Instructions For Form 1120-Reit - 2006 (Page 9 of 13) in pdf

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Equipment leasing under sections 465(c)(4),

Special NOL rules apply when:

Use Form 2220, Underpayment of

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(5), and (6); or

Estimated Tax by Corporations, to determine

An ownership change occurs, the amount of

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Any qualifying business of a qualified REIT

whether the REIT owes a penalty and to figure

the taxable income of a loss REIT that may be

under section 465(c)(7).

the amount of the penalty. Generally, the REIT

offset by the pre-change NOL carryovers is

does not have to file this form because the IRS

limited (see section 382 and the related

However, the at-risk rules do apply to the

can figure the amount of any penalty and bill

regulations). A loss REIT must file an

holding of mineral property.

the REIT for it. However, even if it does not

information statement with its income tax return

If the at-risk rules apply, adjust the amount

owe the penalty, the REIT must complete and

for each tax year that certain ownership shifts

on this line for any section 465(d) losses.

attach Form 2220 if the annualized income or

occur (see Temporary Regulations section

These losses are limited to the amount for

adjusted seasonal installment method is used,

1.382-2T(a)(2)(ii) for details). See Regulations

which the REIT is at risk for each separate

or the REIT is a large corporation computing its

section 1.382-6(b) for details on how to make

activity at the close of the tax year. If the REIT

first required installment based on the prior

the closing-of-the-books election.

is involved in one or more activities, any of

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year’s tax. See the Instructions for Form 2220

A REIT acquires control of another REIT (or

which incurs a loss for the year, report the

for the definition of a “large corporation.”

acquires its assets in a reorganization), the

losses for each activity separately. Attach Form

amount of pre-acquisition losses that may

If Form 2220 is attached, check the box on

6198, At-Risk Limitations, showing the amount

offset recognized built-in gains is limited (see

this line and enter the amount of any penalty.

at risk and gross income and deductions for

section 384).

the activities with the losses.

Tax and Payments

If the REIT sells or otherwise disposes of

Part II—Tax on Net Income

an asset or its interest (either total or partial) in

Line 24b. Estimated tax payments. Enter

From Foreclosure Property

an activity to which the at-risk rules apply,

any estimated tax payments the REIT made for

determine the net profit or loss from the activity

Complete Part II only if the gross income,

the tax year.

by combining the gain or loss on the sale or

gains, losses, and deductions from foreclosure

Line 24f(1). Enter the credit (from Form 2439)

disposition with the profit or loss from the

property (defined in section 856(e)) result in

for the REIT’s share of the tax paid by a

activity. If the REIT has a net loss, it may be

net income. If an overall net loss results, report

regulated investment company (RIC) or

limited because of the at-risk rules.

the gross income, gains, losses, and

another REIT on undistributed long-term

deductions from foreclosure property on the

Treat any loss from an activity not allowed

capital gains included in the REIT’s income.

appropriate lines of Part I.

for the tax year as a deduction allocable to the

Attach Form 2439 to Form 1120-REIT.

activity in the next tax year.

Property may be treated as foreclosure

Line 24f(2). Enter the credit from Form 4136,

property only if it meets the requirements of

Line 21a. Net operating loss deduction. A

Credit for Federal Tax Paid on Fuels, if the

section 856(e) and the REIT elects to treat the

REIT can use the net operating loss (NOL)

REIT qualifies to claim this credit. Attach Form

property as foreclosure property in the year it

incurred in one tax year to reduce its taxable

4136 to Form 1120-REIT.

was acquired. The property continues to be

income in another tax year.

Line 24g. Credit for federal telephone

foreclosure property until the close of the 3rd

excise tax paid. If the REIT was billed after

Generally, a REIT may carry an NOL over

tax year following the tax year in which the

February 28, 2003, and before August 1, 2006,

to each of the 20 years (15 years for NOLs

REIT acquired it. For more information, see

for the federal telephone excise tax on long

incurred in tax years beginning before August

section 856(e).

distance or bundled service, the REIT may be

6, 1997) following the year of loss. REITs are

However, if the foreclosure property is

able to request a credit for the tax paid. The

not permitted to carry back an NOL to any year

qualified health care property, it will cease to

REIT had bundled service if its local and long

preceding the year of the loss. In addition, an

be foreclosure property as of the close of the

distance service was provided under a plan

NOL from a year that is not a REIT year may

2nd year following the tax year the REIT

that does not separately state the charge for

not be carried back to any year that is a REIT

acquired it (although the REIT may request

local service. The REIT cannot request the

year.

