annuity)
that is attributable to the disposition of
property held in a trade or business.
• Gain or loss from the disposition of a
partnership interest, but only if such
partnership was engaged, directly or
indirectly, in one or more trades or
businesses, and at least one of those
trades or businesses wasn't trading in
financial instruments or commodities.
• The shareholder’s pro rata share of
interest income, or interest expense, that
is attributable to a loan between the
corporation and the shareholder
(self-charged interest).
• If the corporation received a Form
1065, Schedule K-1, the detail and
amounts reported to the corporation using
box 20, code Y.
• If the corporation received a Form
1041, Schedule K-1, the amount of the
adjustment reported.
In addition, Regulations section
1.1411-10 provides special rules with
respect to stock of CFCs and passive
foreign investment companies (PFICs)
owned by the corporation. If the
corporation owns, directly or indirectly,
-36-

stock of a CFC or PFIC, then additional
reporting may be required under code U.
CFCs and QEFs. In the case of stock
of CFCs and QEFs owned directly or
indirectly by the corporation, the
corporation must provide the name and
EIN (if one has been issued) for each CFC
and QEF the stock of which is owned by
the corporation for which an election
under Regulations section 1.1411-10(g) is
not in effect and with respect to which the
corporation isn't engaged in a trade or
business described in section 1411(c)(2).
For each of these entities, the corporation
must provide the following information on
an entity-by-entity basis (to the extent
such information isn't otherwise
identifiable elsewhere on Schedule K-1).
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
• Section 959(d) distributions subject to
section 1411.
• Section 1293(c) distributions subject to
section 1411.
• Amount of gain or loss derived with
respect to dispositions of the stock of
CFCs and QEFs that is taken into account
for section 1411 purposes.
• Amounts that are derived with respect
to the disposition of the stock of CFCs and
QEFs and included in income as a
dividend under section 1248 for section
1411 purposes.
In the case of stock of CFCs and QEFs
directly or indirectly owned by the
corporation for which an election under
Regulations section 1.1411-10(g) is in
effect, the corporation must provide the
following information (to the extent such
information isn't otherwise identifiable
elsewhere on Schedule K-1), on either an
aggregate basis or an entity-by-entity
basis.
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
In the case of stock of CFCs and QEFs
directly or indirectly owned by the
corporation with respect to which the
corporation is engaged in a trade or
business described in section 1411(c)(2),
the corporation must provide the following
information (to the extent such information
isn't otherwise identifiable elsewhere on
the Schedule K-1), on either an aggregate
or an entity-by-entity basis, or may
aggregate this information with other
income derived by the corporation that is
net investment income under section
1411(c)(1)(A)(ii).
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
Section 1296 mark-to-market PFICs.
In the case of stock of PFICs directly or
indirectly owned by the corporation for
which an election under section 1296 is in
effect, the corporation must provide the
following information (to the extent such
information isn't otherwise identifiable
Instructions for Form 1120-S (2019)

elsewhere on Schedule K-1), on either an
aggregate basis or an entity-by-entity
basis (except as provided below).
• Amounts included in income under
section 1296(a)(1).
• Amounts deducted from income under
section 1296(a)(2).
In the case of PFIC stock owned
directly or indirectly by the corporation for
which an election under section 1296 is in
effect and with respect to which the
corporation is engaged in a trade or
business described in section 1411(c)(2),
the corporation may aggregate this
information with other income derived by
the corporation that is net investment
income under section 1411(c)(1)(A)(ii).
Section 1291 funds. In the case of
stock of PFICs directly or indirectly owned
by the corporation with respect to which
direct or indirect shareholders are subject
to section 1291, the corporation must
provide the following information (to the
extent such information isn't otherwise
identifiable elsewhere on Schedule K-1),
on an entity-by-entity basis.
• Excess distributions made by a PFIC
with respect to which the shareholder is
subject to section 1291.
• Gains derived with respect to the
disposition of stock of a PFIC with respect
to which a shareholder is subject to
section 1291.
Section 199A information (code V).
The qualified business income (QBI)
deduction may be taken by eligible
taxpayers, including individuals and some
trusts and estates. The deduction is
determined at the shareholder level. S
corporations are required to report
information necessary for their
shareholders to figure the deduction. Use
the code with an asterisk (V*) in box 17 on
each shareholder’s Schedule K-1 and
enter “STMT” in the entry space to
indicate that the information is provided on
an attached statement separately
identifying the shareholder’s pro rata
share of:
• Qualified items of income, gain,
deduction, and loss;
• W-2 wages;
• Unadjusted basis immediately after
acquisition (UBIA) of qualified property;
• Qualified publicly traded partnership
(PTP) items; and
• Section 199A dividends, also known as
qualified real estate investment trust
(REIT) dividends.
Don’t add amounts into a single
number and report it in box 17 on
CAUTION Schedule K-1. The section 199A
information must be separately identified
for each trade or business the S
corporation directly conducts, including
specified service trades or businesses.

!

The S corporation must make an initial
determination of which items are qualified
items of income, gain, deduction, and loss
at its level and report to each shareholder
Instructions for Form 1120-S (2019)

their pro rata share of all items that may be
qualified items at the shareholder level.
These items must be separately stated
where necessary for the shareholder to
figure the deduction. See Determining the
S corporation’s QBI or qualified PTP
items, later. The shareholder must then
determine whether each item is includible
in its QBI.
In addition, the S corporation must also
report whether any of its trades or
businesses are specified service trades or
businesses (SSTBs) and identify on the
statement any trades or businesses that
are aggregated.
Note. The S corporation must report the
pro rata share of qualified items of income,
gain, deduction, and loss from a PTP so
that shareholders can determine their
qualified PTP income. However, W-2
wages and UBIA of qualified property from
the PTP shouldn’t be reported because
shareholders can’t use that information in
figuring their QBI deduction.
S corporations should use Statement
A—QBI Pass-Through Entity Reporting, or
a substantially similar statement, to report
each shareholder’s pro rata information
from each trade or business, including QBI
items, W-2 wages, UBIA of qualified
property, qualified PTP items, and section
199A dividends by attaching the
completed statement(s) to each
shareholder’s Schedule K-1. The S
corporation should also use Statement A
to report each shareholder’s pro rata
share of QBI items, W-2 wages, UBIA of
qualified property, qualified PTP items,
and section 199A dividends reported to
the S corporation by another entity.
S corporations should use Statement
B—QBI Pass-Through Entity Aggregation
Election(s), or a substantially similar
statement, to report aggregated trades or
businesses and provide supporting
information to shareholders on each
Schedule K-1.
S corporations should use Statement
C—QBI Pass-Through Entity
Reporting—Patrons of Specified
Agricultural and Horticultural
Cooperatives, or a substantially similar
statement, to report pro rata QBI and W-2
wages allocable to qualified payments
from a specified agricultural or horticultural
cooperative for each trade or business.
This statement should also be used to
report each shareholder’s pro rata section
199A(g) deduction reported to the S
corporation by the specified cooperative.
The S corporation must also report all
QBI information reported to it by any entity
in which the S corporation has an
ownership interest.
Determining the S corporation’s
qualified trades or businesses. The S
corporation’s qualified trades or
businesses include its section 162 trades
or businesses, except for SSTBs, or the
-37-

