Instructions For Form 1120-Reit - 2006 (Page 11 of 13) in pdf

Certain other failures of sections 856 – 859

foreign country or U.S. possession, see Form

it may owe a tax. See Form 8611, Recapture of

other than sections 856(c)(6) and 856(c)(7).

1118, Foreign Tax Credit – Corporations.

Low-Income Housing Credit.

Under section 856(g)(5), a REIT that fails to

Interest due under the look-back methods.

Line 3b –Qualifed Electric Vehicle

meet the requirements under sections

If the REIT used the look-back method for

Credit

856 – 859, except for section 856(c)(6) and

certain long-term contracts, see Form 8697,

(c)(7), may avoid loss of its REIT status if the

Interest Computation Under the Look-Back

Use Form 8834, Qualified Electric Vehicle

failure is due to reasonable cause and not due

Credit, to claim a credit for the purchase of a

Method for Completed Long-Term Contracts,

to willful neglect. In addition, the REIT must

for information on figuring the interest the REIT

new qualified electric vehicle.

pay (as prescribed by regulations and in the

may have to include.

same manner as tax) a penalty of $50,000 for

Line 3c –General Business Credit

The REIT may also have to include interest

each failure to satisfy a provision of sections

Enter the REIT’s total general business credit.

due under the look-back method for property

856 – 859. See section 856(g)(5).

depreciated under the income forecast method.

If the REIT is filing Form 8844,

Note. Regulations for reporting the failure and

See Form 8866, Interest Computation Under

Empowerment Zone and Renewal Community

paying the tax were being developed at the

the Look-Back Method for Property

Employment Credit, check the “Form(s)” box,

time these instructions went to print. REITs

Depreciated Under the Income Forecast

enter the form number in the space provided,

who are eligible for any relief provisions should

Method.

and include the allowable credit on line 3c.

refer to the Internal Revenue Bulletin for

Other. Additional taxes and interest amounts

If the REIT is required to file Form 3800,

additional guidance.

can be included in the total entered on line 7.

General Business Credit, check the “Form

Line 2g–Alternative Minimum Tax

Check the box for “Other” if the REIT includes

3800” box and include the allowable credit on

any of the taxes and interest discussed below.

line 3c. If the REIT is not required to file Form

(AMT)

See How to report , for the Line 7 instructions

3800, check the “Form(s)” box, enter the form

Unless the REIT is treated as a small

for details on reporting these amounts on an

number in the space provided, and include on

corporation exempt from the AMT, it may owe

attached schedule.

line 3c the allowable credit from the applicable

the AMT if it has any of the adjustments and

form listed below.

1. Recapture of qualified electric vehicle

tax preference items listed on Form 4626,

•

Investment Credit (Form 3468).

(QEV) credit. The REIT must recapture part of

Alternative Minimum Tax – Corporations. The

•

Work Opportunity Credit (Form 5884).

the QEV credit it claimed in a prior year if,

REIT must file Form 4626 if its taxable income

•

Welfare-to-Work Credit (Form 8861).

within 3 years of the date the vehicle was

(loss) combined with these adjustments and

•

Low-Income Housing Credit (Form 8586).

placed in service, it ceases to qualify for the

tax preference items is more than the smaller

•

Disabled Access Credit (Form 8826).

credit. See Regulations section 1.30-1 for

of:

•

Indian Employment Credit (Form 8845).

•

details on how to figure the recapture.

$40,000 or

•

Credit for Small Employer Pension Plan

•

2. Recapture of Indian employment credit.

The REIT’s allowable exemption amount

Startup Costs (Form 8881).

Generally, if an employer terminates the

(from Form 4626).

•

Credit for Employer-Provided Child Care

employment of a qualified employee less than

For this purpose, taxable income does not

Facilities and Services (Form 8882).

1 year after the date of initial employment, any

•

include the NOL deduction. See Form 4626 for

General credits from an electing large

Indian employment credit allowed for a prior

details.

partnership (Schedule K-1 (Form 1065-B))

tax year because of wages paid or incurred to

•

Hurricane Katrina Housing Credit (Form

Exemption for small corporations. A

that employee must be recaptured. For details,

REIT is treated as a small corporation exempt

5884-A).

see Form 8845 and section 45A.

•

Alternative Motor Vehicle Credit (Form

from the AMT for its tax year beginning in 2006

3. Recapture of new markets credit (see

if that year is the REIT’s first tax year in

8910).

