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See section 164(d) for information on

limited to the amount of COD subject to

10% of taxable income (the sum of Part I,

apportionment of taxes on real property

the section 108(i) election. See section

line 26; Part ll, line 3; and Form 2438, line

between seller and purchaser.

108(i) for more details. Also see page 6

11) computed without regard to the

for the annual information statement that

following:

Line 13. Interest

•

is required if the election under section

Any deduction for contributions.

•

Interest expense cannot be used

108(i) is made.

The domestic production activities

to offset interest income.

deduction.

Line 14. Depreciation. Include on line

•

The deduction allowed under section

14 depreciation and the cost of certain

CAUTION

249, related to any premium paid or

property that the RIC elected to expense

Interest allocation. The RIC must

incurred upon the repurchase of a

under section 179. See Form 4562 and

make an interest allocation if the

convertible bond.

the related instructions to figure the

proceeds of a loan were used for more

amount of depreciation to enter on this

than one purpose (for example, to

Carryover. Charitable contributions

line.

purchase a portfolio investment and to

over the 10% limitation cannot be

acquire an interest in a passive activity).

Line 22. Other Deductions

deducted for the tax year but may be

See Temporary Regulations section

carried over to the next 5 tax years

Penalties or fines paid to any

1.163-8T for the interest allocation rules.

subject to certain limitations.

government agency or

The following interest is not deductible:

For more information on charitable

instrumentality because of a

CAUTION

•

Interest on indebtedness incurred or

contributions, including substantiation and

violation of a law are not deductible. See

continued to purchase or carry obligations

recordkeeping requirements, see the

Chapter 11, Other Expenses, in

if the interest is wholly exempt from

regulations under section 170 and Pub.

Publication 535 for additional information.

income tax. See section 265(b) for special

526, Charitable Contributions.

Attach a schedule listing by type and

rules and exceptions for financial

amount all allowable deductions that are

Contributions to organizations

institutions. Also see section 265(b)(7) for

not specifically deductible elsewhere on

conducting lobbying activities.

a temporary de minimis exception for

Form 1120-RIC. Generally, a deduction

Contributions made to an organization

financial institutions for certain tax exempt

may not be taken for any amount that is

that conducts lobbying activities are not

bonds issued in 2009 and 2010.

allocable to tax-exempt income. See

deductible if:

•

For cash basis taxpayers, prepaid

•

section 265(b) for exceptions.

The lobbying activities relate to matters

interest allocable to years following the

of direct financial interest to the donor’s

Examples of other deductions include:

current tax year.

•

trade or business and

Amortization. See Form 4562.

•

Interest and carrying charges on

•

The principal purpose of the

Certain business start-up and

straddles. Generally, these amounts must

contribution was to avoid federal income

organizational costs the RIC elects to

be capitalized. See section 263(g).

tax by obtaining a deduction for activities

amortize or deduct.

Special rules apply to:

•

that would have been nondeductible

Supplies used and consumed in the

•

Disqualified interest on certain

under the lobbying expense rules if

business.

indebtedness under section 163(j). See

•

conducted directly by the donor.

Utilities.

Form 8926, Disqualified Corporate

•

Ordinary losses from trade or business

For information on contributions to

Interest Expense Disallowed Under

activities of a partnership (from Schedule

charitable organizations that conduct

Section 163(j) and Related Information,

K-1 (Form 1065 or 1065-B)). Do not offset

lobbying activities, see section 170(f)(9).

and the related instructions.

ordinary income against ordinary losses.

•

Pension, profit-sharing, etc., plans.

Interest on which no tax is imposed

Instead, include the income on line 7.

Enter contributions to qualified pension,

(see section 163(j)).

Show the partnership’s name, address,

•

profit-sharing, or other funded-deferred

OID on certain high-yield discount

and EIN on a separate statement

compensation plans. Employers who

obligations. See section 163(e)(5) to

attached to this return. If the amount is

maintain such a plan generally must file

determine the amount of the deduction for

from more than one partnership, identify

Form 5500, Annual Return/Report of

OID that is deferred and the amount that

separately the amount from each

Employee Benefit Plan, even if the plan is

is disallowed on a high-yield discount

partnership.

not a qualified plan under the Internal

obligation. The rules under section

•

Deduction for certain energy efficient

Revenue Code. The filing requirement

163(e)(5) do not apply to certain

commercial building property placed in

applies even if the RIC does not claim a

high-yield discount obligations issued

service during the tax year. See section

deduction for the current tax year. There

after August 31, 2008 and before January

179D, Notice 2008-40, 2008-14 I.R.B.

are penalties for failure to file these forms

1, 2011. See section163(e)(5)(F). Also,

725, and Notice 2006-52, 2006-26 I.R.B.

on time and for overstating the pension

see Notice 2010-11, 2010-4 I.R.B. 326.

1175.

•

plan deduction. See sections 6652(e) and

The deduction for interest when the

•

Any extraterritorial income exclusion

6662(f).

RIC is a policyholder or beneficiary with

(from Form 8873, line 52).

respect to a life insurance, endowment, or

•

Travel, meals, and entertainment.

Any net negative section 481(a)

annuity contract issued after June 8,

Subject to certain limitations and

adjustment.

1997. For details, see section 264(f).

restrictions, the RIC can deduct ordinary

Charitable contributions. Enter

Attach a statement showing the

and necessary travel, meals, and

contributions or gifts actually paid within

computation of the deduction.

entertainment expenses incurred in its

the tax year to or for the use of charitable

•

Section 108(i) OID deduction. If the

trade or business.

and governmental organizations

RIC issued a debt instrument with OID

described in section 170(c) and any

Travel. The RIC cannot deduct travel

that is subject to section 108(i)(2)

unused contribution carryovers.

expenses of any individual accompanying

because of an election under section

a corporate officer or employee unless:

RICs reporting taxable income on the

108(i) to defer the recognition of income

•

That individual is an employee of the

accrual method may elect to treat as paid

from the cancellation of debt (COD), the

RIC and

during the tax year any contributions paid

deduction for all or a portion of the OID

•

His or her travel is for a bona fide

by the 15th day of the 3rd month after the

that accrues prior to the first tax year the

business purpose that would otherwise be

end of the tax year if the contributions

COD is includible in income is deferred

deductible by that individual.

were authorized by the board of directors

until the COD is includible in income. The

during the tax year. Attach a declaration

aggregate amount of OID that is deferred

Meals and entertainment. Generally,

to the return that includes the date the

during this period is generally allowed as

the RIC can deduct only 50% of the

resolution was adopted.

a deduction ratably over the 5-year period

amount otherwise allowable for meals

the COD is includible in income under

Limitation on deduction. The total

and entertainment expenses paid or

section 108(i). The amount deferred is

amount claimed cannot be more than

incurred in its trade or business.

-9-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - Internal Revenue Service - 2010 Page 9

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