Instructions For Form 1120-Reit - 2006 (Page 8 of 13) in pdf

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Insurance premiums.

The acknowledgment must be obtained by the

A bona fide business discussion must occur

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Legal and professional fees.

due date (including extensions) of the REIT’s

during, immediately before, or immediately

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Supplies used and consumed in the

return, or, if earlier, the date the return is filed.

after the meal; and

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business.

Do not attach the acknowledgment to the tax

An employee of the REIT must be present at

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Utilities.

return, but keep it with the REIT’s records.

the meal.

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Ordinary losses from trade or business

These rules apply in addition to the filing

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

activities of a partnership (from Schedule K-1

requirements for Form 8283, Noncash

applies to expenses for meals consumed by

(Form 1065 or 1065-B)). Do not offset ordinary

Charitable Contributions.

individuals subject to the hours of service limits

income against ordinary losses. Instead,

of the Department of Transportation.

Special rules and limits apply to:

include the income on line 7. Show the

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Contributions to organizations conducting

Membership dues. The REIT can deduct

partnership’s name, address, and EIN on a

lobbying activities. See section 170(f)(9).

amounts paid or incurred for membership dues

separate statement attached to this return. If

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Contributions of property other than cash.

in civic or public service organizations,

the amount is from more than one partnership,

See Form 8283.

professional organizations (such as bar and

identify the amount from each partnership.

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Contributions of computer technology and

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medical associations), business leagues, trade

Deduction for certain energy efficient

equipment for educational purposes. See

associations, chambers of commerce, boards

commercial building property. See section

section 170(e)(6).

of trade, and real estate boards. However, no

179D.

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deduction is allowed if a principal purpose of

Go Zone clean-up cost. The REIT may

Note. For contributions of cash, check, or

the organization is to entertain, or provide

deduct fifty percent of any qualified Go Zone

other monetary gifts (regardless of the

entertainment facilities for, members or their

clean-up cost paid or incurred on or after

amount), made in tax years beginning after

guests. In addition, a REIT cannot deduct

August 28, 2005, and before January 1, 2008.

August 17, 2006, the corporation must

membership dues in any club organized for

See section 1400N(f).

maintain a bank record, or a receipt, letter, or

business, pleasure, recreation, or other social

other written communication from the donee

Charitable contributions. Enter contributions

purpose. This includes country clubs, golf and

organization indicating the name of the

or gifts actually paid within the tax year to or for

athletic clubs, airline and hotel clubs, and clubs

organization, the date of the contribution, and

the use of charitable and governmental

operated to provide meals under conditions

the amount of the contribution.

organizations described in section 170(c) and

favorable to business discussion.

any unused contributions carried over from

For more information on charitable

Entertainment facilities. The REIT cannot

prior years.

contributions, including substantiation and

deduct an expense paid or incurred for a

REITs reporting taxable income on the

recordkeeping requirements, see section 170

facility (such as a yacht or hunting lodge) used

accrual method may elect to treat as paid

and the related regulations and Pub. 526,

for an activity usually considered

during the tax year any deductible contributions

Charitable Contributions. For special rules that

entertainment, amusement, or recreation.

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

apply to corporations, see Pub 542.

Amounts treated as compensation.

end of the tax year if the contributions were

Pension, profit-sharing, etc., plans. Include

Generally, the REIT may be able to deduct

authorized by the board of directors during the

the deduction for contributions to qualified

otherwise nondeductible meals, travel, and

tax year. Attach a declaration to the return

pension, profit-sharing, or other funded

entertainment expenses if the amounts are

stating that the resolution authorizing the

deferred compensation plans. Employers who

treated as compensation to the recipient and

contributions was adopted by the board of

maintain such a plan generally must file one of

reported on Form W-2 for an employee or on

directors during the tax year. The declaration

the forms listed below, even if the plan is not a

Form 1099-MISC for an independent

must include the date the resolution was

qualified plan under the Internal Revenue

contractor.

adopted.

