Instructions For Form 1120-Pc - 2005 (Page 10 of 21) in pdf

Transactions between related

Line 6. Capital gain net income. Every

Amounts required to be subtracted

taxpayers. Generally, an accrual basis

sale or exchange of a capital asset must

from these accounts under sections

taxpayer can only deduct business

be reported in detail on Schedule D (Form

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

expenses and interest owed to a related

1120), Capital Gains and Losses, even if

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

there is no gain or loss.

for more information.

party in the year the payment is included

in the income of the related party. See

Generally, losses from sales or

Line 10. Income from protection

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

exchanges of capital assets are only

against loss account. Although section

limitations on deductions for unpaid

allowed to the extent of gains. However,

1024 of P.L. 99-514 repealed section 824

interest and expenses.

corporations taxed under section 831 may

relating to the protection against loss

claim losses from capital assets sold or

(PAL) account, PAL account balances are

Section 291 limitations. Corporations

exchanged to get funds to meet abnormal

includible in income as though section

may be required to adjust certain

insurance losses and to pay dividends

824 were still in effect. Attach a schedule

deductions. See section 291 to determine

and similar distributions to policyholders.

showing the computation.

the amount of the adjustment. Also, see

Do not include those types of losses here,

section 43.

Line 11. Mutual interinsurers or

but instead, report them on Schedule G.

reciprocal underwriters — decrease in

Golden parachute payments. A portion

The net capital loss for these

subscriber accounts. Enter the

of the payments made by a corporation to

corporations is the amount by which

decrease for the tax year in savings

key personnel that exceeds their usual

losses for the year from sales or

credited to subscriber accounts of a

compensation may not be deductible.

exchanges of capital assets exceed the

mutual insurance company that is an

This occurs when the corporation has an

gains from these sales or exchanges plus

interinsurer or reciprocal underwriter.

agreement (golden parachute) with these

the smaller of:

key employees to pay them these excess

Line 12. Income from a special loss

1. Taxable income (computed without

amounts if control of the corporation

discount account. Enter the amount

gains or losses from sales or exchanges

changes. See section 280G and

from Form 8816, Part II, line 6.

of capital assets); or

Regulations section 1.280G-1.

Line 13. Other Income. Enter any other

2. Losses from the sale or exchange

Business start-up and organizational

taxable income not reported on lines 1

of capital assets sold or exchanged to

costs. Business start-up and

through 12. List the type and amount of

obtain funds to meet abnormal insurance

organizational costs must be capitalized

income on an attached schedule. If the

losses and to provide for the payment of

unless an election is made to deduct or

corporation has only one item of other

dividends and similar distributions to

amortize them. The corporation can elect

income, describe it in parentheses on line

policyholders.

to amortize costs paid or incurred before

13. Examples of other income to report on

October 23, 2004, over a period of 60

line 13 include the following.

Subject to the limitations in section

months or more. For costs paid or

1212(a), a net capital loss can be carried

1. The amount included in income

incurred after October 22, 2004, the

back 3 years and forward 5 years as a

from Form 6478, Credit for Alcohol Used

following rules apply separately to each

short-term capital loss.

as Fuel.

category of costs.

2. The amount included in income

Line 8. Certain mutual fire or flood

•

The corporation can elect to deduct up

from Form 8864, Biodiesel and

insurance company premiums. A

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

Renewable Diesel Fuels Credit.

mutual fire or flood insurance company

corporation begins business operations.

3. Refunds of taxes deducted in prior

whose principal business is the issuance

•

The $5,000 deduction is reduced (but

years to the extent they reduced income

of policies (1) for which the premium

not below zero) by the amount the total

subject to tax in the year deducted (see

deposits are the same (regardless of the

costs exceed $50,000. If the total costs

section 111). Do not offset current year

length of the term the policies are written

are $55,000 or more, the deduction is

taxes against tax refunds.

for) and (2) under which the unabsorbed

reduced to zero.

4. Any recapture amount under

portion of such premium deposits not

•

If the election is made, any costs that

section 179A for certain clean-fuel vehicle

required for losses, expenses, or

are not deducted must be amortized

property (or clean-fuel vehicle refueling

establishment of reserves is returned or

ratably over a 180-month period.

property) that ceases to qualify. See

credited to the policyholder on

Regulations section 1.179A-1 for details.

In all cases, the amortization period

cancellation or expiration of the policy,

5. Ordinary income from trade or

begins the month the corporation begins

must include in income an amount equal

business activities of a partnership (from

business operations. For more details on

to 2% of the premiums earned on

Schedule K-1 (Form 1065 or Form

the election for business start-up and

insurance contracts during the tax year

1065-B)). Do not offset ordinary losses

organizational costs, see Pub. 535.

with respect to such policies after

against ordinary income. Instead, include

deduction of premium deposits returned

Attach any statement required by

the losses on line 31. Show the

or credited during the same tax year. See

Regulations sections 1.195-1(b) or

partnership’s name, address, and EIN on

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

1.248-1(c). Report the deductible amount

a separate statement attached to this

of these costs and any amortization on

Line 9. Income on account of special

return. If the amount entered is from more

line 31, Schedule A. For amortization that

income and deduction accounts.

than one partnership, identify the amount

begins during the 2005 tax year, complete

Corporations which write the kinds of

from each partnership.

and attach Form 4562.

insurance below must maintain the

following special accounts. A corporation

Reducing certain expenses for which

Deductions

which writes:

credits are allowable. For each credit

1. Mortgage guaranty insurance, must

listed below, the corporation must reduce

Limitations on Deductions

maintain a mortgage guaranty account;

the otherwise allowable deductions for

Section 263A uniform capitalization

2. Lease guaranty insurance, must

expenses used to figure the credit.

•

rules. The uniform capitalization rules of

maintain a lease guaranty account; and

Employment credits. See the

section 263A require corporations to

3. Insurance on obligations the

instructions for line 16 on page 11.

•

capitalize certain costs.

interest on which is excludable from gross

Research credit.

•

income under section 103, must maintain

For details on the uniform

Orphan drug credit.

•

an account with respect to insurance on

capitalization rules, see Regulations

Disabled access credit.

•

state and local obligations.

sections 1.263A-1 through 1.263A-3.

Enhanced oil recovery credit.

-10-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2005 Page 10

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