Form 8874).

existence (regardless of its gross receipts) or:

4. Recapture of employer-provided

Also, see Form 3800 for a complete listing

childcare facilities and services credit (see

1. It was treated as a small corporation

of general business credits.

Form 8882).

exempt from the AMT for all prior tax years

Line 3d –Other credits

5. Interest due on deferred tax attributable

beginning after 1997 and

to (a) installment sales of certain timeshares

2. Its average annual gross receipts for the

Include any allowable credits not reported

and residential lots (section 453(l)(3)) and (b)

3-year tax period (or portion thereof during

above, such as the Credit for Prior Year

certain nondealer installment obligations

which the REIT was in existence) ending

Minimum Tax – Corporations (Form 8827).

(section 453A(c))

before its tax year beginning in 2006 did not

Attach a statement that identifies the type and

6. Interest due on deferred gain (section

exceed $7.5 million ($5 million if the REIT had

amount for each credit. Attach the applicable

1260(b)).

only 1 prior tax year).

credit form to the return.

For more details, see the Instructions for

Line 5–Personal Holding Company

Built-in Gains Tax

Form 4626.

Tax

If, on or after January 2, 2002, property of a C

corporation becomes property of a REIT by

Line 2h–Income Tax

A REIT is taxed as a personal holding

either: (a) the qualification of the C corporation

company under section 542 if:

Deferred tax under section 1291. If the REIT

•

as a REIT; or (b) the transfer of such property

At least 60% of its adjusted ordinary gross

was a shareholder in a passive foreign

to a REIT, then the REIT will be subject to the

income for the tax year is personal holding

investment company (PFIC) and received an

built-in gain tax under section 1374 unless the

company income, and

excess distribution or disposed of its

•

C corporation elects deemed sale treatment on

At any time during the last half of the tax

investment in the PFIC during the year, it must

the transferred property. If the C corporation

year more than 50% in value of its outstanding

include the increase in taxes due under section

does not make this election, the REIT must pay

stock is owned, directly or indirectly, by five or

1291(c)(2) in the total for line 2h. On the dotted

tax on the net recognized built-in gain during

fewer individuals.

line to the left of line 2h, enter “Section 1291”

the 10-year period beginning on its first day as

See Schedule PH (Form 1120), U.S.

and the amount.

a REIT or the day it acquired the property.

Personal Holding Company (PHC) Tax, for

Recognized built-in gains and losses generally

Do not include on line 2h any interest due

definitions and details on how to figure the tax.

retain their character (for example, ordinary

under section 1291(c)(3). Instead, show the

income or capital gain) and are treated the

amount of interest owed in the bottom margin

Line 6–Other Taxes

same as other gains or losses of the REIT. The

of page 1, Form 1120-REIT, and enter “Section

Include any of the following taxes and interest

REIT’s tax on net recognized built-in gain is

1291 interest.” For details, see Form 8621.

in the total on line 7. Check the appropriate

treated as a loss incurred by the REIT during

Additional tax under section 197(f). A

box(es) for the form, if any, used to compute

the same tax year (see the instructions for line i

corporation that elects to pay tax on the gain

the total.

of the Built-in Gains Tax Worksheet on page

from the sale of an intangible under the related

Recapture of investment credit. If the REIT

12. See Regulations section 1.337(d)-7 for

person exception to the anti-churning rules

details.

disposed of investment credit property or

should include any additional tax due under

changed its use before the end of its useful life

section 197(f)(9)(B) in the total for line 2h. On

Different rules apply to elections to be a

or recovery period, it may owe a tax. See Form

the dotted line next to line 2h, enter “Section

REIT and transfers of property in a carryover

4255, Recapture of Investment Credit, for

197” and the amount. For more information,

basis transaction that occurred prior to January

details.

see Pub. 535.

2, 2002. For REIT elections and property

Recapture of low-income housing credit. If

transfers before this date, the C corporation is

Line 3a–Foreign Tax Credit

the REIT disposed of property (or there was a

subject to deemed sale treatment on the

To find out when a REIT can claim the foreign

reduction in the qualified basis of the property)

transferred property unless the REIT elects

tax credit for payment of income tax to a

for which it took the low-income housing credit,

section 1374 treatment. See Regulations

-11-

Instructions For Form 1120-Reit - 2006 Page 11

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