Instructions For Form 8881 - Credit For Small Employer Pension Plan Startup Costs - 2005


Form 8881 (2005)
General Instructions
Additional Information
For more details, see section 45E.
Section references are to the Internal Revenue Code.
Purpose of Form
Specific Instructions
Eligible small employers use Form 8881 to claim the credit for
Part I. Current Year Credit
qualified startup costs incurred in establishing or administering an
eligible employer plan. The credit is allowed only for costs paid or
If you paid or incurred qualified startup costs, complete lines 1 and
incurred in tax years beginning after 2001 with respect to qualified
2. Complete line 3 for credits that were allocated to you from an S
employer plans first effective after 2001.
corporation or a partnership.
The credit is allowed under section 45E and is part of the general
Part II. Allowable Credit
business credit. You may elect, however, to have section 45E not
apply for your tax year beginning in 2005 by not filing Form 8881
The credit allowed for the current year may be limited based on your
with your 2005 tax return.
tax liability. Use Part II to figure the allowable credit unless you must
file Form 3800, General Business Credit.
S Corporations and Partnerships
Who must file Form 3800. You must file Form 3800 if you have:
A partnership or S corporation that is an eligible small employer
● A credit for small employer pension plan startup costs from a
completes Part I of the form to figure the credit to pass through to
passive activity,
its partners and shareholders. Show on Schedule K-1 each
● More than one of the credits included in the general business
shareholder’s or partner’s allocable portion of the line 5 credit.
Electing large partnerships must include this credit in “general
credit (other than a credit from Form 8844, Form 6478, or Section B
of Form 8835), or
● A carryback or carryforward of any of those credits.
How To Figure the Credit
See the instructions for Form 3800 to find out which credits are
For an eligible small employer, the credit is 50% of the qualified
included in the general business credit.
startup costs paid or incurred during the tax year. The credit is
Line 9e
limited to $500 per year for the first credit year and each of the
following 2 tax years. No credit is allowed for any other tax year.
Include on line 9e any amounts claimed on:
Eligible small employer. To be an eligible small employer, you must
● Form 8834, Qualified Electric Vehicle Credit, line 20;
have had no more than 100 employees during the tax year preceding
● Form 8910, Alternative Motor Vehicle Credit, line 18; and
the first credit year who received at least $5,000 of compensation
● Form 8911, Alternative Fuel Vehicle Refueling Property Credit, line
from you during that tax year. However, you are not an eligible small
employer if, during the 3 tax years preceding the first credit year,
you established or maintained a qualified employer plan with respect
Line 12
to which contributions were made, or benefits were accrued, for
See section 38(c)(5) for special rules that apply to married couples
substantially the same employees as are in the new qualified
filing separate returns, controlled corporate groups, and estates and
employer plan. See section 45E(c) for rules for controlled groups and
predecessor employers.
Qualified startup costs. Qualified startup costs are expenses paid
Line 13
or incurred in connection with (a) establishing or administering an
Although you may not owe alternative minimum tax (AMT), you
eligible employer plan or (b) the retirement-related education of
generally must still compute the tentative minimum tax (TMT) to
employees about the plan.
figure your allowable credit. For a small corporation exempt from the
Eligible employer plan. An eligible employer plan is a qualified
AMT under section 55(e), enter zero. Otherwise, complete and attach
employer plan (as defined in section 4972(d)) with at least one
the applicable AMT form or schedule and enter the TMT on line 13.
employee eligible to participate who is not a highly compensated
employee. All eligible employer plans of the same employer are
Line 16
treated as one eligible employer plan.
If you cannot use all of the credit because of the tax liability limit
First credit year. The first credit year generally is your tax year that
(line 15 is smaller than line 5), carry the unused credit back one year
includes the date that the eligible employer plan becomes effective.
and then forward up to 20 years. See the instructions for Form 3800
However, you may elect to have the preceding tax year be the first
for details.
credit year, and claim the credit for qualified startup costs paid or
Paperwork Reduction Act Notice. We ask for the information on
incurred during that tax year. For example, a calendar-year eligible
this form to carry out the Internal Revenue laws of the United States.
small employer whose eligible plan is first effective on January 1,
You are required to give us the information. We need it to ensure
2006, may elect to treat 2005 as the first credit year and claim the
that you are complying with these laws and to allow us to figure and
credit on its 2005 tax return for qualified startup costs incurred in
collect the right amount of tax.
You are not required to provide the information requested on a
No Deduction Allowed for Credit Amount
form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a
You must reduce your otherwise allowable deduction for startup
form or its instructions must be retained as long as their contents
costs by the credit amount on line 2.
may become material in the administration of any Internal Revenue
law. Generally, tax returns and return information are confidential, as
Controlled Groups
required by section 6103.
The time needed to complete and file this form will vary depending
All persons treated as a single employer under section 52(a), 52(b),
414(m), or 414(o) are treated as one person for purposes of the
on individual circumstances. The estimated burden for individual
taxpayers filing this form is approved under OMB control number
credit. If the group qualifies as an eligible small employer, the group
member with the greatest startup costs figures the group credit on
1545-0074 and is included in the estimates shown in the instructions
for their individual income tax return. The estimated burden for all
lines 1 and 2 and skips the rest of the form. On separate Forms
8881, each member skips line 1 and enters its share of the group
other taxpayers who file this form is shown below. Recordkeeping,
5 hr., 58 min.; Learning about the law or the form, 53 min.;
credit on line 2. Each member then completes the remaining
applicable lines on its separate Form 8881 (and Form 3800, if
Preparing and sending the form to the IRS, 1 hr., 1 min. If you
have comments concerning the accuracy of these time estimates or
required). Each member must also attach a statement showing how
the group credit was divided among all members. The members
suggestions for making this form simpler, we would be happy to
hear from you. See the instructions for the tax return with which this
share the credit in the same proportion as they contributed qualified
startup costs.
form is filed.
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