trade or business of providing services as
an employee. A section 162 trade or
business generally includes any activity
carried on to make a profit and with
considerable, regular, and continuous
activity. For more information on what
qualifies as a trade or business for
purposes of section 199A, see the
instructions for Form 8995, Qualified
Business Income Deduction Simplified
Computation, or Form 8995-A, Qualified
Business Income Deduction.
Rental real estate. Rental real estate
may constitute a trade or business for
purposes of the QBI deduction if the rental
real estate:
• Rises to the level of a trade or business
under section 162;
• Satisfies the requirements for the rental
real estate safe harbor in Rev. Proc.
2019-38, 2019-42 I.R.B. 942; or
• Meets the self-rental exception (that is,
the rental or licensing of property to a
commonly controlled trade or business
conducted by an individual or relevant
pass-through entity) described in
Regulations section 1.199A-1(b)(14).
The determination of whether rental
real estate constitutes a trade or business
for purposes of the QBI deduction is made
by the S corporation. The S corporation
must first make this determination and
then only include the pro rata share of QBI
information for rental real estate that
constitutes a trade or business on the
statement provided to shareholders.
Rental real estate that doesn’t meet any of
the three conditions noted above doesn’t
constitute a trade or business for
purposes of the QBI deduction and must
not be included in the QBI information
provided to shareholders.
Specified service trades or
businesses excluded from qualified
trades or businesses. SSTBs generally
are excluded from the definition of a
qualified trade or business. An SSTB is
any trade or business providing services in
the fields of health, law, accounting,
actuarial science, performing arts,
consulting, athletics, financial services,
brokerage services, investing and
investment management, trading or
dealing in securities, partnership interests,
or commodities, or any other trade or
business where the principal asset is the
reputation or skill of one or more of its
employees or owners. The term “any trade
or business” where the principal asset is
the reputation or skill of one or more of its
employees or owners means any trade or
business that consists of (i) a trade or
business in which a person receives fees,
compensation, or other income for
endorsing products or services; (ii) a trade
or business in which a person licenses or
receives fees, compensation, or other
income for the use of an individual’s
image, likeness, name, signature, voice,
trademark, or any other symbols
associated with the individual’s identity; or

(iii) receiving fees, compensation, or other
income for appearing at an event or on
radio, television, or another media format.
Note. The SSTB exclusion doesn’t apply
to taxpayers with taxable income before
the QBI deduction of $160,700 or less
($160,725 if married filing separately;
$321,400 if married filing jointly) and is
phased in for taxpayers with taxable
income before the QBI deduction between
$160,701 and $210,700 ($160,726 and
$210,725 if married filing separately;
$321,401 and $421,400 if married filing
jointly). S corporations must separately
report QBI information for all trades or
businesses engaged in by the S
corporation, including SSTBs, and must
also identify which trades or businesses
are SSTBs.
Aggregation of trades or
businesses. An S corporation engaged
in more than one trade or business may
choose to aggregate multiple trades or
businesses into a single trade or business
for purposes of section 199A if it meets
the following requirements:
1. The same person, or group of
persons, either directly or through
attribution, owns 50% or more of each
trade or business for a majority of the tax
year, including the last day of the tax year,
and all trades or businesses use the same
tax year-end;
2. None of the trades or businesses
are an SSTB; and
3. The trades or businesses to be
aggregated meet at least two of the
following three factors:
a. They provide products, property, or
services that are the same or that are
customarily offered together;
b. They share facilities or share
significant centralized business elements,
such as personnel, accounting, legal,
manufacturing, purchasing, human
resources, or information technology
resources; or
c. They are operated in coordination
with, or reliance upon, one or more of the
businesses in the aggregated group.

If the S corporation chooses to
aggregate multiple trades or businesses, it
must report the aggregation on Statement
B, or a substantially similar statement, and
attach it to each Schedule K-1. The
statement must provide the information
necessary to identify each separate trade
or business included in each aggregation,
a description of the aggregated trades or
businesses, and an explanation of the
factors met that allow the aggregation in
accordance with Regulations section
1.199A-4. The aggregation statement
must be completed each year to show the
S corporation's trade or business
aggregations. Failure to disclose the
aggregations may cause them to be
disaggregated.
The S corporation's aggregations must
be reported consistently for all subsequent
years, unless there is a change in facts
and circumstances that changes or
disqualifies the aggregation. The S
corporation must provide a written
explanation for any changes to prior year
aggregations that describes the change in
facts and circumstances.
If the S corporation directly or indirectly
owns an interest in another relevant
pass-through entity (RPE) that aggregates
multiple trades or businesses, it must
attach a copy of the RPE's aggregation to
each Schedule K-1. The S corporation
can’t break apart the aggregation of
another RPE, but it may add trades or
businesses to the aggregation, assuming
the requirements above are satisfied.
Determining the S corporation’s
QBI or qualified PTP items. The S
corporation’s items of QBI include
qualified items of income, gain, deduction,
and loss from the S corporation’s trades or
businesses that are effectively connected
with the conduct of a trade or business
within the United States. This may include,
but isn’t limited to, items such as ordinary
business income or losses, section 1231
gains or losses, charitable contributions,
section 179 deductions, and interest from
debt-financed distributions.

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QBI may also include rental income or
losses or royalty income, if the activity
rises to the level of a trade or business, or
is a qualified trade or business for
purposes of section 199A; and gambling
gains or losses, but only if the S
corporation is engaged in the trade or
business of gambling. Whether an activity
rises to the level of a trade or business
must be determined at the entity level and,
once made, is binding on shareholders.
Qualified PTP items include the S
corporation’s share of qualified items of
income, gain, deduction, and loss from a
PTP and may also include gain or loss
recognized on the disposition of the S
corporation’s partnership interest that isn’t
treated as a capital gain or loss.
QBI and qualified PTP items don’t
include the following:
• Items that aren’t properly includible in
income;
• Income that isn’t effectively connected
with the conduct of business within the
United States (go to IRS.gov/ECI for more
information);
• Items that are treated as capital gain or
loss under any provision of the Internal
Revenue Code;
• Dividends or dividend equivalents,
including qualified REIT dividends;
• Interest income (unless received in
connection with the trade or business);
• Wage income;
• Commodities transactions, or foreign
currency gains or losses described in
sections 954(c)(1)(C) or (D);
• Income, loss, or deductions from
notional principal contracts under section
954(c)(1)(F);
• Annuities (unless received in
connection with the trade or business);
• Guaranteed payments described in
section 707(c) received by the entity for
services rendered to a partnership; or
• Payments described in section 707(a)
received by the entity for services
rendered to a partnership.

Instructions for Form 1120-S (2019)

QBI Flowchart
S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to
shareholders.
Questions

Yes

No

1.

Is the item effectively connected with the conduct of a trade or business within the United
States?

Continue to next question.

Stop. This item isn’t QBI.

2.

Is the item attributable to a trade or business (this may include section 1231 gain (loss),
Continue to next question.
charitable contributions, section 179 deductions, interest from debt-financed distributions, etc.)?
Examples of an item not considered attributable to the trade or business at the entity level
include gambling income (loss) where the entity isn’t engaged in the trade or business of
gambling, income (loss) from vacation properties when the entity isn’t in that trade or business,
activities not engaged in for profit, etc.

Stop. This item isn’t QBI.

3.

Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or
is it a dividend or dividend equivalent?

Stop. This item isn’t QBI.

Continue to next question.

4.

Is the item interest income other than interest income properly allocable to a trade or business?
(Note that interest income attributable to an investment of working capital, reserves, or similar
accounts isn’t properly allocable to a trade or business).

Stop. This item isn’t QBI.

Continue to next question.

5.

Is the item an annuity, other than an annuity received in connection with the trade or business?

Stop. This item isn’t QBI.

Continue to next question.

6.

Is the item gain or loss from a commodities transaction or foreign currency gain or loss
described in sections 954(c)(1)(C) or (D)?

Stop. This item isn’t QBI.

Continue to next question.

7.

Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)?

Stop. This item isn’t QBI.

Continue to next question.

8.

Is the item of income or loss from a qualified publicly traded partnership?

This item is a qualified PTP
item. Report this item as
qualified PTP income or
loss, subject to
shareholder-specific
determinations, and check
the PTP box.

This item is QBI. Report this
item as QBI subject to
shareholder-specific
determinations.