Code. The filing requirement applies even if the

However, if the recipient is an officer,

Limitation on deduction. The total

REIT does not claim a deduction for the current

director, or beneficial owner (directly or

amount claimed may not be more than 10% of

tax year. There are penalties for failure to file

indirectly) of more than 10% of any class of

taxable income computed without regard to the

these forms on time and for overstating the

stock, the deduction for otherwise

following:

pension plan deduction. See sections 6652(e)

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nondeductible meals, travel, and entertainment

Any deduction for contributions.

and 6662(f).

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expenses is limited to the amount treated as

The special deductions on line 21b, relating

Form 5500, Annual Return/Report of

compensation. See section 274(e)(2) and

to dividends paid.

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Employee Benefit Plan. File this form for a plan

Notice 2005-45, 2005-24 I.R.B. 1228.

The deduction allowed under section 249,

that is not a one-participant plan (see below).

Lobbying expenses. Generally, lobbying

relating to any premium paid or incurred upon

Form 5500-EZ, Annual Return of

expenses are not deductible. These expenses

the repurchase of a convertible bond.

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include:

Any net operating loss (NOL) carryback to

One-Participant (Owners and Their Spouses)

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Amounts paid or incurred in connection with

the tax year under section 172.

Retirement Plan. File this form for a plan that

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only covers the owner (or the owner and his or

influencing federal or state legislation (but not

Any capital loss carryback to the tax year

local legislation) or

under section 1212(a)(1).

her spouse) but only if the owner (or the owner

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Amounts paid or incurred in connection with

and his or her spouse) owns the entire

Carryover. Charitable contributions that

any communication with certain federal

business.

exceed the 10% limitation cannot be deducted

executive branch officials in an attempt to

for the tax year but may be carried over to the

Travel, meals, and entertainment. Subject

influence the official actions or positions of the

next 5 tax years.

to limitations and restrictions discussed below,

officials. See Regulations section 1.162-29 for

a REIT can deduct ordinary and necessary

Special rules apply if the REIT has an NOL

the definition of “influencing legislation.”

travel, meals, and entertainment expenses

carryover to the tax year. In figuring the

Dues and other similar amounts paid to

paid or incurred in its trade or business. Also,

charitable contributions deduction for the tax

certain tax-exempt organizations may not be

special rules apply to deductions for gifts,

year, the 10% limit is applied using the taxable

deductible. See section 162(e)(3). If certain

skybox rentals, luxury water travel, convention

income after taking into account any deduction

in-house lobbying expenditures do not exceed

expenses, and entertainment tickets. See

for the NOL.

$2,000, they are deductible. For information on

section 274 and Pub. 463 for more details.

To figure the amount of any remaining NOL

contributions to charitable organizations that

Travel. A REIT cannot deduct travel

carryover to later years, taxable income must

conduct lobbying activities, see section

expenses of any individual accompanying a

be modified (see section 172(b)). To the extent

170(f)(9).

corporate officer or employee, including a

that contributions are used to reduce taxable

For more information on other deductions

spouse or dependent of the officer or

income for this purpose and increase an NOL

that may apply to corporations, see Pub. 535.

employee, unless:

carryover, a contributions carryover is not

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That individual is an employee of the REIT,

Line 20. Taxable income before NOL

allowed. See section 170(d)(2)(B).

and

deduction, total deduction for dividends

Substantiation requirements. Generally,

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His or her travel is for a bona fide business

paid, and section 857(b)(2)(E) deduction.

no deduction is allowed for any contributions of

purpose and would otherwise be deductible by

Generally, special at-risk rules under section

$250 or more unless the REIT receives a

that individual.

465 apply to closely held corporations engaged

written acknowledgment from the donee

in any activity as a trade or business or for the

organization that shows the amount of cash

Meals and entertainment. Generally, the

production of income. Those REITs that are

contributed, describes any property

REIT can deduct only 50% of the amount

closely held may have to adjust the amount on

contributed, and gives a description and a

otherwise allowable for meals and

line 20.

good faith estimate of the value of any goods

entertainment expenses paid or incurred in its

or services provided in return for the

trade or business. In addition (subject to

The at-risk rules do not apply to:

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contribution or states that no goods or services

exceptions under section 274(k)(2)):

Holding real property placed in service by

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were provided in return for the contribution.

Meals must not be lavish or extravagant;

the taxpayer before 1987;

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Instructions For Form 1120-Reit - 2006 Page 8

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