Instructions For Form 1120-Pc - 2006 (Page 12 of 20) in pdf

welfare programs, etc.) that are not an

loss adjustment expenses) that are not

special rules apply to deductions for gifts,

incidental part of a pension, profit-sharing,

deductible on lines 15 through 30.

skybox rentals, luxury water travel,

etc., plan included on line 24.

convention expenses, and entertainment

Examples of other deductions include

tickets. See section 274 and Pub. 463 for

Line 27. Additional deduction. Enter on

the following. See Pub. 535 for details on

details.

line 27, the total from Form 8816, Part II,

other deductions that may apply to

line 5.

Travel. The corporation cannot deduct

corporations.

•

travel expenses of any individual

The domestic production activities

Any insurance company taking the

accompanying a corporate officer or

deduction. See Form 8903.

additional deduction must:

•

employee, including a spouse or

Certain business start-up and

Make special estimated tax payments

dependent of the officer or employee,

organizational costs that the corporation

equal to the tax benefit from the

unless:

elects to deduct. See page 9.

deduction and

•

That individual is an employee of the

Legal and professional fees.

Establish and maintain a Special Loss

•

corporation, and

Supplies used and consumed in the

Discount Account. See section 847 and

•

His or her travel is for a bona fide

business.

Form 8816 for more information.

•

business purpose and would otherwise be

Travel and entertainment expenses.

Line 29. Dividends to policyholders.

deductible by that individual.

Special rules apply (discussed below).

Enter the total dividends and similar

•

Utilities.

Meals and entertainment. Generally,

distributions paid or declared to

•

Ordinary losses from trade or business

the corporation can deduct only 50% of

policyholders, as policyholders, except in

activities of a partnership (from Schedule

the amount otherwise allowable for meals

the case of a mutual fire insurance

K-1 (Form 1065 or 1065-B)). Do not offset

and entertainment expenses paid or

company exclusively issuing perpetual

ordinary income against ordinary losses.

incurred in its trade or business. In

policies. Whether dividends have been

Instead, include the income on line 13.

addition (subject to exceptions under

paid or declared should be determined

Show the partnership’s name, address,

section 274(k)(2)):

according to the method of accounting

•

and EIN on a separate statement

Meals must not be lavish or

employed by the insurance company.

attached to this return. If the amount

extravagant;

Dividends and similar distributions

•

entered is from more than one

A bona fide business discussion must

include amounts returned or credited to

partnership, identify the amount from

occur during, immediately before, or

policyholders on cancellation or expiration

each partnership.

immediately after the meal; and

•

of policies issued by a mutual fire or flood

•

Any extraterritorial income exclusion

An employee of the corporation must

insurance company:

(from Form 8873, line 54).

be present at the meal.

•

1. Where the premium deposits for

Deduction for certain energy efficient

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

the policy are the same (regardless of the

commercial building property. See section

that applies to expenses for meals

length of the policy) and

179D and Notice 2006-52, 2006-26 I.R.B.

consumed by individuals subject to the

2. The unabsorbed portion of the

1175.

hours of service limits of the Department

•

premium deposits not required for losses,

GO Zone clean-up cost. The

of Transportation.

expenses, or establishment of reserves is

corporation can elect to deduct certain

Membership dues. The corporation

returned or credited to the policyholder on

costs paid or incurred during the tax year

can deduct amounts paid or incurred for

cancellation or expiration of the policy.

for the removal of debris from, or the

membership dues in civic or public

demolition of structures on certain real

service organizations, professional

In the case of a qualified group

property located in the GO Zone. See

organizations (such as bar and medical

self-insurers fund, the fund’s deduction for

section 1400N(f).

•

associations), business leagues, trade

policyholder dividends is allowed no

Dividends paid in cash on stock held by

associations, chambers of commerce,

earlier than the date the state regulatory

an employee stock ownership plan.

boards of trade, and real estate boards.

authority determines the amount of the

However, a deduction may only be taken

However, no deduction is allowed if a

policyholder dividend that may be paid.

for the dividends above if, according to

principal purpose of the organization is to

See section 6076 of the Technical and

the plan, the dividends are:

entertain, or provide entertainment

Miscellaneous Revenue Act of 1988.

a. Paid in cash directly to the plan

facilities for, members or their guests. In

Line 30. Mutual interinsurers or

participants or beneficiaries;

addition, corporations cannot deduct

reciprocal underwriters — increase in

b. Paid to the plan, which distributes them

membership dues in any club organized

subscriber accounts. A mutual

in cash to the plan participants or their

for business, pleasure, recreation, or

insurance company that is an interinsurer

beneficiaries no later than 90 days

other social purpose. This includes

or reciprocal underwriter may deduct the

after the end of the plan year in which

country clubs, golf and athletic clubs,

increase in savings credited to subscriber

the dividends are paid;

airline and hotel clubs, and clubs

accounts for the tax year.

c. At the election of the participants or

operated to provide meals under

their beneficiaries (i) payable as

Savings credited to subscriber

conditions favorable to business

provided under a or b above or (ii) paid

accounts means the surplus credited to

discussion.

to the plan and reinvested in qualifying

the individual accounts of subscribers

Entertainment facilities. The

employer securities; or

before the 16th day of the 3rd month

corporation cannot deduct an expense

d. Used to make payments on a loan

following the close of the tax year. This is

paid or incurred for a facility (such as a

described in section 404(a)(9).

true only if the corporation would be

yacht or hunting lodge) used for an

required to pay this amount promptly to a

See section 404(k) for more details

activity usually considered entertainment,

subscriber if the subscriber ended the

and the limitation on certain dividends.

amusement, or recreation.

contract when the corporation’s tax year

Do not deduct the following.

ends. The corporation must notify the

Amounts treated as compensation.

•

Fines or penalties paid to a government

subscriber as required by Regulations

Generally, the corporation may be able to

for violating any law.

section 1.823-6(c)(2)(v). The subscriber

deduct otherwise nondeductible

•

Lobbying expenses. However, see

must treat any savings credited to the

entertainment, amusement, or recreation

exceptions (discussed below).

subscriber’s account as a dividend paid or

expenses if the amounts are treated as

declared.

compensation to the recipient and

Travel, meals, and entertainment.

reported on Form W-2 for an employee or

Line 31. Other deductions. Attach a

Subject to limitations and restrictions

on Form 1099-MISC for an independent

schedule, listing by type and amount, all

discussed below, a corporation can

contractor.

allowable deductions under sections

deduct ordinary and necessary travel,

832(c)(1) and (10) (net of the annual

meals, and entertainment expenses paid

However, if the recipient is an officer,

statement change in undiscounted unpaid

or incurred in its trade or business. Also,

director, or beneficial owner (directly or

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Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 12

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