Specific instructions for Statement
A—QBI Pass-Through Entity Reporting.
QBI or qualified PTP items. The S
corporation must first determine if it is
engaged in one or more trades or
businesses. It must then determine if any
of its trades or businesses are SSTBs. It
must also determine whether it has
qualified PTP items from an interest in a
PTP. It must indicate the status in the
appropriate check boxes for each trade or
business (or aggregated trade or
business) or PTP interest reported.
Note. SSTBs and PTPs can’t be
aggregated with any other trade or
business. So, if the aggregation box is
checked, the SSTB and PTP boxes for
that specific aggregated trade or business
shouldn’t be checked.
Next, the S corporation must report to
each shareholder their pro rata share of all
items that are QBI or qualified PTP items
for each trade or business the S
corporation owns directly or indirectly. Use
the QBI flowchart above to determine if an
item is reportable as a QBI item or
qualified PTP item subject to
shareholder-specific determination.
The descriptions on the statement
generally match the descriptions reported
on Schedule K-1. So the amounts should
reflect each trade or business’s portion of
the qualified items of income, gain,
deduction, or loss reported in the
applicable box of the shareholder’s
Schedule K-1. For example, the amount
Instructions for Form 1120-S (2019)

reported on the “Ordinary business
income (loss)” line of this statement
should reflect the attributable portion of
qualified items of income, gain, deduction,
and loss for each trade or business
included in the “Ordinary business income
(loss)” reported in box 1 of the
shareholder’s Schedule K-1. Each item
included under “Other income (loss)” and
“Other deductions” must be stated
separately, identifying the nature and
amount of each item.
W-2 wages and UBIA of qualified
property. The S corporation must
determine the W-2 wages and UBIA of
qualified property properly allocable to
QBI for each qualified trade or business,
including SSTBs, and report the pro rata
share to each shareholder on Statement
A, or a substantially similar statement,
attached to Schedule K-1. This includes
the pro rata share of W-2 wages and UBIA
of qualified property reported to the S
corporation from any qualified trades or
businesses of an RPE the S corporation
owns directly or indirectly. However, S
corporations that own a direct or indirect
interest in a PTP may not include any
amounts for W-2 wages or UBIA of
qualified property from the PTP, as the
W-2 wages and UBIA of qualified property
from a PTP aren’t allowed in figuring the
W-2 wage and UBIA limitations.
The W-2 wages are amounts paid to
employees described in sections 6051(a)
(3) and (8). If the S corporation conducts
more than one trade or business, it must
allocate the W-2 wages among its trades
-39-

or business. See Rev. Proc. 2019-11,
2019-09 I.R.B. 742 for more information.
The unadjusted basis of qualified
property is figured by adding the
unadjusted basis of all qualified assets
immediately after acquisition. Qualified
property includes all tangible property
subject to depreciation under section 167
for which the depreciable period hasn’t
ended that is held and used for the
production of QBI by the trade or business
during the tax year and held on the last
day of the tax year. The depreciable
period ends on the later of 10 years after
the property is placed in service or the last
day of the full year for the applicable
recovery period under section 168.
Section 199A dividends. The S
corporation must report the pro rata share
of any section 199A dividends, also known
as qualified real estate investment trust
(REIT) dividends, to each shareholder on
Statement A, or a substantially similar
statement, attached to Schedule K-1.
Section 199A dividends don’t have to be
separately reported by trades or
businesses and can be reported as a
single amount to shareholders. Section
199A dividends include any dividend the S
corporation receives from a REIT held for
more than 45 days, for which the payment
isn’t obligated to someone else, isn’t a
capital gain dividend under section 857(b)
(3), and isn’t a qualified dividend under
section 1(h)(11), plus any qualified REIT
dividends received from a regulated
investment company (RIC).

Fiscal year S corporations. For
purposes of determining the QBI or
qualified PTP items, UBIA of qualified
property, and the aggregate amount of
qualified section 199A dividends, fiscal
year-end S corporations include all items
from the fiscal tax year.

For purposes of determining W-2
wages, fiscal year-end S corporations
include amounts paid to employees under
sections 6051(a)(3) and (8) for the
calendar year ended with or within the S
corporation’s tax year. If the S corporation
conducts more than one trade or

business, it must allocate W-2 wages
among its trades or businesses. See Rev.
Proc. 2019-11 for more information.

Statement A—QBI Pass-Through Entity Reporting
Pass-through entity's name:

Pass-through entity's EIN:

Shareholder’s name:

Shareholder’s identifying number:
Trade or Business 1

Shareholder’s share of:

Trade or Business 2

Trade or Business 3

PTP

PTP

PTP

Aggregated

Aggregated

Aggregated

SSTB

SSTB

SSTB

QBI or qualified PTP items subject to shareholder-specific determinations:
Ordinary business income (loss)
Rental income (loss)
Royalty income (loss)

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

Section 1231 gain (loss)
Other income (loss)

Charitable contributions
W-2 wages .

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

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

Section 179 deduction
Other deductions

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

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

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

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

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

UBIA of qualified property
Section 199A dividends .

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

. . . .

Specific instructions for Statement
B—QBI Pass-Through Entity Aggregation Election(s). If the S corporation
elects to aggregate more than one trade
or business that meets all the
requirements to aggregate, the S
corporation must report the aggregation to
shareholders on Statement B, or a
substantially similar statement, and attach
it to each Schedule K-1. The S corporation
must indicate trades or businesses that
were aggregated by checking the
appropriate box on Statement A for each
aggregated trade or business. The S
corporation must also provide a

description of the aggregated trade or
business and an explanation of the factors
met that allow the aggregation.
The aggregation statement must be
completed each year to show the S
corporation's trade or business
aggregations. Failure to disclose the
aggregations may cause them to be
disaggregated. The S corporation's
aggregations must be reported
consistently for all subsequent years,
unless there is a change in facts and
circumstances that changes or disqualifies
the aggregation. The S corporation must
provide a written explanation for any

-40-

changes to prior year aggregations that
describes the change in facts and
circumstances.
If the S corporation holds a direct or
indirect interest in a RPE that aggregates
multiple trades or businesses, the S
corporation must also include a copy of
the RPE’s aggregations with each
shareholder’s Schedule K-1. The S
corporation can’t break apart the
aggregation of another RPE, but it may
add trades or businesses to the
aggregation, assuming the aggregation
requirements are satisfied.

Instructions for Form 1120-S (2019)

Statement B—QBI Pass-Through Entity Aggregation Election(s)
Pass-through entity's name:

Pass-through entity's EIN:

Trade or business aggregation 1*
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with
Regulations section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates
multiple trades or businesses, attach a copy of the RPE's aggregations.

Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed,
acquired, disposed of, or ceased operations. If yes, explain.

* If the pass-through entity's has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.

Specific instructions for Statement
C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural
and Horticultural Cooperatives.
QBI items and W-2 wages allocable
to qualified payments. If the S
corporation is a patron of a specified
agricultural or horticultural cooperative,
the S corporation must provide the pro
rata share of QBI items and W-2 wages
allocable to qualified payments from each

trade or business to each of its
shareholders on Statement C, or a
substantially similar statement, and attach
it to each Schedule K-1 so each
shareholder can figure their patron
reduction under section 199A(b)(7).
QBI items and W-2 wages allocable to
qualified payments include QBI items
included on Statement A that are allocable
to the qualified payments reported to the S

corporation on Form 1099-PATR from the
cooperative.
Section 199A(g) deduction. The S
corporation must report to its shareholders
their pro rata share of any section 199A(g)
deduction passed through from the
cooperative, as reported on Form
1099-PATR. Section 199A(g) deductions
don’t have to be separately reported by
trades or businesses and can be reported
as a single amount to shareholders.

Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives
Cooperative’s name:

Cooperative’s EIN:

Pass-through entity's name:

Pass-through entity's EIN:

Shareholder’s name:

Shareholder’s identifying number:
Trade or Business 1

Shareholder’s share of:

Trade or Business 2

Trade or Business 3

PTP

PTP

PTP

Aggregated

Aggregated

Aggregated

SSTB

SSTB

SSTB

QBI items allocable to qualified payments subject to shareholder-specific determinations:
Ordinary business income (loss)
Rental income (loss)

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

Royalty income (loss)

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

Section 1231 gain (loss)
Other income (loss)

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

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

Section 179 deduction
Charitable contributions
Other deductions

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

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

W-2 wages allocable to qualified payments .
Section 199A(g) deduction .

