Instructions For Form 1120-Pc - 2006 (Page 14 of 20) in pdf

834(b)(1)(C). Enter gross income from

Schedule C any amounts received from

Schedule B, Part II—

entering into, changing, or ending any

corporations within the tax consolidation

lease, mortgage, or other instrument or

group. Such dividends are eliminated in

Invested Assets Book

agreement from which the company

consolidation rather than offset by the

earns interest, rents, or royalties.

dividends-received deduction.

Values

Lines 1 through 9, column (a). Enter in

Line 8. Gross investment income. If

Use Schedule B, Part II, to compute the

column (a) of the appropriate line those

gross investment income includes an

limitation on investment expenses under

dividends that are subject to the

amount subtracted from the protection

section 834(c)(2) when any general

provisions of section 832(b)(5)(B).This will

against loss account, write on the dotted

expenses are in part assigned to, or

include:

line next to line 8, “PAL” and the amount.

included in, the investment expenses

deducted on Schedule B, Part I, line 17.

1. All dividends (other than 100%

Deductions

dividends) received on stock acquired

Note. See section 834(d)(1) regarding

after August 7, 1986, and

Schedule C—Dividends

the limitation of expenses on real estate

2. 100% dividends received on stock

owned and occupied in part or in whole

acquired after August 7, 1986, to the

and Special Deductions

by a mutual insurance company.

extent that such dividends are attributable

to prorated amounts (see definition on

Line 9. Real estate taxes. Enter taxes

Definitions

this page).

paid or accrued on real estate owned by

The acquisition date for investments

the corporation and deductible under

acquired by direct purchase is the trade

In the case of an insurance company

section 164.

date rather than the settlement date. For

that files a consolidated return, the

Line 10. Other real estate expenses.

investments not acquired by direct

determination with respect to any

Enter all ordinary and necessary real

purchase (such as those acquired

dividend paid by a member to another

estate expenses, such as fire insurance,

through transfers among affiliates,

member of the affiliated group is made as

heat, light, and labor. Also enter the cost

tax-free reorganizations, or the liquidation

if no consolidated return was filed. See

of incidental repairs, such as labor and

of a subsidiary, etc.), the actual

section 832(g).

supplies, that do not add to the property’s

acquisition date should be used

Line 1. Enter dividends (except those

value or appreciably prolong its life. Do

regardless of the holding period

received on debt-financed stock acquired

not include any amount paid for new

determined under section 1223.

after July 18, 1984 – see section 246A)

buildings or for permanent improvements

A special rule applies in determining

that are:

•

or betterments made to increase the

the acquisition date of dividends received

Received from less-than-20%-owned

value of any property or any amount

from affiliates. This rule provides that the

domestic corporations subject to income

spent on foreclosed property before the

portion of any 100% dividend which is

tax, and

•

property is held for rent.

related to prorated amounts be treated as

Qualified for the 70% deduction under

received with respect to stock acquired on

section 243(a)(1).

Line 11. Depreciation. Enter

the later of:

depreciation on assets only to the extent

Also, include on line 1 the following.

•

that the assets are used to produce gross

(a) the date the payor acquired the

Taxable distributions from an IC-DISC

investment income reported on lines 1

stock or obligation to which the prorated

or former DISC that are designated as

through 7 of Schedule B. For more

amounts are attributable or

eligible for the 70% deduction and certain

information, see the instructions for line

dividends of Federal Home Loan Banks.

(b) the first day on which the payor and

22, Schedule A.

See section 246(a)(2).

payee were members of the same

•

Dividends (except those received on

Line 12. Depletion. Enter any allowable

affiliated group as defined in section

debt-financed stock acquired after July

depletion on royalty income reported on

243(b).

18, 1984) from a regulated investment

line 4, Schedule B. See the instructions

Also, if the taxpayer is a member of an

company (RIC). The amount of dividends

for line 23, Schedule A, for more

affiliated group filing a consolidated

eligible for the dividends-received

information.

return, its determination of dividends

deduction under section 243 is limited by

received is made as if the group were not

Line 13. Trade or business deductions.

section 854(b). The corporation should

filing a consolidated return.

Enter the total deductions related to any

receive a notice from the RIC specifying

trade or business income included in

Prorated amounts means tax-exempt

the amount of dividends that qualify for

gross investment income under section

interest and dividends for which a

the deduction.

834(b)(2). Do not include deductions for

deduction is allowable under section 243,

Report so-called dividends or earnings

any insurance business. Do not include

244, or 245 (other than 100% dividends).

received from mutual savings banks, etc.,

losses from sales or exchanges of capital

100% dividend means any dividend if

as interest. Do not treat them as

assets or property used in the business,

the percentage used for purposes of

dividends.

or from the compulsory or involuntary

determining the deduction allowable

conversion of property used in the trade

Line 2. Enter on line 2:

under section 243, 244, or 245(b) is

•

or business.

Dividends (except those received on

100%. A special rule applies to certain

debt-financed stock acquired after July

dividends received by a foreign

Line 14. Interest. See the instructions for

18, 1984) that are received from

corporation.

lines 20a and 20b, Schedule A.

20%-or-more-owned domestic

Lines 1 through 25

Line 17. Investment expenses. Enter

corporations subject to income tax and

expenses that are properly chargeable as

that are subject to the 80% deduction

For purposes of the 20% ownership test

investment expenses. If general

under section 243(c), and

on lines 1 through 7, the percentage of

•

expenses are allocated to investment

Taxable distributions from an IC-DISC

stock owned by the corporation is based

expenses, the total deduction cannot be

or former DISC that are considered

on voting power and value of the stock.

more than the amount on Schedule B,

eligible for the 80% deduction.

Preferred stock described in section

Part II, line 39. Attach a schedule showing

1504(a)(4) is not taken into account.

Line 3. Enter the following.

the kind and amount of general expenses.

•

Corporations filing a consolidated return

Dividends received on debt-financed

Minor items may be grouped together.

should see Regulations sections

stock acquired after July 18, 1984, from

1.1502-13, 1.1502-26, and 1.1502-27

See section 267 for the limitation on

domestic and foreign corporations subject

before completing Schedule C.

deductions for unpaid expenses and

to income tax that would otherwise be

interest in transactions between related

Corporations filing a consolidated

subject to the dividends-received

taxpayers.

return must not report as dividends on

deduction under section 243(a)(1),

-14-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 14

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