Instructions For Form 1120-Reit - 2009 (Page 11 of 17) in pdf

Form 5500-EZ, Annual Return of

considered entertainment, amusement, or

At-Risk Limitations, showing the amount

One-Participant (Owners and Their

recreation.

at risk and gross income and deductions

Spouses) Retirement Plan. File this form

for the activities with the losses.

Amounts treated as compensation.

for a plan that only covers the owner (or

Generally, the REIT may be able to

If the REIT sells or otherwise disposes

the owner and his or her spouse) but only

deduct otherwise nondeductible meals,

of an asset or its interest (either total or

if the owner (or the owner and his or her

travel, and entertainment expenses if the

partial) in an activity to which the at-risk

spouse) owns the entire business.

amounts are treated as compensation to

rules apply, determine the net profit or

the recipient and reported on Form W-2

loss from the activity by combining the

Travel, meals, and entertainment.

for an employee or on Form 1099-MISC

Subject to limitations and restrictions

gain or loss on the sale or disposition with

for an independent contractor.

the profit or loss from the activity. If the

discussed below, a REIT can deduct

However, if the recipient is an officer,

ordinary and necessary travel, meals, and

REIT has a net loss, it may be limited

director, or beneficial owner (directly or

entertainment expenses paid or incurred

because of the at-risk rules.

indirectly) of more than 10% of any class

in its trade or business. Also, special rules

Treat any loss from an activity not

of stock, the deduction for otherwise

apply to deductions for gifts, skybox

allowed for the tax year as a deduction

rentals, luxury water travel, convention

nondeductible meals, travel, and

allocable to the activity in the next tax

entertainment expenses is limited to the

expenses, and entertainment tickets. See

year.

amount treated as compensation. See

section 274 and Pub. 463 for more

section 274(e)(2) and Notice 2005-45,

Line 21a. Net operating loss deduction.

details.

2005-24 I.R.B. 1228.

A REIT can use the net operating loss

Travel. A REIT cannot deduct travel

(NOL) incurred in one tax year to reduce

Lobbying expenses. Generally,

expenses of any individual accompanying

its taxable income in another tax year.

lobbying expenses are not deductible.

a corporate officer or employee, including

These expenses include:

Generally, a REIT may carry an NOL

a spouse or dependent of the officer or

•

Amounts paid or incurred in connection

over to each of the 20 years (15 years for

employee, unless:

•

with influencing federal or state legislation

NOLs incurred in tax years beginning

That individual is an employee of the

(but not local legislation); or

before August 6, 1997) following the year

REIT, and

•

Amounts paid or incurred in connection

of loss. REITs are not permitted to carry

His or her travel is for a bona fide

with any communication with certain

back an NOL to any year preceding the

business purpose and would otherwise be

federal executive branch officials in an

year of the loss. In addition, an NOL from

deductible by that individual.

attempt to influence the official actions or

a year that is not a REIT year may not be

Meals and entertainment. Generally,

positions of the officials. See Regulations

carried back to any year that is a REIT

the REIT can deduct only 50% of the

section 1.162-29 for the definition of

year.

amount otherwise allowable for meals

“influencing legislation.”

Enter the total NOL carryovers from

and entertainment expenses paid or

Dues and other similar amounts paid

other tax years, but do not enter more

incurred in its trade or business. In

to certain tax-exempt organizations may

than the REIT’s taxable income. The

addition (subject to exceptions under

not be deductible. See section 162(e)(3).

REIT’s taxable income for purposes of the

section 274(k)(2)):

If certain in-house lobbying expenditures

•

NOL deduction is taxable income (line 20)

Meals must not be lavish or

do not exceed $2,000, they are

reduced by the dividends paid deduction

extravagant;

deductible. For information on

•

(line 21b) and the section 857(b)(2)(E)

A bona fide business discussion must

contributions to charitable organizations

deduction (line 21c). If this amount is less

occur during, immediately before, or

that conduct lobbying activities, see

than zero, an NOL deduction cannot be

immediately after the meal; and

section 170(f)(9).

•

taken for the tax year. Attach a schedule

An employee of the REIT must be

For more information on other

showing the computation of the NOL

present at the meal.

deductions that may apply to

deduction. Also complete item 9 on

See section 274(n)(3) for a special rule

corporations, see Pub. 535.

Schedule K.

that applies to expenses for meals

Line 20. Taxable income before NOL

If capital gain dividends are paid

consumed by individuals subject to the

deduction, total deduction for

during any tax year, the amount of the net

hours of service limits of the Department

dividends paid, and section

capital gain for such tax year (to the

of Transportation.

857(b)(2)(E) deduction.

extent of the capital gain dividends) is

Generally, special at-risk rules under

Membership dues. The REIT can

excluded in determining:

section 465 apply to closely held

deduct amounts paid or incurred for

1. The NOL for the tax year; and

corporations engaged in any activity as a

membership dues in civic or public

2. The amount of the NOL of any prior

trade or business or for the production of

service organizations, professional

tax year that may be carried over to any

income. Those REITs that are closely

organizations (such as bar and medical

succeeding tax year.

held may have to adjust the amount on

associations), business leagues, trade

line 20.

associations, chambers of commerce,

Carryover rules. The NOL for the

boards of trade, and real estate boards.

The at-risk rules do not apply to:

current year is computed using the REIT’s

•

However, no deduction is allowed if a

Holding real property placed in service

taxable income before it is reduced by the

principal purpose of the organization is to

by the taxpayer before 1987;

dividends paid deduction. After the REIT

•

entertain, or provide entertainment

Equipment leasing under sections

applies the NOL to the first tax year to

facilities for, members or their guests. In

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

which it may be carried, the taxable

•

addition, a REIT cannot deduct

Any qualifying business of a qualified

income of that year must be modified (as

membership dues in any club organized

REIT under section 465(c)(7).

described by section 172(b) and the

for business, pleasure, recreation, or

However, the at-risk rules do apply to

modified rules for REITs in section

other social purpose. This includes

the holding of mineral property.

172(d)(6)) to determine how much of the

country clubs, golf and athletic clubs,

If the at-risk rules apply, adjust the

remaining loss may be carried to other

airline and hotel clubs, and clubs

amount on this line for any section 465(d)

years. Although the current year NOL is

operated to provide meals under

losses. These losses are limited to the

computed without regard to the dividends

conditions favorable to business

amount for which the REIT is at risk for

paid deduction, an NOL carryover from a

discussion.

each separate activity at the close of the

prior year is applied to the current year

Entertainment facilities. The REIT

tax year. If the REIT is involved in one or

using taxable income after it is reduced

cannot deduct an expense paid or

more activities, any of which incurs a loss

by the dividends paid deduction. The NOL

incurred for a facility (such as a yacht or

for the year, report the losses for each

amounts carried forward by the REIT are

hunting lodge) used for an activity usually

activity separately. Attach Form 6198,

not reduced by subsequent year

-11-

Instructions For Form 1120-Reit - 2009 Page 11

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