Instructions For Form 1120-Reit - 2006 (Page 12 of 13) in pdf

section 1.337(d)-6 for information on how to

they can be used to reduce the REIT’s taxable

Parent-subsidiary controlled group. The

make the election and figure the tax for REIT

income.

term “parent-subsidiary controlled group”

elections and property transfers before this

means one or more chains of corporations

Line h. Credit carryforwards arising in tax

date. The REIT may also rely on Regulations

connected through stock ownership (section

years for which the REIT was a C corporation

section 1.337(d)-5 for REIT elections and

1563(a)(1)). Both of the following requirements

must be used to reduce the tax on net built-in

property transfers that occurred before January

must be met:

gain for the tax year to the greatest extent

2, 2002.

1. At least 80% of the total combined

possible before the credit carryforwards can be

voting power of all classes of voting stock

used to reduce the tax on the REIT’s taxable

Built-in Gains Tax Worksheet

entitled to vote or at least 80% of the total

income.

instructions

value of all classes of stock of each corporation

Line i. The REIT’s tax on net recognized

Complete the worksheet on this page to figure

in the group (except the parent) must be

built-in gain is treated as a loss sustained by

the built-in gains tax under Regulations section

owned by one or more of the other

the REIT during the same tax year. Deduct the

1.337(d)-7 or 1.337(d)-6.

corporations in the group and

tax attributable to:

•

2. The common parent must own at least

Line a. Enter the amount that would be the

Ordinary gain as a deduction for taxes on

80% of the total combined voting power of all

taxable income of the REIT for the tax year if

Form 1120-REIT, line 14.

•

classes of stock entitled to vote or at least 80%

only recognized built-in gain, recognized

Short-term capital gain as a short-term

of the total value of all classes of stock of one

built-in loss, and recognized built-in gain

capital loss on Schedule D (Form 1120), line 1.

•

or more of the other corporations in the group.

carryover were taken into account, reduced by

Long-term capital gain as a long-term capital

Stock owned directly by other members of the

any portion of the REIT’s recognized built-in

loss on Schedule D (Form 1120), line 6.

group is not counted when computing the

gain from:

•

How to Report

voting power or value.

Net income from foreclosure property,

•

Amounts subject to tax for failure to meet

If the REIT checked the “Other” box, attach a

See section 1563(d)(1) for the definition of

certain source-of-income requirements under

schedule showing the computation of each

“stock” for purposes of determining stock

section 857(b)(5) computed in accordance with

item included in the total for line 6, Schedule J.

ownership above.

Regulations section 1.337(d)-6(c)(2),

In addition, identify: (a) the applicable Code

•

Net income from prohibited transactions

section; (b) the type of taxes or interest; and

Question 5

under section 857(b)(6), and

Check the “Yes” box if one foreign person

•

Amounts subject to tax under section

owned at least 25% of (a) the total voting

Line 7–Total Tax

857(b)(7).

power of all classes of stock of the REIT

Include any deferred tax on the termination of a

Line b. Add the amounts shown on:

entitled to vote, or (b) the total value of all

•

section 1294 election applicable to

Form 1120-REIT, page 1, line 20;

classes of stock of the REIT.

•

shareholders in a qualified electing fund in the

Form 1120-REIT, Part II, line 5; and

The constructive ownership rules of section

•

amount entered on line 7. See Form 8621, Part

Form 2438, line 11.

318 apply in determining if a REIT is foreign

V, and How to report, below.

Subtract from the total the amount on Form

owned. See section 6038A(c)(5) and the

1120-REIT, line 21c. Enter the result on line b

Subtract from the total for line 7 the

related regulations.

of the Built-in Gains Tax Worksheet below.

deferred tax on the REIT’s share of the

Enter on line 5a the percentage owned by

undistributed earnings of a qualified electing

Line c. The REIT’s net unrealized built-in gain

the foreign person specified in line 5. On line

fund (see Form 8621, Part II).

is the amount, if any, by which the fair market

5b, enter the name of the owner’s country.

value of the assets of the REIT at the

How to report

Note. If there is more than one 25%-or-more

beginning of its first REIT year (or as of the

foreign owner, complete lines 5a and 5b for the

Attach a schedule showing the computation of

date the assets were acquired, for any asset

foreign person with the highest percentage of

each item included in, or subtracted from, the

with a basis determined by reference to its

ownership.

total for line 7. On the dotted line next to line 7,

basis (or the basis of any other property) in the

enter the amount of tax or interest, identify it as

Foreign person. The term “foreign person”

hands of a C corporation) exceeds the

tax or interest, and specify the Code section

means:

aggregate adjusted basis of such assets at that

•

that applies.

A foreign citizen or nonresident alien.

time.

•

An individual who is a citizen of a U.S.

Enter on line c the REIT’s net unrealized

possession (but who is not a U.S. citizen or

built-in gain reduced by the net recognized

Schedule K—Other

resident).

built-in gain for prior years. See sections

•

A foreign partnership.

Information

•

1374(c)(2) and (d)(1).

A foreign corporation.

•

Line d. If the amount on line b exceeds the

Be sure to answer all the lines that apply to the

Any foreign estate or trust within the

REIT.

meaning of section 7701(a)(31).

amount on line a, the excess is treated as a

•

recognized built-in gain in the succeeding tax

A foreign government (or one of its agencies

Question 3

year.

or instrumentalities) if it is engaged in the

conduct of a commercial activity as described

Check the “Yes” box if the REIT is a subsidiary

Line e. Enter the section 1374(b)(2)

in section 892.

in a parent-subsidiary controlled group (defined

deduction. Generally, this is any net operating

below), even if the REIT is a subsidiary

Owner’s country. For individuals, the term

loss carryforward or capital loss carryforward

member of one group and the parent

“owner’s country” means the country of

(to the extent of the net capital gain included in

corporation of another.

residence. For all others, it is the country

recognized built-in gain for the tax year) arising

where incorporated, organized, created, or

in tax years for which the REIT was a C

Note. If the REIT is an “excluded member” of

administered.

corporation. These loss carryforwards must be

a controlled group (see section 1563(b)(2)), it

used to reduce recognized built-in gain for the

is still considered a member of a controlled

Requirement to file Form 5472. If the REIT

tax year to the greatest extent possible before

group for this purpose.

checked “Yes” to line 5, it may have to file

Built-in Gains Tax Worksheet (keep for your records)

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years c.

d. Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . . d.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . . f.

g. Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation

years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.

Tax. Subtract line h from line g ( if zero or less, enter -0-). Enter here and include on line 6 of

Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

-12-

Instructions For Form 1120-Reit - 2006 Page 12

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