one or more extensions to this 2-year grace

credit if it has already received a credit or

Enter the total NOL carryovers from other

period not to extend beyond the 6th year). See

refund from its service provider. If the REIT

tax years, but do not enter more than the

section 856(e)(6) for details.

requests the credit, it cannot ask its service

REIT’s taxable income. The REIT’s taxable

provider for a credit or refund and must

This election must be made by the due

income for purposes of the NOL deduction is

withdraw any request previously submitted to

date for filing Form 1120-REIT (including

taxable income (line 20) reduced by the

its provider.

extensions). To make the election, attach a

dividends paid deduction (line 21b) and the

statement that:

The REIT can request the credit by

section 857(b)(2)(E) deduction (line 21c). If this

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Indicates that the election under section

attaching Form 8913, Credit for Federal

amount is less than zero, an NOL deduction

856(e) is being made;

Telephone Excise Tax Paid, showing the

cannot be taken for the tax year. Attach a

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Identifies the property to which the election

actual amount the REIT paid. The REIT also

schedule showing the computation of the NOL

applies;

may be able to request the credit based on an

deduction. Also complete item 9 on Schedule

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Includes the name, address, and EIN of the

estimate of the amount paid. See Form 8913

REIT, the date the property was acquired, and

for details. In either case, the REIT must keep

If capital gain dividends are paid during any

a brief description of how the property was

records to substantiate the amount of the credit

tax year, the amount of the net capital gain for

acquired (including the name of the person

requested.

such tax year (to the extent of the capital gain

from whom the property was acquired); and

Line 24h. Add the amounts on lines 24d

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dividends) is excluded in determining:

Gives a description of the lease or debt with

through 24g and enter the total on line 24h.

1. The NOL for the tax year and

respect to which default occurred or was

Backup withholding. If the REIT had income

2. The amount of the NOL of any prior tax

imminent.

tax withheld from any payments it received

year that may be carried over to any

The REIT can revoke the election by filing

because, for example, it failed to give the payer

succeeding tax year.

a revocation on or before the due date

its correct EIN, include the amount withheld in

(including extensions) for filing Form

the total for line 24h. This type of withholding is

Carryover rules. The NOL for the current

1120-REIT. See section 856(e) for more

called “Backup Withholding.” Show the amount

year is computed using the REIT’s taxable

details.

withheld in the blank space in the right-hand

income before it is reduced by the dividends

column between lines 23 and 24h, and enter

Line 2. Gross income from foreclosure

paid deduction. After the REIT applies the NOL

“Backup Withholding.”

property. Do not include income that qualifies

to the first tax year to which it may be carried,

under the REIT’s 75% gross income test under

the taxable income of that year must be

Line 25. Estimated tax penalty. A REIT that

section 856(c)(3)(A), (B), (C), (D), (E), or (G).

modified (as described by section 172(b) and

does not make estimated tax payments when

These amounts must be reported in Part I.

the modified rules for REITs in section

due may be subject to an underpayment

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

penalty for the period of underpayment.

Line 4. Deductions. Deduct only those

remaining loss may be carried to other years.

Generally, a REIT is subject to the penalty if its

expenses that have a proximate and primary

Although the current year NOL is computed

tax liability is $500 or more and it did not timely

relationship to earning the income shown on

without regard to the dividends paid deduction,

pay the smaller of:

line 3. This includes:

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an NOL carryover from a prior year is applied

Its alternative minimum tax minus the credit

Depreciation on foreclosure property;

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to the current year using taxable income after it

for federal tax paid on fuels for 2006 as shown

Interest paid or accrued on debt of the REIT

is reduced by the dividends paid deduction.

on the return or

that is attributable to the carrying of the

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The NOL amounts carried forward by the REIT

Its prior year’s tax (computed in the same

property;

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are not reduced by subsequent year dividends

manner). See section 6655 for details and

Real estate taxes; and

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paid deductions. See Example 1 in Regulations

exceptions, including special rules for large

Fees charged by an independent contractor

section 1.172-5(a)(4).

corporations.

to manage such property.

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Instructions For Form 1120-Reit - 2006 Page 9

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