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

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

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

Excess taxable income (code AA). If
the S corporation is required to file Form
8990, Limitation on Business Interest
Expense Under Section 163(j), it may

determine it has excess taxable income. If
so, enter the amount from Form 8990, Part
III, line 41, for excess taxable income on

Instructions for Form 1120-S (2019)

-41-

Schedule K. Report the shareholder's pro
rata share in box 17 of Schedule K-1.

Excess business interest income
(code AB). If the S corporation is
required to file Form 8990, Limitation on
Business Interest Expense Under Section
163(j), it may determine it has excess
business interest income. If so, enter the
amount from Form 8990, Part III, line 42,
for excess taxable income on Schedule K.
Report the shareholder's pro rata share in
box 17 of Schedule K-1.
Other information (code AC). Report
the following information to each
shareholder.
1. If the corporation participates in a
transaction that must be disclosed on
Form 8886 (discussed earlier). Both the
corporation and its shareholders may be
required to file Form 8886. The
corporation must determine if any of its
shareholders are required to disclose the
transaction and provide those
shareholders with information they will
need to file Form 8886. This determination
is based on the category(ies) under which
a transaction qualified for disclosures. See
the Instructions for Form 8886 for details.
2. If the corporation is involved in
farming or fishing activities, report the
gross income from these activities.
3. If the corporation has deductions
attributable to a farming business and
receives an applicable subsidy, report the
aggregate gross income or gain and the
aggregate deductions from the farming
business. See section 461(j) for details.
4. The shareholder's pro rata share of
any amount included in interest income on
line 4 of Schedule K with respect to clean
renewable energy or (for bonds issued
before October 4, 2008) qualified zone
academy bonds. Shareholders need this
information to properly adjust their stock
basis. See Form 8912.
5. Any income or gain reported on
lines 1 through 10 of Schedule K that
qualifies as inversion gain, if the
corporation is an expatriated entity or is a
partner in an expatriated entity. For
details, see section 7874. Attach a
statement to Form 1120-S that shows the
amount of each type of income or gain
included in the inversion gain. The
corporation must report each
shareholder's pro rata share of the
inversion gain in box 17 of Schedule K-1
using code AC. Attach a statement to
Schedule K-1 that shows the
shareholder's pro rata share of the amount
of each type of income or gain included in
the inversion gain.
6. Basis in qualifying advanced coal
project property. Attach a statement to
Schedule K-1 that provides the
shareholder's pro rata share of the basis
amounts the shareholder will need to
figure the amounts to report on lines 5a,
5b, and 5c of Form 3468. See the
Instructions for Form 3468 for details.
7. Basis in qualifying gasification
project property. Attach a statement to

Schedule K-1 that provides the
shareholder's pro rata share of the basis
amounts the shareholder will need to
figure the amounts to report on lines 6a
and 6b of Form 3468. See the Instructions
for Form 3468 for details.
8. Basis in qualifying advanced
energy project property. Attach a
statement to Schedule K-1 that provides
the shareholder's pro rata share of the
basis amounts the shareholder will need
to figure the amounts to report on line 7 of
Form 3468. See the Instructions for Form
3468 for details.
9. Provide information shareholders
need to figure the section 951A income.
See the Instructions for Form 8992 for
details.
10. Any other information the
shareholders need to prepare their tax
returns.

Line 18. More Than One At-Risk
Activity
If the corporation entered into more than
one activity subject to the at-risk rules
(at-risk activity), the corporation is
required to provide information separately
for each at-risk activity to its shareholders.
This information is reported on an
attachment to Schedule K-1. Check the
box to indicate there is more than one
at-risk activity for which a statement is
attached. See At-Risk Activity Reporting
Requirements under At-Risk Limitations,
earlier, for details.

Line 19. More Than One Passive
Activity
If the corporation entered into more than
one activity (determined for purposes of
the passive activity loss and credit
limitations), the corporation is required to
provide information separately for each
activity to its shareholders. This
information is reported on an attachment
to Schedule K-1. Check the box to
indicate there is more than one passive
activity for which a statement is attached.
See Passive Activity Reporting
Requirements under Passive Activity
Limitations, earlier, for details.

Reconciliation
Line 18. Income/Loss
Reconciliation (Schedule K
Only)

To the extent the corporation has an
amount on line 12d for code S for the
qualified production activities deduction
(DPAD), exclude the amount(s) from
line 18. If the corporation has an amount
on line 14p of Schedule K (foreign taxes
paid and accrued), add that amount for
purposes of figuring the corporation's net
income (loss). The amount reported on
line 18 must be the same as the amount
reported on line 8 of Schedule M-1 or
-42-

line 26, column (d), in Part II of
Schedule M-3 (Form 1120-S).

Schedule L. Balance
Sheets per Books

The balance sheets should agree with the
corporation's books and records.
Schedule L isn't required to be completed
if the corporation answered “Yes” to
question 11 on Schedule B. If the
corporation is required to complete
Schedule L, include total assets reported
on Schedule L, line 15, column (d), on
page 1, item F.
Corporations with total assets of $10
million or more on the last day of the tax
year must file Schedule M-3 (Form
1120-S) instead of Schedule M-1.
However, see the instructions for
Schedule M-1, later. See the separate
Instructions for Schedule M-3 (Form
1120-S) for provisions that also affect
Schedule L.
If the S election terminated during the
tax year and the corporation reverted to a
C corporation, the year-end balance sheet
generally should agree with the books and
records at the end of the C short year.
However, if the corporation elected under
section 1362(e)(3) to have items assigned
to each short year under normal tax
accounting rules, the year-end balance
sheet should agree with the books and
records at the end of the S short year.

Line 5. Tax-Exempt Securities

Include on this line:
• State and local government obligations,
the interest on which is excludable from
gross income under section 103(a); and
• Stock in a mutual fund or other
regulated investment company that
distributed exempt-interest dividends
during the tax year of the corporation.

Line 24. Retained Earnings

If the corporation maintains separate
accounts for appropriated and
unappropriated retained earnings, it may
want to continue such accounting for
purposes of preparing its financial balance
sheet. Also, if the corporation converts to
C corporation status in a subsequent year,
it will be required to report its appropriated
and unappropriated retained earnings on
separate lines of Schedule L of Form
1120.

Line 25. Adjustments to
Shareholders' Equity

The following are some examples of
adjustments to report on this line.
• Unrealized gains and losses on
securities held “available for sale.”
• Foreign currency translation
adjustments.
• The excess of additional pension
liability over unrecognized prior service
cost.
Instructions for Form 1120-S (2019)

• Guarantees of employee stock
ownership plan (ESOP) debt.
• Compensation related to employee
stock award plans.
If the total adjustment to be entered is a
negative amount, enter the amount in
parentheses.

Schedule M-1.
Reconciliation of Income
(Loss) per Books With
Income (Loss) per Return

In completing Schedule M-1, the following
apply.
• Schedule M-1 isn't required to be
completed if the corporation answered
“Yes” to question 11 on Schedule B.
• Corporations with total assets of $10
million or more on the last day of the tax
year must file Schedule M-3 (Form
1120-S) instead of Schedule M-1.
• A corporation filing Form 1120-S that
isn't required to file Schedule M-3 may
voluntarily file Schedule M-3 instead of
Schedule M-1. See the Instructions for
Schedule M-3 (Form 1120-S) for more
information.
• For 2019, corporations that (a) are
required to file Schedule M-3 (Form
1120-S) and have less than $50 million
total assets at the end of the tax year, or
(b) aren't required to file Schedule M-3
(Form 1120-S) and voluntarily file
Schedule M-3 (Form 1120-S), must either
(i) complete Schedule M-3 (Form 1120-S)
entirely or (ii) complete Schedule M-3
(Form 1120-S) through Part I, and
complete Form 1120-S, Schedule M-1,
instead of completing Parts II and III of
Schedule M-3 (Form 1120-S). If the
corporation chooses to complete
Schedule M-1 instead of completing Parts
II and III of Schedule M-3, line 1 of
Schedule M-1 must equal line 11 of Part I
of Schedule M-3. See the Instructions for
Schedule M-3 (Form 1120-S) for more
information.

