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Line 20. Taxable income before NOL

Carryover rules. The NOL for the

exceptions, including special rules for large

deduction, total deduction for dividends

current year is computed using the REIT’s

corporations.

paid, and section 857(b)(2)(E) deduction.

taxable income before it is reduced by the

Use Form 2220, Underpayment of

dividends paid deduction. After the REIT

Estimated Tax by Corporations, to

Generally, special at-risk rules under section

applies the NOL to the first tax year to which

determine whether the REIT owes a penalty

465 apply to closely held corporations

it may be carried, the taxable income of that

and to figure the amount of the penalty.

engaged in any activity as a trade or

year must be modified (as described by

Generally, the REIT does not have to file

business or for the production of income.

section 172(b) and the modified rules for

this form because the IRS can figure the

Those REITs that are closely held may have

REITs in section 172(d)(6)) to determine

amount of any penalty and bill the REIT for

to adjust the amount on line 20.

how much of the remaining loss may be

it. However, even if it does not owe the

carried to other years. Although the current

The at-risk rules do not apply to:

penalty, the REIT must complete and attach

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year NOL is computed without regard to the

Holding real property placed in service by

Form 2220 if the annualized income or

dividends paid deduction, an NOL carryover

the taxpayer before 1987;

adjusted seasonal installment method is

•

from a prior year is applied to the current

Equipment leasing under sections

used, or the REIT is a large corporation

year using taxable income after it is reduced

465(c)(4), (5), and (6); or

computing its first required installment

•

by the dividends paid deduction. The NOL

Any qualifying business of a qualified

based on the prior year’s tax. See the

amounts carried forward by the REIT are not

REIT under section 465(c)(7).

Instructions for Form 2220 for the definition

reduced by subsequent year dividends paid

of a “large corporation.”

However, the at-risk rules do apply to the

deductions. See Example 1 in Regulations

holding of mineral property.

If Form 2220 is attached, check the box

section 1.172-5(a)(4).

on this line and enter the amount of any

If the at-risk rules apply, adjust the

Special NOL rules apply when:

penalty.

amount on this line for any section 465(d)

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An ownership change occurs, the amount

losses. These losses are limited to the

of the taxable income of a loss REIT that

amount for which the REIT is at risk for each

may be offset by the pre-change NOL

Part II—Tax on Net Income

separate activity at the close of the tax year.

carryovers is limited (see section 382 and

If the REIT is involved in one or more

the related regulations). A loss REIT must

From Foreclosure Property

activities, any of which incurs a loss for the

file an information statement with its income

year, report the losses for each activity

Complete Part II only if the gross income,

tax return for each tax year that certain

separately. Attach Form 6198, At-Risk

gains, losses, and deductions from

ownership shifts occur (see Temporary

Limitations, showing the amount at risk and

foreclosure property (defined in section

Regulations section 1.382-2T(a)(2)(ii) for

gross income and deductions for the

856(e)) result in net income. If an overall net

details). See Regulations section 1.382-6(b)

activities with the losses.

loss results, report the gross income, gains,

for details on how to make the

losses, and deductions from foreclosure

If the REIT sells or otherwise disposes of

closing-of-the-books election.

property on the appropriate lines of Part I.

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an asset or its interest (either total or partial)

A REIT acquires control of another REIT

in an activity to which the at-risk rules apply,

(or acquires its assets in a reorganization),

Property may be treated as foreclosure

determine the net profit or loss from the

the amount of pre-acquisition losses that

property only if it meets the requirements of

activity by combining the gain or loss on the

may offset recognized built-in gains is

section 856(e) and the REIT elects to treat

sale or disposition with the profit or loss from

limited (see section 384).

the property as foreclosure property in the

the activity. If the REIT has a net loss, it may

year it was acquired. The property continues

Tax and Payments

be limited because of the at-risk rules.

to be foreclosure property until the close of

the 3rd tax year following the tax year in

Treat any loss from an activity not

Line 24b. Estimated tax payments. Enter

which the REIT acquired it. For more

allowed for the tax year as a deduction

any estimated tax payments the REIT made

information, see section 856(e).

allocable to the activity in the next tax year.

for the tax year.

