Instructions For Form 1120-Pc - 2006 (Page 9 of 20) in pdf

length of the term the policies are written

4. Any recapture amount under

In all cases, the amortization period

for) and (2) under which the unabsorbed

section 179A for certain clean-fuel vehicle

begins the month the corporation begins

portion of such premium deposits not

property (or clean-fuel vehicle refueling

business operations. For more details on

required for losses, expenses, or

property) that ceases to qualify. See

the election for business start-up and

establishment of reserves is returned or

Regulations section 1.179A-1 for details.

organizational costs, see Pub. 535.

credited to the policyholder on

5. Ordinary income from trade or

Attach any statement required by

cancellation or expiration of the policy,

business activities of a partnership (from

Regulations sections 1.195-1(b) or

must include in income an amount equal

Schedule K-1 (Form 1065 or Form

1.248-1(c). Report the deductible amount

to 2% of the premiums earned on

1065-B)). Do not offset ordinary losses

of these costs and any amortization on

insurance contracts during the tax year

against ordinary income. Instead, include

line 31, Schedule A. For amortization that

with respect to such policies after

the losses on line 31. Show the

begins during the 2006 tax year, complete

deduction of premium deposits returned

partnership’s name, address, and EIN on

and attach Form 4562.

or credited during the same tax year. See

a separate statement attached to this

section 832(b)(1)(D).

return. If the amount entered is from more

Reducing certain expenses for which

than one partnership, identify the amount

credits are allowable. If the corporation

Line 9. Income on account of special

from each partnership.

claims any of the following credits, it may

income and deduction accounts.

need to reduce the otherwise allowable

Corporations which write the kinds of

Deductions

deductions for expenses used to figure

insurance below must maintain the

the credit.

following special accounts. A corporation

•

Limitations on Deductions

Employment credits. See the

which writes:

instructions for line 16 on page 10.

Section 263A uniform capitalization

1. Mortgage guaranty insurance, must

•

Research credit.

rules. The uniform capitalization rules of

maintain a mortgage guaranty account;

•

Orphan drug credit.

section 263A require corporations to

2. Lease guaranty insurance, must

•

Disabled access credit.

capitalize certain costs.

maintain a lease guaranty account; and

•

Credit for small employer pension plan

3. Insurance on obligations the

For details on the uniform

startup costs.

interest on which is excludable from gross

•

capitalization rules, see Regulations

Credit for employer-provided childcare

income under section 103, must maintain

sections 1.263A-1 through 1.263A-3.

facilities and services.

an account with respect to insurance on

•

Transactions between related

Low sulfur diesel fuel production credit.

state and local obligations.

•

taxpayers. Generally, an accrual basis

Mine rescue team training credit.

taxpayer can only deduct business

Amounts required to be subtracted

If the corporation has any of these

expenses and interest owed to a related

from these accounts under sections

credits, figure each current year credit

party in the year the payment is included

832(e)(5) and 832(e)(6) must be reported

before figuring the deduction for

in the income of the related party. See

as income on line 9. See section 832(e)

expenses on which the credit is based.

sections 163(e)(3), 163(j), and 267 for

for more information.

See the instructions for the applicable

limitations on deductions for unpaid

form used to figure the credit.

interest and expenses.

Line 10. Income from protection

against loss account. Although section

Section 291 limitations. Corporations

Limitations on deductions related to

1024 of P.L. 99-514 repealed section 824

may be required to adjust certain

property leased to tax-exempt entities.

relating to the protection against loss

deductions. See section 291 to determine

If a corporation leases property to a

(PAL) account, PAL account balances are

the amount of the adjustment. Also, see

governmental or other tax-exempt entity,

includible in income as though section

section 43.

the corporation cannot claim deductions

824 were still in effect. Attach a schedule

related to the property to the extent that

Golden parachute payments. A portion

showing the computation.

they exceed the corporation’s income

of the payments made by a corporation to

from the lease payments (tax-exempt use

key personnel that exceeds their usual

Line 11. Mutual interinsurers or

loss). Amounts disallowed may be carried

compensation may not be deductible.

reciprocal underwriters — decrease in

over to the next tax year and treated as a

This occurs when the corporation has an

subscriber accounts. Enter the

deduction with respect to the property for

agreement (golden parachute) with these

decrease for the tax year in savings

that tax year. See section 470 for more

key employees to pay them these excess

credited to subscriber accounts of a

details and exceptions.

amounts if control of the corporation

mutual insurance company that is an

changes. See section 280G and

interinsurer or reciprocal underwriter.

Line 15. Compensation of officers.

Regulations section 1.280G-1.

Enter deductible officers’ compensation

Line 12. Income from a special loss

Business start-up and organizational

on line 15. See Employment credits on

discount account. Enter the amount

costs. Business start-up and

page 10 for a list of employment credits

from Form 8816, Part II, line 6.

organizational costs must be capitalized

that may reduce your deduction for

Line 13. Other Income. Enter any other

unless an election is made to deduct or

officers’ compensation. Do not include

taxable income not reported on lines 1

amortize them. The corporation can elect

compensation deductible elsewhere on

through 12. List the type and amount of

to amortize costs paid or incurred before

the return, such as elective contributions

income on an attached schedule. If the

October 23, 2004, over a period of 60

to a section 401(k) cash or deferred

corporation has only one item of other

months or more. For costs paid or

arrangement, or amounts contributed

income, describe it in parentheses on line

incurred after October 22, 2004, the

under a salary reduction SEP agreement

13. Examples of other income to report on

following rules apply separately to each

or a SIMPLE IRA plan.

line 13 include the following.

category of costs.

•

Include only the deductible part of

1. The amount included in income

The corporation can elect to deduct up

each officer’s compensation on line 15.

from line 4 of Form 6478, Credit for

to $5,000 of such costs for the year the

(See Disallowance of deduction for

Alcohol Used as Fuel.

corporation begins business operations.

•

employee compensation in excess of $1

2. The amount included in income

The $5,000 deduction is reduced (but

million, below.) Attach a schedule for all

from line 8 of Form 8864, Biodiesel and

not below zero) by the amount the total

officers using the following columns:

Renewable Diesel Fuels Credit.

costs exceed $50,000. If the total costs

3. Refunds of taxes deducted in prior

are $55,000 or more, the deduction is

1. Name of officer.

years to the extent they reduced income

reduced to zero.

2. Social security number.

•

subject to tax in the year deducted (see

If the election is made, any costs that

3. Percentage of time devoted to

section 111). Do not offset current year

are not deducted must be amortized

business.

taxes against tax refunds.

ratably over a 180-month period.

4. Amount of compensation.

-9-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 9

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