Line 2

Report on this line income included on
Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a,
9, and 10 not recorded on the books this
year. Describe each such item of income.
Attach a statement if necessary.

Line 3b. Travel and
Entertainment

Include any of the following applicable
expenses.
• Entertainment expenses not deductible
under section 274(a).
• Meal expenses not deductible under
section 274(n).
• Qualified transportation fringes not
deductible under section 274(a)(4).
• Expenses for the use of an
entertainment facility.
• The part of business gifts over $25.

Instructions for Form 1120-S (2019)

• Expenses of an individual over $2,000
that are allocable to conventions on cruise
ships.
• Employee achievement awards of
nontangible property or tangible property
over $400 ($1,600 if part of a qualified
plan).
• The cost of skyboxes.
• The part of luxury water travel expenses
not deductible under section 274(m).
• Expenses for travel as a form of
education.
• Nondeductible club dues.
• Other nondeductible travel and
entertainment expenses.
For more information, see Pub. 535.
If the corporation has an amount

TIP on line 14p of Schedule K (foreign

taxes paid and accrued), take that
amount into account for purposes of
figuring expenses and deductions to enter
on lines 3 and 6.

Schedule M-2. Analysis of
Accumulated Adjustments
Account, Shareholders'
Undistributed Taxable
Income Previously Taxed,
Accumulated Earnings
and Profits, and Other
Adjustments Account
Column (a). Accumulated
Adjustments Account

The accumulated adjustments account
(AAA) is an account of the S corporation
that generally reflects the accumulated
undistributed net income of the
corporation for the corporation's
post-1982 years. S corporations with
accumulated earnings and profits (E&P)
must maintain the AAA to determine the
tax effect of distributions during years as
an S corporation, the post-termination
transition period, and cash distributions
following a post-termination transition
period. An S corporation without
accumulated E&P doesn't need to
maintain the AAA in order to determine the
tax effect of distributions. Nevertheless, if
an S corporation without accumulated
E&P engages in certain transactions to
which section 381(a) applies, such as a
merger into an S corporation with
accumulated E&P, the S corporation must
be able to calculate its AAA at the time of
the merger for purposes of determining
the tax effect of post-merger distributions.
Therefore, it is recommended that the
AAA be maintained by all S corporations.
On the first day of the corporation's first
tax year as an S corporation, the balance
of the AAA is zero. At the end of the tax
year, adjust the AAA for the items as
explained below and in the order listed.
1. Increase the AAA by income (other
than tax-exempt income) and the excess
-43-

of the deduction for depletion over the
basis of the property subject to depletion
(unless the property is an oil and gas
property the basis of which has been
allocated to shareholders).
2. Generally, decrease the AAA by
deductible losses and expenses,
nondeductible expenses (other than
expenses related to tax-exempt income),
and the sum of the shareholders'
deductions for depletion for any oil or gas
property held by the corporation as
described in section 1367(a)(2)(E). If
deductible losses and expenses include
the fair market value (FMV) of certain
contributed property (discussed earlier),
further adjust AAA by adding back the
FMV of the contributed property and
subtracting instead the property's adjusted
basis. If the total decreases under (2)
exceed the total increases under (1)
above, the excess is a “net negative
adjustment.” If the corporation has a net
negative adjustment, don't take it into
account under (2). Instead, take it into
account only under (4) below.
3. Decrease AAA (but not below zero)
by property distributions (other than
dividend distributions from accumulated
E&P), unless the corporation elects to
reduce accumulated E&P first. See
Distributions, later, for definitions and
other details.
4. Decrease AAA by any net negative
adjustment. For adjustments to the AAA
for redemptions, reorganizations, and
corporate separations, see Regulations
section 1.1368-2(d).
The AAA may have a negative

TIP balance at year end. See section
1368(e).

Column (b). Shareholders'
Undistributed Taxable Income
Previously Taxed

The shareholders' undistributed taxable
income previously taxed account, also
called previously taxed earnings and
profits (PTEP), is maintained only if the
corporation had a balance in this account
at the start of its 2019 tax year. If there is a
beginning balance for the 2019 tax year,
no adjustments are made to the account
except to reduce the account for
distributions made under section 1375(d)
(as in effect before the enactment of the
Subchapter S Revision Act of 1982). See
Distributions, later, for the order of
distributions from the account.
Each shareholder's right to nontaxable
distributions from PTEP is personal and
can't be transferred to another person.
The corporation is required to keep
records of each shareholder's net share of
PTEP.

Column (c). Accumulated
Earnings and Profits.

If the corporation was a C corporation in a
prior year, or if it engaged in a tax-free

reorganization with a C corporation, enter
the amount of any accumulated E&P at
the close of its 2018 tax year on line 1 in
column (c). For details on figuring
accumulated E&P, see section 312.
Estimates based on retained earnings at
the end of the tax year are acceptable. If
the corporation has accumulated E&P, it
may be liable for tax imposed on excess
net passive income. See Excess net
passive income tax, for details on this tax.

Column (d). Other Adjustments
Account

The other adjustments account is adjusted
for tax-exempt income (and related
expenses) and federal taxes attributable
to a C corporation tax year. After these
adjustments are made, the account is
reduced for any distributions made during
the year. See Distributions, next.

Distributions
General rule. Unless the corporation
makes one of the elections described
below, property distributions (including
cash) are applied in the following order (to
reduce accounts of the S corporation that
are used to figure the tax effect of
distributions made by the corporation to its
shareholders).
1. Reduce the AAA determined
without regard to any net negative
adjustment for the tax year (but not below
zero). If distributions during the tax year
exceed the AAA at the close of the tax
year, determined without regard to any net
negative adjustment for the tax year, the
AAA is allocated pro rata to each
distribution made during the tax year. See
section 1368.
2. Reduce shareholders' PTEP
account for any section 1375(d) (as in
effect before 1983) distributions. A
distribution from the PTEP account is tax

free to the extent of a shareholder's basis
in his or her stock in the corporation.
3. Reduce accumulated E&P.
Generally, the S corporation has
accumulated E&P only if it hasn't
distributed E&P accumulated in prior years
when the S corporation was a C
corporation (section 1361(a)(2)). See
section 312 for information on E&P. The
only adjustments that can be made to the
accumulated E&P of an S corporation are:
a. Reductions for dividend
distributions;
b. Adjustments for redemptions,
liquidations, reorganizations, etc.; and
c. Reductions for investment credit
recapture tax for which the corporation is
liable.
See section 1371(c) and (d)(3).
4. Reduce the other adjustments
account (OAA).
5. Reduce any remaining
shareholders' equity accounts.
Elections relating to source of distributions. The corporation may modify the
above ordering rules by making one or
more of the following elections.
Election to distribute accumulated
E&P first. If the corporation has
accumulated E&P and wants to distribute
from this account before making
distributions from the AAA, it may elect to
do so with the consent of all its affected
shareholders (section 1368(e)(3)(B)). This
election is irrevocable and applies only for
the tax year for which it is made. For
details on making the election, see
Statement regarding elections, later.
Election to make a deemed
dividend. If the corporation wants to
distribute all or part of its accumulated
E&P through a deemed dividend, it may
elect to do so with the consent of all its

Schedule M-2 Worksheet

affected shareholders (section 1368(e)(3)
(B)). Under this election, the corporation
will be treated as also having made the
election to distribute accumulated E&P
first. The amount of the deemed dividend
can't exceed the accumulated E&P at the
end of the tax year. The E&P at year end
is first reduced by any actual distributions
of accumulated E&P made during the tax
year. A deemed dividend is treated as if it
were a pro rata distribution of money to
the shareholders, received by the
shareholders, and immediately
contributed back to the corporation, all on
the last day of the tax year. This election is
irrevocable and applies only for the tax
year for which it is made. For details on
making the election, see Statement
regarding elections, later.
Election to forego PTEP. If the
corporation wants to forego distributions of
PTEP, it may elect to do so with the
consent of all its affected shareholders
(section 1368(e)(3)(B)). Under this
election, item (2) under General rule,
earlier, doesn't apply to any distribution
made during the tax year. This election is
irrevocable and applies only for the tax
year for which it is made. For details on
making the election, see Statement
regarding elections, next.
Statement regarding elections. To
make any of the above elections, the
corporation must attach a statement to a
timely filed original or amended Form
1120-S for the tax year for which the
election is made. In the statement, the
corporation must identify the election it is
making and must state that each
shareholder consents to the election. The
statement of election to make a deemed
dividend must include the amount of the
deemed dividend distributed to each
shareholder. For more details on the
election, see Regulations section
1.1368-1(f)(5).

