Instructions For Form 1120-Reit - 2010 (Page 4 of 17) in pdf

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Late payment of tax. A REIT that does

the day before the date the deposit is

Cash,

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due. If the REIT uses a third party to

not pay the tax when due generally may

Accrual, or

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make deposits on its behalf, they may

be charged a penalty for the failure to pay

Any other method authorized by the

have different cutoff times.

tax. The amount of the penalty is

of 1%

Internal Revenue Code.

of the unpaid tax for each month or part of

Same-day wire payment option. If the

Accrual method. Generally, a REIT

a month the tax is not paid, up to a

REIT fails to initiate a deposit transaction

must use the accrual method of

maximum of 25% of the unpaid tax. The

on EFTPS by 8 p.m. Eastern time on the

accounting if its average annual gross

penalty will not be imposed if the REIT

day before the date a deposit is due, it

receipts exceed $5 million. See section

can show that the failure to pay on time

can still make the deposit on time by

448(c).

was due to reasonable cause.

using the Federal Tax Application (FTA).

Under the accrual method, an amount

Trust fund recovery penalty. This

Before using the same-day wire payment

is includible in income when:

penalty may apply if certain excise,

option, the REIT will need to make

income, social security, and Medicare

1. All the events have occurred that fix

arrangements with its financial institution

taxes that must be collected or withheld

the right to receive the income, which is

ahead of time. Please check with the

are not collected or withheld, or these

the earliest of the date:

financial institution regarding availability,

taxes are not paid. These taxes are

a. the required performance takes

deadlines and costs. To learn more about

generally reported on:

place,

making a same-day wire payment and

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Form 720, Quarterly Federal Excise

b. payment is due, or

download the Same-Day Payment

Tax Return;

c. payment is received, and

Worksheet, visit

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Form 941, Employer’s QUARTERLY

2. The amount can be determined

Federal Tax Return;

Estimated Tax Payments

with reasonable accuracy.

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Form 943, Employer Annual Federal

Generally, the following rules apply to the

Tax Return for Agricultural Employees;

See Regulations section 1.451-1(a) for

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REIT’s payments of estimated tax.

Form 944, Employer’s ANNUAL

details and Publication 538, Accounting

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The REIT must make installment

Federal Tax Returns; or

Periods and Methods.

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payments of estimated tax if it expects its

Form 945, Annual Return of Withheld

total tax for the year (less applicable

Change in accounting method.

Federal Income Tax.

credits) to be $500 or more.

Generally, the REIT must get IRS consent

The trust fund recovery penalty may

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The installments are due by the 15th

to change the method of accounting used

be imposed on all persons who are

day of the 4th, 6th, 9th, and 12th months

to report taxable income (for income as a

determined by the IRS to be responsible

of the tax year. If any date falls on a

whole or for the treatment of any material

for collecting, accounting for, and paying

Saturday, Sunday, or legal holiday, the

item). To do so, the REIT generally must

over these taxes, and who acted willfully

installment is due on the next regular

file Form 3115, Application for Change in

in not doing so. The penalty is equal to

business day.

Accounting Method. See Form 3115 and

the full amount of the unpaid trust fund

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Use Form 1120-W, Estimated Tax for

Pub. 538, Accounting Periods and

tax. See the Instructions for Form 720 or

Corporations, as a worksheet to compute

Methods, for more information.

Publication 15 (Circular E), Employer’s

estimated tax.

Tax Guide, for details, including the

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There are some instances when the

If the REIT overpaid its estimated tax, it

definition of responsible persons.

REIT can obtain automatic consent from

may be able to get a quick refund by filing

the IRS to change to certain accounting

Failure to ascertain ownership. If the

Form 4466, Corporation Application for

methods. See Rev. Proc. 2008-52,

REIT fails to comply with Regulations

Quick Refund of Overpaid Estimated Tax.

2008-36 I.R.B. 587, and Rev. Proc.

section 1.857-8 for ascertaining

The overpayment must be at least 10% of

ownership and maintaining factual

2009-39, 2009-38 I.R.B. 371.

the REIT’s expected income tax liability

ownership records for a tax year, it must

and at least $500.

If the REIT is filing an application

pay a $25,000 penalty ($50,000 for

for a change in accounting method

For more information, including

intentional disregard) upon notice and

penalties, see the Line 25. Estimated Tax

filed on or after January 10, 2011,

demand by the IRS. If the REIT can show

CAUTION

for a year of change ending on or after

Penalty instructions.

that the failure was due to reasonable

April 30, 2010, see Rev. Proc. 2011-14,

cause, the penalty may not be imposed.

Interest and Penalties

2011-4 I.R.B. 330.

For more information, see section 857(f).

Failures to satisfy certain REIT

Section 481(a) adjustment. The

Interest. Interest is charged on taxes

qualification provisions. If the REIT is

REIT may have to make an adjustment

paid late even if an extension of time to

required to pay the $50,000 penalty under

under section 481(a) to prevent amounts

file is granted. Interest is also charged on

section 856(g)(5)(C) for each failure to

of income or expenses from being

penalties imposed for failure to file,

satisfy a REIT qualification provision of

duplicated or omitted. This is referred to

negligence, fraud, substantial valuation

sections 856 – 859 (other than section

as a “section 481(a) adjustment.” The

misstatements, and substantial

856(c)(2), 856(c)(3), or section 856(c)(4))

section 481(a) adjustment period is

understatements of tax from the due date

due to reasonable cause and not willful

generally 1 year for a net negative

(including extensions) to the date of

neglect, see the instructions for Schedule

adjustment and 4 years for a net positive

payment. The interest charge is figured at

J, line 2f, on page 13.

adjustment. However, a REIT can elect to

a rate determined under section 6621.

use a 1-year adjustment period if the net

Other penalties. Other penalties can be

Late filing of return. A REIT that does

section 481(a) adjustment for the change

imposed for negligence, substantial

not file its tax return by the due date,

is less than $25,000. The REIT must

understatement of tax, reportable

including extensions, may be penalized

complete the appropriate lines of Form

transaction understatements, and fraud.

5% of the unpaid tax for each month or

3115 to make the election. Also, under

See sections 6662, 6662A, and 6663.

part of a month the return is late, up to a

certain other conditions, the REIT can

maximum of 25% of the unpaid tax. The

Accounting Methods

modify the period for taking into account a

minimum penalty for a return that is over

net positive section 481 adjustment. See

Figure taxable income using the method

60 days late is the smaller of the tax due

Rev. Proc. 2008-52 and Rev. Proc.

of accounting regularly used in keeping

or $135. The penalty will not be imposed

2009-39.

the REIT’s books and records. In all

if the REIT can show that the failure to file

cases, the method used must clearly

Note. Include any net positive section

on time was due to reasonable cause.

show taxable income.

481(a) adjustment on page 1, line 7.

REITs that file late must attach a

Report any negative adjustment on page

statement explaining the reasonable

Generally, permissible methods

1, line 18.

cause.

include:

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Instructions For Form 1120-Reit - 2010 Page 4

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