Instructions For Form 1120-Pc - 2005 (Page 15 of 21) in pdf

income, any amount subtracted from a

of incidental repairs, such as labor and

investments not acquired by direct

protection against loss account.

supplies, that do not add to the property’s

purchase (such as those acquired

value or appreciably prolong its life. Do

through transfers among affiliates,

Income

not include any amount paid for new

tax-free reorganizations, or the liquidation

buildings or for permanent improvements

of a subsidiary, etc.), the actual

Line 1a, column (a). Gross interest.

or betterments made to increase the

acquisition date should be used

Enter the gross amount of interest

value of any property or any amount

regardless of the holding period

income, including all tax-exempt interest

spent on foreclosed property before the

determined under section 1223.

income.

property is held for rent.

Line 1b, column (a). Interest exempt

A special rule applies in determining

Line 11. Depreciation. Enter

under section 103. Enter the amount of

the acquisition date of dividends received

depreciation on assets only to the extent

interest on state and local bonds that is

from affiliates. This rule provides that the

that the assets are used to produce gross

exempt from taxation under section 103.

portion of any 100% dividend which is

investment income reported on lines 1

See the instructions for Schedule A, line

related to prorated amounts be treated as

through 7 of Schedule B. For more

3b, column (a), for more information.

received with respect to stock acquired on

information, see the instructions for line

the later of:

Lines 1a and 1b, column (b).

22, Schedule A.

Amortization of premium. Enter on line

(a) the date the payor acquired the

1a, column (b), the total amortization of

Line 12. Depletion. Enter any allowable

stock or obligation to which the prorated

premium on tax-exempt bonds.

depletion on royalty income reported on

amounts are attributable or

line 4, Schedule B. See the instructions

Enter on line 1b, column (b), the

(b) the first day on which the payor and

for line 23, Schedule A, for more

amortization of bond premium on

payee were members of the same

information.

tax-exempt bonds.

affiliated group as defined in section

Line 13. Trade or business deductions.

Note. Insurance companies electing to

243(b).

Enter the total deductions related to any

amortize discount for tax purposes must

Also, if the taxpayer is a member of an

trade or business income included in

reduce the amortization of premium by

affiliated group filing a consolidated

gross investment income under section

any amortization of discount.

return, its determination of dividends

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

Line 3. Gross rents. Enter the gross

received is made as if the group were not

any insurance business. Do not include

rents received or accrued during the tax

filing a consolidated return.

losses from sales or exchanges of capital

year. Deduct rental expenses such as

assets or property used in the business,

Prorated amounts means tax-exempt

repairs, interest, taxes, and depreciation

or from the compulsory or involuntary

interest and dividends for which a

on the proper lines in the Deductions

conversion of property used in the trade

deduction is allowable under section 243,

section.

or business.

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

Line 5. Gross income from a trade or

Line 14. Interest. See the instructions for

100% dividend means any dividend if

business, other than an insurance

lines 20a and 20b, Schedule A.

the percentage used for purposes of

business, and from Form 4797. Enter

Line 17. Investment expenses. Enter

determining the deduction allowable

the gross income from a trade or

expenses that are properly chargeable as

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

business, other than an insurance

investment expenses. If general

100%. A special rule applies to certain

business, carried on by the insurance

expenses are allocated to investment

dividends received by a foreign

company or by a partnership of which the

expenses, the total deduction cannot be

corporation.

insurance company is a partner. Include

more than the amount on Schedule B,

section 1245 and section 1250 gains (as

Lines 1 through 25

Part II, line 39. Attach a schedule showing

modified by section 291) and other gains

the kind and amount of general expenses.

For purposes of the 20% ownership test

from Form 4797, Sales of Business

Minor items may be grouped together.

on lines 1 through 7, the percentage of

Property, on investment assets only.

stock owned by the corporation is based

See section 267 for the limitation on

Line 6. Income from leases described

on voting power and value of the stock.

deductions for unpaid expenses and

in sections 834(b)(1)(B) and

Preferred stock described in section

interest in transactions between related

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

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

taxpayers.

entering into, changing, or ending any

Corporations filing a consolidated return

lease, mortgage, or other instrument or

should see Regulations sections

agreement from which the company

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

Schedule B, Part II—

earns interest, rents, or royalties.

before completing Schedule C.

Line 8. Gross investment income. If

Invested Assets Book

Corporations filing a consolidated

gross investment income includes an

return must not report as dividends on

Values

amount subtracted from the protection

Schedule C any amounts received from

against loss account, write on the dotted

Use Schedule B, Part II, to compute the

corporations within the tax consolidation

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

limitation on investment expenses under

group. Such dividends are eliminated in

section 834(c)(2) when any general

Deductions

consolidation rather than offset by the

expenses are in part assigned to, or

dividends-received deduction.

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

included in, the investment expenses

the limitation of expenses on real estate

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

deducted on Schedule B, Part I, line 17.

owned and occupied in part or in whole

column (a) of the appropriate line those

by a mutual insurance company.

dividends that are subject to the

Line 9. Real estate taxes. Enter taxes

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

Schedule C—Dividends

paid or accrued on real estate owned by

include:

and Special Deductions

the corporation and deductible under

1. All dividends (other than 100%

section 164.

dividends) received on stock acquired

Definitions

Line 10. Other real estate expenses.

after August 7, 1986, and

Enter all ordinary and necessary real

The acquisition date for investments

2. 100% dividends received on stock

estate expenses, such as fire insurance,

acquired by direct purchase is the trade

acquired after August 7, 1986, to the

heat, light, and labor. Also enter the cost

date rather than the settlement date. For

extent that such dividends are attributable

-15-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2005 Page 15

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