Keep for Your Records
(a)
Accumulated
adjustments account

(b)
Shareholders'
undistributed taxable
income previously taxed

(c)
Accumulated
earnings and profits

(d)
Other adjustments
account

1.

Balance at beginning of tax
year . . . . . . . . . . . . . . . . . . . . .

-0-

2.

Ordinary income from page 1,
line 21 . . . . . . . . . . . . . . . . . . .

10,000

3.

Other additions

20,000

4.

Loss from page 1, line 21 . . . . . . .

(

5.

Other reductions

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

(36,000)

6.

Combine lines 1 through 5 . . . . . .

(6,000)

5,000

7.

Distributions

-0-

5,000

8.

Balance at end of tax year. Subtract
line 7 from line 6 . . . . . . . . . . . . .

(6,000)

-0-

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

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

-0-

5,000
)
(

-44-

)

Instructions for Form 1120-S (2019)

Example

The following example shows how the
Schedule M-2 accounts are adjusted for
items of income (loss), deductions, and
distributions reported on Form 1120-S. In
this example, the corporation has no
PTEP or accumulated E&P.

Items per return are:
1. Page 1, line 21 income—$10,000;
2. Schedule K, line 2 loss—($3,000);
3. Schedule K, line 4
income—$4,000;
4. Schedule K, line 5a
income—$16,000;
5. Schedule K, line 12a
deduction—$24,000;
6. Schedule K, line 12d
deduction—$3,000;

7. Schedule K, line 13g work
opportunity credit—$6,000;
8. Schedule K, line 16a tax-exempt
interest—$5,000;
9. Schedule K, line 16c nondeductible
expenses—$6,000 (reduction in salaries
and wages for work opportunity credit);
and
10. Schedule K, line 16d
distributions—$65,000.
Based on items (1) through (10) above
and starting balances of zero, the columns
for the AAA and the other adjustments
account are completed as shown in the
Schedule M-2 Worksheet.
For the AAA, the worksheet
line 3—$20,000 amount is the total of the
Schedule K, lines 4 and 5a income of

$4,000 and $16,000. The worksheet
line 5—$36,000 amount is the total of the
Schedule K, line 2 loss of ($3,000),
line 12a (code A) deduction of $24,000,
line 12d (code S) deduction of $3,000,
and the line 16c nondeductible expenses
of $6,000. The worksheet line 7 is zero.
The AAA at the end of the tax year (figured
without regard to distributions and the net
negative adjustment of $6,000) is zero,
and distributions can't reduce the AAA
below zero.
For the other adjustments account, the
worksheet line 3 amount is the
Schedule K, line 16a, tax-exempt interest
income of $5,000. The worksheet line 7
amount is $5,000, reducing the other
adjustments account to zero. The
remaining $60,000 of distributions aren't
entered on Schedule M-2.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
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.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of
December 2019, for taxpayers filing 2019 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC,
1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented
separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs
include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and
submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden
associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic
errors, implying lower post-filing burden.
Tables 1, 2, and 3 below show the burden model estimates for each of the three classifications of business taxpayers: Partnerships
(Table 1), corporations (Table 2) and S corporations (Table 3). As the tables show, the average filing compliance is different for the
three forms of business. Showing a combined average burden for all businesses would understate the burden for corporations and
overstate the burden for the two pass-through entities (partnerships and corporations). In addition, the burden for small and large
businesses is shown separately for each type of business entity in order to clearly convey the substantially higher burden faced by the
largest businesses.

Table 1 – Taxpayer Burden for Entities Taxed As Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of Taxpayer

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer

4.5

290

$5,900

Small

4.2

270

$4,400

Large*

0.3

610

$29,000

All Partnerships

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 2 – Taxpayer Burden for Entities Taxed As Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of Taxpayer
All Taxable Corporations

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer
$7,700

2.1

335

Small

2.0

280

$4,000

Large*

0.1

1,255

$70,200

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Instructions for Form 1120-S (2019)

-45-

Table 3 – Taxpayer Burden for Entities Taxed As Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments
Primary Form Filed or Type of Taxpayer
All Pass-Through Corporations

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer
$3,500

5.4

245

Small

5.3

240

$3,100

Large*

0.1

610

$30,900

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Note. The data shown are the best estimates for 2019 business entity income tax returns. Reported time and cost burdens are
national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by
taxpayer type. The estimates are subject to change as new forms and data become available.
Comments. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms
simpler, we would be happy to hear from you. You can send us comments from IRS.gov/FormComments. Or you can write to the
Internal Revenue Service, Tax Forms and Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Don't
send the form to this office.

-46-

Instructions for Form 1120-S (2019)

Principal Business Activity Codes
This list of principal business activities and their
associated codes is designed to classify an enterprise
by the type of activity in which it is engaged to facilitate
the administration of the Internal Revenue Code. These
principal business activity codes are based on the North
American Industry Classification System.
Using the list of activities and codes below,
determine from which activity the company derives the

Agriculture, Forestry, Fishing
and Hunting

Crop Production
111100 Oilseed & Grain Farming
111210 Vegetable & Melon Farming
(including potatoes & yams)
111300 Fruit & Tree Nut Farming
111400 Greenhouse, Nursery, &
Floriculture Production
111900 Other Crop Farming (including
tobacco, cotton, sugarcane, hay,
peanut, sugar beet & all other
crop farming)
Animal Production
112111 Beef Cattle Ranching & Farming
112112 Cattle Feedlots
112120 Dairy Cattle & Milk Production
112210 Hog & Pig Farming
112300 Poultry & Egg Production
112400 Sheep & Goat Farming
112510 Aquaculture (including shellfish &
finfish farms & hatcheries)
112900 Other Animal Production
Forestry and Logging
113110 Timber Tract Operations
113210 Forest Nurseries & Gathering of
Forest Products
113310 Logging
Fishing, Hunting and Trapping
114110 Fishing
114210 Hunting & Trapping
Support Activities for Agriculture and
Forestry
115110 Support Activities for Crop
Production (including cotton
ginning, soil preparation,
planting, & cultivating)
115210 Support Activities for Animal
Production
115310 Support Activities For Forestry

Mining
211120
211130
212110
212200
212310
212320
212390
213110

Crude Petroleum Extraction
Natural Gas Extraction
Coal Mining
Metal Ore Mining
Stone Mining & Quarrying
Sand, Gravel, Clay, & Ceramic &
Refractory Minerals Mining &
Quarrying
Other Nonmetallic Mineral
Mining & Quarrying
Support Activities for Mining

Utilities
221100
221210
221300
221500

Electric Power Generation,
Transmission & Distribution
Natural Gas Distribution
Water, Sewage & Other Systems
Combination Gas & Electric

Construction

Construction of Buildings
236110 Residential Building Construction
236200 Nonresidential Building
Construction
Heavy and Civil Engineering
Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil Engineering
Construction
Specialty Trade Contractors
238100 Foundation, Structure, & Building
Exterior Contractors (including
framing carpentry, masonry,
glass, roofing, & siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors

238300

238900

largest percentage of its “total receipts.” Total receipts is
defined as the sum of gross receipts or sales (page 1,
line 1a); all other income (page 1, lines 4 and 5); income
reported on Schedule K, lines 4, 5a, and 6; income or
net gain reported on Schedule K, lines 7, 8a, 9, and 10;
and income or net gain reported on Form 8825, lines 2,
19, and 20a. If the company purchases raw materials
and supplies them to a subcontractor to produce the
finished product, but retains title to the product, the
Building Finishing Contractors
(including drywall, insulation,
painting, wallcovering, flooring,
tile, & finish carpentry)
Other Specialty Trade
Contractors (including site
preparation)