Line 21a. Net operating loss deduction.

However, if the foreclosure property is

Line 24f(1). Enter the credit (from Form

A REIT can use the net operating loss

qualified health care property, it will cease to

2439) for the REIT’s share of the tax paid by

(NOL) incurred in one tax year to reduce its

be foreclosure property as of the close of

a regulated investment company (RIC) or

taxable income in another tax year.

the 2nd year following the tax year the REIT

another REIT on undistributed long-term

acquired it (although the REIT may request

capital gains included in the REIT’s income.

Generally, a REIT may carry an NOL

one or more extensions to this 2-year grace

Attach Form 2439 to Form 1120-REIT.

over to each of the 20 years (15 years for

period not to extend beyond the 6th year).

NOLs incurred in tax years beginning before

Line 24f(2). Enter the credit from Form

See section 856(e)(6) for details.

August 6, 1997) following the year of loss.

4136, Credit for Federal Tax Paid on Fuels,

REITs are not permitted to carry back an

This election must be made by the due

if the REIT qualifies to claim this credit.

NOL to any year preceding the year of the

Attach Form 4136 to Form 1120-REIT.

date for filing Form 1120-REIT (including

loss. In addition, an NOL from a year that is

extensions). To make the election, attach a

Line 24g. Add the amounts on lines 24d

not a REIT year may not be carried back to

statement that:

through 24f and enter the total on line 24g.

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any year that is a REIT year.

Indicates that the election under section

Backup withholding. If the REIT had

856(e) is being made;

Enter the total NOL carryovers from other

income tax withheld from any payments it

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Identifies the property to which the

tax years, but do not enter more than the

received because, for example, it failed to

election applies;

REIT’s taxable income. The REIT’s taxable

give the payer its correct EIN, include the

•

Includes the name, address, and EIN of

income for purposes of the NOL deduction

amount withheld in the total for line 24g.

the REIT, the date the property was

is taxable income (line 20) reduced by the

This type of withholding is called “Backup

acquired, and a brief description of how the

dividends paid deduction (line 21b) and the

Withholding.” Show the amount withheld in

property was acquired (including the name

section 857(b)(2)(E) deduction (line 21c). If

the blank space in the right-hand column

of the person from whom the property was

this amount is less than zero, an NOL

between lines 23 and 24g, and enter

acquired); and

deduction cannot be taken for the tax year.

“Backup Withholding.”

•

Gives a description of the lease or debt

Attach a schedule showing the computation

Line 25. Estimated tax penalty. A REIT

with respect to which default occurred or

of the NOL deduction. Also complete item 9

that does not make estimated tax payments

was imminent.

on Schedule K.

when due may be subject to an

The REIT can revoke the election by

If capital gain dividends are paid during

underpayment penalty for the period of

filing a revocation on or before the due date

any tax year, the amount of the net capital

underpayment. Generally, a REIT is subject

(including extensions) for filing Form

gain for such tax year (to the extent of the

to the penalty if its tax liability is $500 or

1120-REIT. See section 856(e) for more

capital gain dividends) is excluded in

more and it did not timely pay the smaller of:

•

details.

determining:

Its alternative minimum tax minus the

1. The NOL for the tax year; and

credit for federal tax paid on fuels for 2007

Line 2. Gross income from foreclosure

2. The amount of the NOL of any prior

as shown on the return or

property. Do not include income that

•

tax year that may be carried over to any

Its prior year’s tax (computed in the same

qualifies under the REIT’s 75% gross

succeeding tax year.

manner). See section 6655 for details and

income test under section 856(c)(3)(A), (B),

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Instructions For Form 1120-Reit - Internal Revenue Service Of Department Of The Treasury - 2007 Page 10

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