Instructions For Form 1120-Reit - 2009 (Page 13 of 17) in pdf

source-of-income requirements must be

defined in section 857(b)(4)(B)), the

See section 857(b)(7) for details and

due to reasonable cause and not due to

deduction for dividends paid to be entered

exceptions.

willful neglect.

on line 6 (and on line 21b, page 1) is

Line 2f–Taxes Imposed Under

determined by multiplying the amount on

For information on the relief provisions

Section 856(c)(7) and Section

line 5 by the following fraction:

under sections 856(c)(7) and 856(g)(5),

856(g)(5)

see the Instructions for Schedule J, line

REIT taxable income (determined without regard to

Enter the taxes imposed for the following

2f.

the deduction for dividends paid)

relief provisions:

•

REIT taxable income (determined without regard to

Section 856(c)(7) relating to failures to

the deduction for dividends paid) +

Part IV—Tax on Net

meet the requirements of the asset test of

(Net income from foreclosure property minus the

section 856(c)(4); and

tax on net income from foreclosure property)

Income From Prohibited

•

Section 856(g)(5) relating to failures to

Transactions

meet certain requirements under sections

856 through 859 (other than sections

Section 857(b)(6) imposes a tax equal to

Schedule J—Tax

856(c)(2), 856(c)(3), and 856(c)(4)).

100% of the net income derived from

See section 856(c)(7) and 856(g)(5) for

Computation

prohibited transactions. The 100% tax is

detailed information on the requirements

imposed to prevent a REIT from retaining

for these relief provisions and check the

Line 1

any profit from ordinary retailing activities

appropriate box(es) for the tax(es)

such as sales to customers of

A member of a controlled group must

imposed under them.

condominium units or subdivided lots in a

check the box on line 1 and complete and

Failures to meet the asset test

development tract.

attach Schedule O (Form 1120). See

requirements of section 856(c)(4)

Schedule O (Form 1120) and its

Line 1. Gain from sale or other

(other than de minimus failures).

instructions for more information.

disposition of property. Include only

Under section 856(c)(7)(A), a REIT may

gain from the sale or other disposition of

avoid loss of its REIT status as a result of

Line 2a–Tax on REIT Taxable

property described in section 1221(a)(1)

certain failures to meet the asset test

Income

that is not foreclosure property and that

requirements of section 856(c)(4) if,

does not qualify as an exception. See

Most REITs figure their tax by using the

following identification of the failure, each

section 857(b)(6)(C) for information on

Tax Rate Schedule below. A member of a

of the following requirements are met:

certain sales that do not qualify as

•

controlled group must use Schedule O

The REIT sets forth a description of

prohibited transactions. See section

(Form 1120) to figure its tax.

each asset that causes the REIT to fail to

856(j) for a special rule regarding a

satisfy the requirements of the asset test

Tax Rate Schedule

shared appreciation mortgage.

at the close of a quarter in a schedule for

Exceptions apply for certain sales of

the quarter attached to its timely filed

If taxable income (line 22, page 1) is:

timber property by a timber REIT. See

Form 1120-REIT;

Of the

section 857(b)(6)(D).

•

The failure must be due to reasonable

But not

amount

Do not net losses from prohibited

cause and not due to willful neglect; and

Over —

over —

Tax is:

over —

•

transactions against gains in determining

The REIT either: (a) disposes of the

the amount to enter on line 1. Enter

$50,000

15%

assets shown on the specified schedule

losses from prohibited transactions on the

50,000

75,000

$ 7,500 + 25%

50,000

within 6 months after the last day of the

75,000

100,000

13,750 + 34%

75,000

appropriate line in Part I.

quarter in which the REIT’s identification

100,000

335,000

22,250 + 39% 100,000

of the failure occurred (or such other time

Line 2. Deductions. Deduct only those

335,000

10,000,000

113,900 + 34% 335,000

expenses that have a proximate and

and in the manner prescribed by

10,000,000

15,000,000 3,400,000 + 35% 10,000,000

primary relationship to the earning of the

regulations); or (b) the requirements of

15,000,000

18,333,333 5,150,000 + 38% 15,000,000

income shown on line 1. Do not deduct

the asset test of section 856(c)(4) are

18,333,333

- - - - -

35%

general overhead and administrative

otherwise met within the specified time

expenses in Part IV.

period.

Alternative tax for corporations with

In addition, if section 856(c)(7)(A)

qualified timber gains. A REIT that has

applies to a REIT for any tax year, the

net capital gain and qualified timber gain

Schedule A—Deduction

REIT must pay a tax which is the greater

(as defined in section 1201(b)(2)) is

of:

for Dividends Paid

subject to an alternative tax computation.

•

$50,000 or

The alternative tax applies for tax years

•

Lines 1 through 5. Section 561 (taking

the amount determined (as prescribed

ending after May 22, 2008, and beginning

into account sections 857(b)(8),

by regulations to be promulgated by the

before May 23, 2009. The tax is figured

857(d)(3)(B), and 858(a)) determines the

Secretary) by multiplying the net income

on Part IV of Schedule D (Form 1120).

deduction for dividends paid.

generated by the assets described in the

Enter on line 2a, Schedule J, the tax from

specified schedule for the quarter in

Line 3. Dividends declared in October,

line 26 of Part IV, Schedule D (Form

which the failure occurred by 35% (the

November, or December and payable to

1120).

highest corporate tax rate).

shareholders of record in October,

November, or December are treated by

Line 2e

Note. There is no tax imposed and you

the REIT as paid on December 31 of that

are not required to attach a schedule of

Enter the amount of the 100% REIT tax

calendar year. The REIT is then eligible

assets to Form 1120-REIT for the de

imposed on the following:

for the deduction for dividends paid for

•

minimus relief provision under section

Income of a REIT for services provided

the year the dividends are declared even

856(c)(7)(B).

to the REIT’s tenants that is improperly

though they are not actually paid until

included in rents from real property

Under section 856(c)(7)(B), a REIT

January of the following calendar year.

reported by the REIT instead of being

may avoid loss of its REIT status as a

If the REIT declared dividends in any

reported by the TRS;

result of certain failures to meet the asset

•

of those months and actually paid them in

Deductions that are improperly

test requirements of section

January, as discussed above, enter on

allocated between the REIT to its TRS;

856(c)(4)(B)(iii) if:

•

line 3 those dividends not already

and

Following its identification of the failure,

•

included on lines 1, 2, and 4 of Schedule

Interest deductions of a TRS to the

the REIT disposes of assets within 6

extent that interest payments to its REIT

months after the last day of the quarter in

Line 6. If, for any tax year the REIT has

are in excess of a rate that is

which the REIT’s identification of the

net income from foreclosure property (as

commercially reasonable.

failure occurred (or such time period

-13-

Instructions For Form 1120-Reit - 2009 Page 13

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