Manufacturing

325900

Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery Product
Mfg
311400 Fruit & Vegetable Preserving &
Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering and
Processing
311710 Seafood Product Preparation &
Packaging
311800 Bakeries, Tortilla, & Dry Pasta
Mfg
311900 Other Food Mfg (including
coffee, tea, flavorings &
seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel Contractors
315220 Men's & Boys' Cut & Sew
Apparel Mfg
315240 Women's, Girls', & Infants' Cut &
Sew Apparel Mfg
315280 Other Cut & Sew Apparel Mfg
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product
Manufacturing
316110 Leather & Hide Tanning &
Finishing
316210 Footwear Mfg (including rubber
& plastics)
316990 Other Leather & Allied Product
Mfg
Wood Product Manufacturing
321110 Sawmills & Wood Preservation
321210 Veneer, Plywood, & Engineered
Wood Product Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard Mills
322200 Converted Paper Product Mfg
Printing and Related Support Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries (including
integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal
Products Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine Mfg
325500 Paint, Coating, & Adhesive Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg

company is considered a manufacturer and must use
one of the manufacturing codes (311110-339900).
Once the principal business activity is determined,
enter the six-digit code from the list below on page 1,
item B. Also enter the business activity on page 2,
Schedule B, line 2(a) and a brief description of the
principal product or service of the business on line 2(b).

Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral
Product Mfg
Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy
Mfg
331200 Steel Product Mfg from
Purchased Steel
331310 Alumina & Aluminum Production
& Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product
Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural Metals
Mfg
332400 Boiler, Tank, & Shipping
Container Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned Product;
& Screw, Nut, & Bolt Mfg
332810 Coating, Engraving, Heat
Treating, & Allied Activities
332900 Other Fabricated Metal Product
Mfg
Machinery Manufacturing
333100 Agriculture, Construction, &
Mining Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service Industry
Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, & Commercial
Refrigeration Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg
333900 Other General Purpose
Machinery Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral
Equipment Mfg
334200 Communications Equipment Mfg
334310 Audio & Video Equipment Mfg
334410 Semiconductor & Other
Electronic Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing & Reproducing
Magnetic & Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment Mfg
335200 Major Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment
Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building

-47-

336990

Other Transportation Equipment
Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment & Supplies
Mfg
339900 Other Miscellaneous
Manufacturing

Wholesale Trade

Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except
Petroleum)
423600 Household Appliances &
Electrical & Electronic Goods
423700 Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, &
Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone,
& Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries
424300 Apparel, Piece Goods, & Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum Products
424800 Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Electronic Markets and
Agents and Brokers
425110 Business to Business Electronic
Markets
425120 Wholesale Trade Agents &
Brokers

Retail Trade

Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441222 Boat Dealers
441228 Motorcycle, ATV, & All Other
Motor Vehicle Dealers
441300 Automotive Parts, Accessories,
& Tire Stores
Furniture and Home Furnishings Stores
442110 Furniture Stores
442210 Floor Covering Stores
442291 Window Treatment Stores
442299 All Other Home Furnishings
Stores
Electronics and Appliance Stores
443141 Household Appliance Stores
443142 Electronics Stores (including
Audio, Video, Computer, &
Camera Stores)

Principal Business Activity Codes (Continued)
Building Material and Garden
Equipment and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Stores
444130 Hardware Stores
444190 Other Building Material Dealers
444200 Lawn & Garden Equipment &
Supplies Stores
Food and Beverage Stores
445110 Supermarkets and Other
Grocery (except Convenience)
Stores
445120 Convenience Stores
445210 Meat Markets
445220 Fish & Seafood Markets
445230 Fruit & Vegetable Markets
445291 Baked Goods Stores
445292 Confectionery & Nut Stores
445299 All Other Specialty Food Stores
445310 Beer, Wine, & Liquor Stores
Health and Personal Care Stores
446110 Pharmacies & Drug Stores
446120 Cosmetics, Beauty Supplies, &
Perfume Stores
446130 Optical Goods Stores
446190 Other Health & Personal Care
Stores
Gasoline Stations
447100 Gasoline Stations (including
convenience stores with gas)
Clothing and Clothing Accessories
Stores
448110 Men's Clothing Stores
448120 Women's Clothing Stores
448130 Children's & Infants' Clothing
Stores
448140 Family Clothing Stores
448150 Clothing Accessories Stores
448190 Other Clothing Stores
448210 Shoe Stores
448310 Jewelry Stores
448320 Luggage & Leather Goods
Stores
Sporting Goods, Hobby, Book, and
Music Stores
451110 Sporting Goods Stores
451120 Hobby, Toy, & Game Stores
451130 Sewing, Needlework, & Piece
Goods Stores
451140 Musical Instrument & Supplies
Stores
451211 Book Stores
451212 News Dealers & Newsstands
General Merchandise Stores
452200 Department Stores
452300 General Merchandise Stores,
incl. Warehouse Clubs and
Supercenters
Miscellaneous Store Retailers
453110 Florists
453210 Office Supplies & Stationery
Stores
453220 Gift, Novelty, & Souvenir Stores
453310 Used Merchandise Stores
453910 Pet & Pet Supplies Stores
453920 Art Dealers
453930 Manufactured (Mobile) Home
Dealers
453990 All Other Miscellaneous Store
Retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454110 Electronic Shopping &
Mail-Order Houses
454210 Vending Machine Operators
454310 Fuel Dealers (including Heating
Oil & Liquefied Petroleum)
454390 Other Direct Selling
Establishments (including
door-to-door retailing, frozen
food plan providers, party plan
merchandisers, & coffee-break
service providers)

Transportation and
Warehousing

Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation
Truck Transportation
484110 General Freight Trucking, Local

484120

General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi & Ridesharing Services
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground
Passenger Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for Road
Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers
492210 Local Messengers & Local
Delivery
Warehousing and Storage
493100 Warehousing & Storage (except
lessors of miniwarehouses &
self-storage units)

Information

Publishing Industries (except Internet)
511110 Newspaper Publishers
511120 Periodical Publishers
511130 Book Publishers
511140 Directory & Mailing List
Publishers
511190 Other Publishers
511210 Software Publishers
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Broadcasting (except Internet)
515100 Radio & Television Broadcasting
515210 Cable & Other Subscription
Programming
Telecommunications
517000 Telecommunications (including
paging, cellular, satellite, cable &
other program distribution,
resellers, other
telecommunications, & Internet
service providers)
Data Processing Services
518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates,
libraries, Internet publishing, &
broadcasting)

Finance and Insurance

Depository Credit Intermediation
522110 Commercial Banking
522120 Savings Institutions
522130 Credit Unions
522190 Other Depository Credit
Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers & originators)
522293 International Trade Financing
522294 Secondary Market Financing
522298 All Other Nondepository Credit
Intermediation

Activities Related to Credit
Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, &
money transmitting)
Securities, Commodity Contracts, and
Other Financial Investments and
Related Activities
523110 Investment Banking & Securities
Dealing
523120 Securities Brokerage
523130 Commodity Contracts Dealing
523140 Commodity Contracts Brokerage
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment
advice)
Insurance Carriers and Related
Activities
524140 Direct Life, Health, & Medical
Insurance & Reinsurance
Carriers
524150 Direct Insurance & Reinsurance
(except Life, Health, & Medical)
Carriers
524210 Insurance Agencies &
Brokerages
524290 Other Insurance Related
Activities (including third-party
administration of insurance and
pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee Benefit
Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles
(including mortgage REITs &
closed-end investment funds)
“Offices of Bank Holding Companies” and
“Offices of Other Holding Companies” are
located under Management of Companies
(Holding Companies) below.

