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2010

Department of the Treasury

Internal Revenue Service

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

prior year unallowed losses) from its passive

personal services are for services performed

Section references are to the Internal

activities exceed the total income from its

by employee-owners.

Revenue Code unless otherwise noted.

passive activities. A closely held corporation

Employee-owner. A person is

Contents

Page

has a PAL for the year if the total losses

considered to be an employee-owner if the

General Instructions . . . . . . . . . . . . . . 1

(including prior year unallowed losses) from

person is an employee of the corporation on

Purpose of Form . . . . . . . . . . . . . . . . 1

all its passive activities exceed the sum of

any day of the testing period, and owns any

Who Must File . . . . . . . . . . . . . . . . . . 1

the total income from all its passive activities

outstanding stock of the corporation on any

Definitions . . . . . . . . . . . . . . . . . . . . . 1

and its net active income.

day of the testing period. Stock ownership is

Coordination With Other

determined under the attribution rules of

A personal service corporation has a

Limitations . . . . . . . . . . . . . . . . . . . . 1

section 318, except that “any” is substituted

passive activity credit for the year if its

Special Rules for Consolidated

for “50 percent or more in value” in section

credits from passive activities (including

Group . . . . . . . . . . . . . . . . . . . . . . . 2

318(a)(2)(C).

prior year unallowed credits) exceed the tax

Activities That Are Not Passive

attributable to net passive income. A closely

For more information about personal

Activities . . . . . . . . . . . . . . . . . . . . . 2

held corporation has a passive activity credit

service corporations, see Regulations

Rental Activities . . . . . . . . . . . . . . . . . 2

for the year if its credits from passive

section 1.441-3(c).

Trade or Business Activities . . . . . . . . 3

activities (including prior year unallowed

Closely held corporation. A corporation is

Material Participation . . . . . . . . . . . . . 3

credits) exceed the sum of the tax

a closely held corporation if at any time

Grouping of Activities . . . . . . . . . . . . . 4

attributable to net passive income and the

during the last half of the tax year more than

Passive Activity Income and

tax attributable to net active income.

50% in value of its outstanding stock is

Deductions . . . . . . . . . . . . . . . . . . . 4

directly or indirectly owned, by or for not

For more information, see Pub. 925,

Former Passive Activities . . . . . . . . . . 5

more than five individuals, and the

Passive Activity and At-Risk Rules.

Dispositions . . . . . . . . . . . . . . . . . . . 5

corporation is not a personal service

Specific Instructions . . . . . . . . . . . . . . 7

corporation.

Definitions

2010 Passive Activity Loss (PAL) . . . . 8

Certain organizations are treated as

Except as otherwise indicated, the following

Publicly Traded Partnerships

individuals for this test (see section 542(a)).

terms are defined as shown below.

(PTPs) . . . . . . . . . . . . . . . . . . . . . 10

For rules of determining stock ownership,

2010 Passive Activity Credits . . . . . . 10

see section 544 (as modified by section

Personal service corporation. A personal

Election To Increase Basis of

465(a)(3)).

service corporation is a corporation whose

Credit Property . . . . . . . . . . . . . . . 12

principal activity for the testing period

Other Passive Activity Terms

(defined below) for the tax year is the

What’s New

Net income. The excess of current year

performance of personal services. The

income over current year deductions from

services must be substantially performed by

Disclosure requirements for groupings.

the activity. This includes any current year

employee-owners. Employee-owners must

For tax years beginning after January 24,

gains or losses from the disposition of

own more than 10% of the fair market value

2010, disclosure requirements for groupings

assets or an interest in the activity.

(FMV) of the corporation’s outstanding stock

of trade or business activities or rental

on the last day of the testing period.

Net loss. The excess of current year

activities apply. See Disclosure

deductions over current year income from

Requirement on page 4.

Testing period. Generally, the testing

the activity. This includes any current year

period for a tax year is the prior tax year.

General Instructions

gains or losses from the disposition of

The testing period for a new corporation

assets or an interest in the activity.

starts with the first day of its first tax year

Overall gain. The excess of the “net

and ends on the earlier of:

Purpose of Form

•

income” from the activity over the prior year

The last day of its first tax year, or

•

unallowed losses from the activity.

The last day of the calendar year in which

Personal service corporations and closely

the first tax year began.

Overall loss. The excess of the prior year

held corporations use Form 8810 to figure

unallowed losses from the activity over the

the amount of any passive activity loss

Principal activity. The principal activity

“net income” from the activity or the prior

(PAL) or credit for the current tax year and

of a corporation is considered to be the

year unallowed losses from the activity plus

the amount of losses and credits from

performance of personal services if, during

the “net loss” from the activity.

passive activities allowed on the

the testing period, the corporation’s

corporation’s tax return. It is also used to

Prior year unallowed losses. The

compensation costs for the performance of

make the election to increase the basis of

deductions and losses from an activity that

personal services are more than 50% of its

credit property when the corporation

were disallowed under the PAL limitations in

total compensation costs.

disposes of its interest in an activity for

a prior year and carried forward to the tax

Performance of personal services.

which it has an unused credit.

year under section 469(b). See Regulations

Personal services are those performed in

section 1.469-1(f)(4).

Generally, passive activities include trade

the health, law, engineering, architecture,

or business activities in which the

accounting, actuarial science, performing

Coordination With Other

corporation did not materially participate for

arts, or consulting fields (as defined in

the tax year, and rental activities regardless

Limitations

Temporary Regulations section

of its participation.

1.448-1T(e)). The term “performance of

Generally, items of deduction or loss from a

personal services” includes any activity

Who Must File

passive activity are subject to other

involving the performance of personal

limitations (for example, basis, section 163(j)

services in these areas.

Personal service corporations and closely

interest deduction limitations, and at-risk

held corporations that have losses or credits

Substantial performance by

limitations) before they are subject to the

(including prior year unallowed losses and

employee-owners. Personal services are

PAL limitations. Once a deduction or loss

credits) from passive activities must file

substantially performed by

becomes allowable under these other

Form 8810.

employee-owners if, for the testing period,

limitations, the corporation must determine

A personal service corporation has a

more than 20% of the corporation’s

whether the deduction or loss is limited

PAL for the year if the total losses (including

compensation costs for the performance of

under the PAL rules. See Form 6198,

Cat. No. 10357E

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2010

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