Instructions For Form 1120-Reit - 2010 (Page 13 of 17) in pdf

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description of each item of its gross

included on lines 1, 2, and 4 of Schedule

Deductions that are improperly

income described in sections 856(c)(2)

allocated between the REIT to its TRS;

and 856(c)(3) in an attached schedule. In

and

Line 7. If, for any tax year the REIT has

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addition, its failure to meet the

Interest deductions of a TRS to the

net income from foreclosure property (as

source-of-income requirements must be

extent that interest payments to its REIT

defined in section 857(b)(4)(B)), the

due to reasonable cause and not due to

are in excess of a rate that is

deduction for dividends paid to be entered

willful neglect.

commercially reasonable.

on line 6 (and on line 21b, page 1) is

determined by multiplying the amount on

For information on the relief provisions

See section 857(b)(7) for details and

line 5 by the following fraction:

under sections 856(c)(7) and 856(g)(5),

exceptions.

see the Instructions for Schedule J, line

Line 2f–Taxes Imposed Under

REIT taxable income (determined without regard to

2f.

the deduction for dividends paid)

Section 856(c)(7) and Section

856(g)(5)

REIT taxable income (determined without regard to

Part IV—Tax on Net

the deduction for dividends paid) +

Enter the taxes imposed for the following

(Net income from foreclosure property minus the

Income From Prohibited

relief provisions:

tax on net income from foreclosure property)

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Section 856(c)(7) relating to failures to

Transactions

meet the requirements of the asset test of

Schedule J—Tax

section 856(c)(4); and

Section 857(b)(6) imposes a tax equal to

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Section 856(g)(5) relating to failures to

100% of the net income derived from

Computation

meet certain requirements under sections

prohibited transactions. The 100% tax is

856 through 859 (other than sections

imposed to prevent a REIT from retaining

Line 1

856(c)(2), 856(c)(3), and 856(c)(4)).

any profit from ordinary retailing activities

See section 856(c)(7) and 856(g)(5) for

such as sales to customers of

A member of a controlled group must

detailed information on the requirements

condominium units or subdivided lots in a

check the box on line 1 and complete and

for these relief provisions and check the

development tract.

attach Schedule O (Form 1120). See

appropriate box(es) for the tax(es)

Schedule O (Form 1120) and its

Line 1. Gain from sale or other

imposed under them.

instructions for more information.

disposition of property. Include only

gain from the sale or other disposition of

Failures to meet the asset test

Line 2a–Tax on REIT Taxable

property described in section 1221(a)(1)

requirements of section 856(c)(4)

Income

that is not foreclosure property and that

(other than de minimus failures).

Most REITs figure their tax by using the

does not qualify as an exception. See

Under section 856(c)(7)(A), a REIT may

Tax Rate Schedule below. A member of a

section 857(b)(6)(C) for information on

avoid loss of its REIT status as a result of

controlled group must use Schedule O

certain sales that do not qualify as

certain failures to meet the asset test

(Form 1120) to figure its tax.

prohibited transactions. See section

requirements of section 856(c)(4) if,

856(j) for a special rule regarding a

following identification of the failure, each

Tax Rate Schedule

shared appreciation mortgage.

of the following requirements are met:

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Exceptions apply for certain sales of

The REIT sets forth a description of

If taxable income (line 22, page 1) is:

timber property by a timber REIT. See

each asset that causes the REIT to fail to

Of the

section 857(b)(6)(D).

satisfy the requirements of the asset test

But not

amount

at the close of a quarter in a schedule for

Over —

over —

Tax is:

over —

Do not net losses from prohibited

the quarter attached to its timely filed

transactions against gains in determining

$50,000

15%

Form 1120-REIT;

the amount to enter on line 1. Enter

$ 7,500 + 25%

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50,000

75,000

50,000

The failure must be due to reasonable

losses from prohibited transactions on the

75,000

100,000

13,750 + 34%

75,000

cause and not due to willful neglect; and

appropriate line in Part I.

100,000

335,000

22,250 + 39% 100,000

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The REIT either: (a) disposes of the

Line 2. Deductions. Deduct only those

113,900 + 34% 335,000

335,000

10,000,000

assets shown on the specified schedule

10,000,000

15,000,000 3,400,000 + 35% 10,000,000

expenses that have a proximate and

within 6 months after the last day of the

15,000,000

18,333,333 5,150,000 + 38% 15,000,000

primary relationship to the earning of the

quarter in which the REIT’s identification

35%

18,333,333

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income shown on line 1. Do not deduct

of the failure occurred (or such other time

general overhead and administrative

and in the manner prescribed by

Alternative tax on qualified timber

expenses in Part IV.

regulations); or (b) the requirements of

gains. If the REIT is a partner in a

the asset test of section 856(c)(4) are

partnership and received a distributive

otherwise met within the specified time

Schedule A—Deduction

share of a qualified timber gain (as

period.

defined in section 1201(b)(2) from the

for Dividends Paid

partnership for the period that began

In addition, if section 856(c)(7)(A)

before May 23, 2009, the REIT may be

applies to a REIT for any tax year, the

Lines 1 through 5. Section 561 (taking

eligible for an alternative tax rate under

REIT must pay a tax which is the greater

into account sections 857(b)(8),

section 1201(b)(1) on the portion of its

of:

857(d)(3)(B), and 858(a)) determines the

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taxable income attributable to the

$50,000 or

deduction for dividends paid.

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qualified timber gain. Enter the alternative

the amount determined (as prescribed

Line 3. Dividends declared in October,

tax, if any, on Schedule J, line 2a. Attach

by regulations to be promulgated by the

November, or December and payable to

a statement showing the computation of

Secretary) by multiplying the net income

shareholders of record in October,

the tax. You may use Part lV of the 2009

generated by the assets described in the

November, or December are treated by

Schedule D (Form 1120) as a guide. See

specified schedule for the quarter in

the REIT as paid on December 31 of that

section 1201(b).

which the failure occurred by 35% (the

calendar year. The REIT is then eligible

highest corporate tax rate).

Line 2e

for the deduction for dividends paid for

Note. There is no tax imposed and you

the year the dividends are declared even

Enter the amount of the 100% REIT tax

are not required to attach a schedule of

though they are not actually paid until

imposed on the following:

assets to Form 1120-REIT for the de

January of the following calendar year.

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Income of a REIT for services provided

minimus relief provision under section

If the REIT declared dividends in any

to the REIT’s tenants that is improperly

856(c)(7)(B).

of those months and actually paid them in

included in rents from real property

January, as discussed above, enter on

reported by the REIT instead of being

Under section 856(c)(7)(B), a REIT

line 3 those dividends not already

reported by the TRS;

may avoid loss of its REIT status as a

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Instructions For Form 1120-Reit - 2010 Page 13

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