Real Estate and Rental and
Leasing

Real Estate
531110 Lessors of Residential Buildings
& Dwellings (including equity
REITs)
531120 Lessors of Nonresidential
Buildings (except
Miniwarehouses) (including
equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including
equity REITs)
531190 Lessors of Other Real Estate
Property (including equity REITs)
531210 Offices of Real Estate Agents &
Brokers
531310 Real Estate Property Managers
531320 Offices of Real Estate Appraisers
531390 Other Activities Related to Real
Estate
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532281 Formal Wear & Costume Rental
532282 Video Tape & Disc Rental
532283 Home Health Equipment Rental
532284 Recreational Goods Rental
532289 All Other Consumer Goods
Rental
532310 General Rental Centers
532400 Commercial & Industrial
Machinery & Equipment Rental &
Leasing
Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
533110 Lessors of Nonfinancial
Intangible Assets (except
copyrighted works)

Professional, Scientific, and
Technical Services
Legal Services
541110 Offices of Lawyers
541190 Other Legal Services

-48-

Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and Related
Services
541310 Architectural Services
541320 Landscape Architecture Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying &
Mapping Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and Related
Services
541511 Custom Computer Programming
Services
541512 Computer Systems Design
Services
541513 Computer Facilities Management
Services
541519 Other Computer Related
Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting Services
541700 Scientific Research &
Development Services
541800 Advertising & Related Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional, Scientific,
& Technical Services

Management of Companies
(Holding Companies)
551111
551112

Offices of Bank Holding
Companies
Offices of Other Holding
Companies

Administrative and Support and
Waste Management and
Remediation Services

Administrative and Support Services
561110 Office Administrative Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation Services
561420 Telephone Call Centers
561430 Business Service Centers
(including private mail centers &
copy shops)
561440 Collection Agencies
561450 Credit Bureaus
561490 Other Business Support Services
(including repossession services,
court reporting, & stenotype
services)
561500 Travel Arrangement &
Reservation Services
561600 Investigation & Security Services
561710 Exterminating & Pest Control
Services
561720 Janitorial Services
561730 Landscaping Services
561740 Carpet & Upholstery Cleaning
Services
561790 Other Services to Buildings &
Dwellings
561900 Other Support Services
(including packaging & labeling
services, & convention & trade
show organizers)
Waste Management and Remediation
Services
562000 Waste Management &
Remediation Services

Principal Business Activity Codes (Continued)
Educational Services
611000

Educational Services (including
schools, colleges, & universities)

Health Care and Social
Assistance

Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
621210 Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except Physicians)
621340 Offices of Physical, Occupational
& Speech Therapists, &
Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other
Miscellaneous Health
Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory
Surgical & Emergency Centers
621498 All Other Outpatient Care
Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic
Laboratories
Home Health Care Services
621610 Home Health Care Services

Other Ambulatory Health Care Services
621900 Other Ambulatory Health Care
Services (including ambulance
services & blood & organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing, &
Emergency & Other Relief
Services
624310 Vocational Rehabilitation
Services
624410 Child Day Care Services

Arts, Entertainment, and
Recreation

Performing Arts, Spectator Sports, and
Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including
sports clubs & racetracks)
711300 Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for Artists,
Athletes, Entertainers, & Other
Public Figures
711510 Independent Artists, Writers, &
Performers
Museums, Historical Sites, and Similar
Institutions
712100 Museums, Historical Sites, &
Similar Institutions
Amusement, Gambling, and Recreation
Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement & Recreation
Industries (including golf

courses, skiing facilities,
marinas, fitness centers, &
bowling centers)

Accommodation and Food
Services

Accommodation
721110 Hotels (except Casino Hotels) &
Motels
721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler
Accommodation
721210 RV (Recreational Vehicle) Parks
& Recreational Camps
721310 Rooming & Boarding Houses,
Dormitories, & Workers' Camps
Food Services and Drinking Places
722300 Special Food Services (including
food service contractors &
caterers)
722410 Drinking Places (Alcoholic
Beverages)
722511 Full Service Restaurants
722513 Limited Service Restaurants
722514 Cafeterias & Buffets
722515 Snack & Non-alcoholic Beverage
Bars

Other Services

Repair and Maintenance
811110 Automotive Mechanical &
Electrical Repair & Maintenance
811120 Automotive Body, Paint, Interior,
& Glass Repair
811190 Other Automotive Repair &
Maintenance (including oil
change & lubrication shops & car
washes)
811210 Electronic & Precision
Equipment Repair &
Maintenance
811310 Commercial & Industrial
Machinery & Equipment (except

-49-

Automotive & Electronic) Repair
& Maintenance
811410 Home & Garden Equipment &
Appliance Repair & Maintenance
811420 Reupholstery & Furniture Repair
811430 Footwear & Leather Goods
Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care Services
(including diet & weight reducing
centers)
812210 Funeral Homes & Funeral
Services
812220 Cemeteries & Crematories
812310 Coin-Operated Laundries &
Drycleaners
812320 Drycleaning & Laundry Services
(except Coin-Operated)
812330 Linen & Uniform Supply
812910 Pet Care (except Veterinary)
Services
812920 Photofinishing
812930 Parking Lots & Garages
812990 All Other Personal Services
Religious, Grantmaking, Civic,
Professional, and Similar Organizations
813000 Religious, Grantmaking, Civic,
Professional, & Similar
Organizations (including
condominium and homeowners
associations)

Index
A
Accounting methods 5
Accounting period 5
Accumulated adjustments
account 43
Amended return 6
Amortization 15
Amount owed 20
Assembling return 3
B
Bad debt deduction 16
Balance sheets–Sch. L 42
Business startup expenses 15
C
Change in accounting
method 5
Charitable contributions 27
Cost of goods sold 13
D
Deductions 14, 26
Deductions, limitations on 14
Deductions from oil and gas
properties 33
Depletion 17
Depletion (other than oil and
gas) 33
Depreciation 17
Direct deposit of refund 2, 20
Distributions 44
Distributions, property 34
E
Election, termination of 2
Electronic filing 2
Employee benefit
programs 18
Employer identification number
(EIN) 12
Estimated tax payment 4, 20

Estimated tax penalty 20
Expenses, nondeductible–Sch.
K or K-1 34
Extension of time to file 3
Extraterritorial income
exclusion 12
F
Farming, special rules 15
Final return 13
Foreign transactions–Sch. K or
K-1 31
Forms and Publications, how
to get 2
G
Gain, ordinary 13
Gain (loss), section 1231–Sch.
K or K-1 25
Gross receipts 13
I
Income 13
Income, rental activities 23
Income, tax-exempt 34
Income, trade or business
activities 23
Income from oil and gas
properties 33
Installment sales 13
Interest deduction 17
Interest due on tax payment 4
Interest expense,
investment 28
Inventory 14
Investment income and
expenses 34

Low-income housing credit
recapture 35
M
Multiple activities–reporting
requirements 22
N
Net investment income (code
U) 36
Net investment income tax
reporting requirements 11
O
Officer compensation 16
P
Passive activities–rental 8
Passive activities–reporting
requirements 10
Passive activity limitations 7
Penalties 4
Pension, profit-sharing, etc.,
plans 17
Portfolio income 9, 24
Preparer, tax return 3
Private delivery services 3
Property distributions 34
Q
Qualified business income
deduction 37
Qualified opportunity funds 7
Qualified rehabilitation
expenditures 29

L
Loans from shareholders 34
Lobbying expenses,
nondeductible 19
Low-income housing credit 29

R
Recapture, low-income
housing credit 35
Recapture, section 179
deduction 35

-50-

Recordkeeping 5
Reforestation 19, 28
Regulations section
1.1411-10(g) 6
Related party transactions 15
Rental activities, income and
expenses 23
Rental deduction 16
Return, amended 6
S
Salaries and wages 16
Sales 13
Schedule L 42
Schedule M-1 43
Schedule M-2 43
Schedule M-3 12
Section 1400Z-1 7
Section 1411 election with
respect to CFCs and
QEFs 6
Section 179 expense 26
Section 199A information 37
Section 263A rules 14
Section 59(e)(2)
expenditures 28
Self-charged interest 9
Substitute Sch. K-1 21
T
Taxes and licenses
deduction 16
Taxes due 19
Tax issues, unresolved 2
Termination of S election 2
Travel and entertainment
deduction 18
W
When to file 3
Where to file 3
Who must file 2
Who must sign 3