Instructions For Form 1120-Reit - 2010 (Page 11 of 17) in pdf

Plan, instead of Form 5500, generally if

airline and hotel clubs, and clubs

If the at-risk rules apply, adjust the

under 100 participants at the beginning of

operated to provide meals under

amount on this line for any section 465(d)

the plan year.

conditions favorable to business

losses. These losses are limited to the

discussion.

amount for which the REIT is at risk for

Note. Form 5500 and Form 5500-SF

each separate activity at the close of the

Entertainment facilities. The REIT

must be filed electronically under the

tax year. If the REIT is involved in one or

cannot deduct an expense paid or

computerized ERISA Filing Acceptance

more activities, any of which incurs a loss

incurred for a facility (such as a yacht or

System (EFAST2). For more information,

for the year, report the losses for each

hunting lodge) used for an activity usually

see the EFAST2 website at

activity separately. Attach Form 6198,

considered entertainment, amusement, or

dol.gov.

At-Risk Limitations, showing the amount

recreation.

Form 5500-EZ, Annual Return of

at risk and gross income and deductions

Amounts treated as compensation.

One-Participant (Owners and Their

for the activities with the losses.

Generally, the REIT may be able to

Spouses) Retirement Plan. File this form

If the REIT sells or otherwise disposes

deduct otherwise nondeductible meals,

for a plan that only covers the owner (or

of an asset or its interest (either total or

travel, and entertainment expenses if the

the owner and his or her spouse) but only

partial) in an activity to which the at-risk

amounts are treated as compensation to

if the owner (or the owner and his or her

rules apply, determine the net profit or

the recipient and reported on Form W-2

spouse) owns the entire business.

loss from the activity by combining the

for an employee or on Form 1099-MISC

Travel, meals, and entertainment.

gain or loss on the sale or disposition with

for an independent contractor.

Subject to limitations and restrictions

the profit or loss from the activity. If the

However, if the recipient is an officer,

discussed below, a REIT can deduct

REIT has a net loss, it may be limited

director, or beneficial owner (directly or

ordinary and necessary travel, meals, and

because of the at-risk rules.

indirectly) of more than 10% of any class

entertainment expenses paid or incurred

Treat any loss from an activity not

of stock, the deduction for otherwise

in its trade or business. Also, special rules

allowed for the tax year as a deduction

nondeductible meals, travel, and

apply to deductions for gifts, skybox

allocable to the activity in the next tax

entertainment expenses is limited to the

rentals, luxury water travel, convention

year.

amount treated as compensation. See

expenses, and entertainment tickets. See

section 274(e)(2) and Notice 2005-45,

Line 21a. Net operating loss deduction.

section 274 and Pub. 463 for more

2005-24 I.R.B. 1228.

A REIT can use the net operating loss

details.

(NOL) incurred in one tax year to reduce

Travel. A REIT cannot deduct travel

Lobbying expenses. Generally,

its taxable income in another tax year.

expenses of any individual accompanying

lobbying expenses are not deductible.

a corporate officer or employee, including

These expenses include:

Generally, a REIT may carry an NOL

•

Amounts paid or incurred in connection

a spouse or dependent of the officer or

over to each of the 20 years (15 years for

employee, unless:

with influencing federal or state legislation

NOLs incurred in tax years beginning

•

That individual is an employee of the

(but not local legislation); or

before August 6, 1997) following the year

•

REIT, and

Amounts paid or incurred in connection

of loss. REITs are not permitted to carry

•

His or her travel is for a bona fide

with any communication with certain

back an NOL to any year preceding the

federal executive branch officials in an

business purpose and would otherwise be

year of the loss. In addition, an NOL from

deductible by that individual.

attempt to influence the official actions or

a year that is not a REIT year may not be

positions of the officials. See Regulations

carried back to any year that is a REIT

Meals and entertainment. Generally,

section 1.162-29 for the definition of

year.

the REIT can deduct only 50% of the

“influencing legislation.”

amount otherwise allowable for meals

Enter the total NOL carryovers from

and entertainment expenses paid or

Dues and other similar amounts paid

other tax years, but do not enter more

incurred in its trade or business. In

to certain tax-exempt organizations may

than the REIT’s taxable income. The

addition (subject to exceptions under

not be deductible. See section 162(e)(3).

REIT’s taxable income for purposes of the

section 274(k)(2)):

If certain in-house lobbying expenditures

NOL deduction is taxable income (line 20)

•

Meals must not be lavish or

do not exceed $2,000, they are

reduced by the dividends paid deduction

extravagant;

deductible. For information on

(line 21b) and the section 857(b)(2)(E)

•

A bona fide business discussion must

contributions to charitable organizations

deduction (line 21c). If this amount is less

occur during, immediately before, or

that conduct lobbying activities, see

than zero, an NOL deduction cannot be

immediately after the meal; and

section 170(f)(9).

taken for the tax year. Attach a schedule

•

An employee of the REIT must be

showing the computation of the NOL

For more information on other

present at the meal.

deduction. Also complete item 9 on

deductions that may apply to

Schedule K.

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

corporations, see Pub. 535.

that applies to expenses for meals

If capital gain dividends are paid

Line 20. Taxable income before NOL

consumed by individuals subject to the

during any tax year, the amount of the net

deduction, total deduction for

hours of service limits of the Department

capital gain for such tax year (to the

dividends paid, and section

of Transportation.

extent of the capital gain dividends) is

857(b)(2)(E) deduction.

Membership dues. The REIT can

excluded in determining:

Generally, special at-risk rules under

deduct amounts paid or incurred for

1. The NOL for the tax year; and

section 465 apply to closely held

membership dues in civic or public

2. The amount of the NOL of any prior

corporations engaged in any activity as a

service organizations, professional

tax year that may be carried over to any

trade or business or for the production of

organizations (such as bar and medical

succeeding tax year.

income. Those REITs that are closely

associations), business leagues, trade

held may have to adjust the amount on

Carryover rules. The NOL for the

associations, chambers of commerce,

line 20.

boards of trade, and real estate boards.

current year is computed using the REIT’s

The at-risk rules do not apply to:

However, no deduction is allowed if a

taxable income before it is reduced by the

•

Holding real property placed in service

principal purpose of the organization is to

dividends paid deduction. After the REIT

by the taxpayer before 1987;

entertain, or provide entertainment

applies the NOL to the first tax year to

•

Equipment leasing under sections

facilities for, members or their guests. In

which it may be carried, the taxable

465(c)(4), (5), and (6); or

addition, a REIT cannot deduct

income of that year must be modified (as

•

Any qualifying business of a qualified

membership dues in any club organized

described by section 172(b) and the

REIT under section 465(c)(7).

for business, pleasure, recreation, or

modified rules for REITs in section

other social purpose. This includes

However, the at-risk rules do apply to

172(d)(6)) to determine how much of the

country clubs, golf and athletic clubs,

the holding of mineral property.

remaining loss may be carried to other

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Instructions For Form 1120-Reit - 2010 Page 11

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