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Department of the Treasury

Internal Revenue Service

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Section references are to the Internal Revenue Code unless otherwise noted.

passive activities. A closely held

Temporary Regulations section

Contents

Page

corporation has a passive activity loss for

1.448-1T(e)). The term “performance of

General Instructions . . . . . . . . . . . . . 1

the year if the total losses (including prior

personal services” includes any activity

Purpose of Form . . . . . . . . . . . . . . . 1

year unallowed losses) from all its

involving the performance of personal

Who Must File . . . . . . . . . . . . . . . . 1

passive activities exceed the sum of the

services in these areas.

Definitions . . . . . . . . . . . . . . . . . . . 1

total income from all its passive activities

Substantial performance by

Coordination With Other

and its net active income.

employee-owners. Personal services

Limitations . . . . . . . . . . . . . . . . . 2

are substantially performed by

Special Rules for Consolidated

A personal service corporation has a

employee-owners if, for the testing period,

passive activity credit for the year if its

Group . . . . . . . . . . . . . . . . . . . . . 2

more than 20% of the corporation’s

credits from passive activities (including

Activities That Are Not Passive

compensation costs for the performance

prior year unallowed credits) exceed the

Activities . . . . . . . . . . . . . . . . . . . 2

of personal services are for services

tax attributable to net passive income. A

Rental Activities . . . . . . . . . . . . . . . 2

performed by employee-owners.

closely held corporation has a passive

Trade or Business Activities . . . . . . . 3

activity credit for the year if its credits

Employee-owner. A person is

Material Participation . . . . . . . . . . . . 3

from passive activities (including prior

considered to be an employee-owner if

Grouping of Activities . . . . . . . . . . . 4

year unallowed credits) exceed the sum

the person is an employee of the

Passive Activity Income and

of the tax attributable to net passive

corporation on any day of the testing

Deductions . . . . . . . . . . . . . . . . . 5

income and the tax attributable to net

period, and owns any outstanding stock

Former Passive Activities . . . . . . . . . 5

active income.

of the corporation on any day of the

Dispositions . . . . . . . . . . . . . . . . . . 5

testing period. Stock ownership is

For more information, see Pub. 925,

Specific Instructions . . . . . . . . . . . . 7

determined under the attribution rules of

Passive Activity and At-Risk Rules.

Passive Activity Loss . . . . . . . . . . . . 8

section 318, except that “any” is

Publicly Traded Partnerships

substituted for “50%” in section

Definitions

(PTPs) . . . . . . . . . . . . . . . . . . . 10

318(a)(2)(C).

Passive Activity Credits . . . . . . . . . 10

Except as otherwise indicated, the

For more information about personal

following terms are defined as shown

Election To Increase Basis of

service corporations, see Temporary

below.

Credit Property . . . . . . . . . . . . . 12

Regulations section 1.441-4T.

Closely held corporation. A corporation

Personal service corporation. A

General Instructions

is a “closely held corporation” if at any

personal service corporation is a

time during the last half of the tax year

corporation whose principal activity for the

more than 50% in value of its outstanding

testing period (defined below) for the tax

Purpose of Form

stock is owned, directly or indirectly, by or

year is the performance of personal

Form 8810 is used by personal service

for not more than five individuals, and the

services. The services must be

corporations and closely held

corporation is not a personal service

substantially performed by

corporations to figure the amount of any

corporation.

employee-owners. Employee-owners

passive activity loss or credit for the

must own more than 10% of the fair

Certain organizations are treated as

current tax year and the amount of losses

market value of the corporation’s

individuals for this test. (See section

and credits from passive activities allowed

outstanding stock on the last day of the

542(a).) For rules of determining stock

on the corporation’s tax return. It is also

testing period.

ownership, see section 544 (as modified

used to make the election to increase the

by section 465(a)(3)).

Testing period. Generally, the testing

basis of credit property when the

period for a tax year is the prior tax year.

Other Passive Activity Terms

corporation disposes of its interest in an

The testing period for a new corporation

activity for which it has an unused credit.

Net income means the excess of current

starts with the first day of its first tax year

and ends on the earlier of:

year income over current year deductions

Generally, passive activities include

•

from the activity. This includes any

trade or business activities in which the

The last day of its first tax year or

•

current year gains or losses from the

corporation did not materially participate

The last day of the calendar year in

which the first tax year began.

disposition of assets or an interest in the

for the tax year, and rental activities

regardless of its participation.

activity.

Principal activity. The principal

Net loss means the excess of current

activity of a corporation is considered to

Who Must File

year deductions over current year income

be the performance of personal services

from the activity. This includes any

Personal service corporations and closely

if, during the testing period, the

current year gains or losses from the

held corporations that have losses or

corporation’s compensation costs for the

disposition of assets or an interest in the

credits (including prior year unallowed

performance of personal services are

activity.

losses and credits) from passive activities

more than 50% of its total compensation

must file Form 8810.

costs.

Overall gain means the excess of the

“net income” from the activity over the

A personal service corporation has a

Performance of personal services.

prior year unallowed losses from the

passive activity loss for the year if the

Personal services are those performed in

activity.

total losses (including prior year

the health, law, engineering, architecture,

unallowed losses) from its passive

accounting, actuarial science, performing

Overall loss means the excess of the

activities exceed the total income from its

arts, or consulting fields (as defined in

prior year unallowed losses from the

Cat. No. 10357E

Instructions For Form 8810 Corporate Passive Activity Loss And Credit Limitations - Department Of The Treasury

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