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to tax-exempt income. The excluded

Commissions based on individual

See Pub. 463 for instructions on

amount is determined by the amount

performance;

figuring the inclusion amount.

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tax-exempt income bears to total gross

Qualified performance-based

Line 12. Taxes and Licenses. Enter

income (including tax-exempt income but

compensation; and

taxes paid or accrued during the tax year,

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excluding capital gain net income).

Income payable under a written,

but do not include the following:

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binding contract in effect on February 17,

Net operating loss deduction. The net

Federal income taxes (except for the

1993.

operating loss deduction is not allowed.

tax imposed on net recognized built-in

gain allocable to ordinary income).

The $1 million limit is reduced by

Passive activity limitations. Limitations

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Foreign or U.S. possession income

amounts disallowed as excess parachute

on passive activity losses and credits

taxes if a foreign tax credit is claimed, or if

payments under section 280G.

under section 469 apply to RICs that are

the RIC made an election under section

closely held (as defined in section

For details, see section 162(m) and

853.

469(j)(1)). RICs subject to the passive

Regulations section 1.162-27. Also, see

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Excise taxes imposed under section

activity limitations must complete Form

Notice 2007-49, 2007-25 I.R.B. 1429.

4982 on undistributed RIC income.

8810, Corporate Passive Activity Loss

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Line 10. Salaries and Wages. Enter the

Taxes not imposed on the RIC.

and Credit Limitations, to compute their

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salaries and wages paid for the tax year,

Taxes, including state or local sales

allowable passive activity loss and credit.

reduced by the amount claimed on:

taxes, that are paid or incurred in

Before completing Form 8810, see

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Form 8844, Empowerment zone and

connection with an acquisition or

Temporary Regulations section 1.163-8T,

renewal community employment credit,

disposition of property (these taxes must

for rules on allocating interest expense

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Form 5884, Work Opportunity Credit,

be treated as a part of the cost of the

among activities.

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Form 5884-A, Credits for Affected

acquired property or, in the case of a

Closely held corporation. A RIC is

Midwestern Disaster Area Employers,

disposition, as a reduction in the amount

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closely held if at any time during the last

Form 8845, Indian Employment Credit,

realized on the disposition).

half of the tax year more than 50% in

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Form 8861, Welfare-to-Work Credit,

Taxes assessed against local benefits

value of its outstanding stock is directly or

and

that increase the value of the property

indirectly owned by or for not more than

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Form 8932, Credit for Employer

assessed (such as for paving, etc.).

five individuals and it is not a personal

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Differential Wage Payments.

Taxes deducted elsewhere on the

service corporation.

return.

See the instructions for these forms for

Line 9. Compensation of Officers.

more information.

See section 164(d) for apportionment

Complete Schedule E if total receipts are

of taxes on real property between seller

Do not include salaries and wages

$500,000 or more. Total receipts are

and purchaser.

deductible elsewhere on the return, such

figured by adding:

Line 13. Interest

as amounts included in officer’s

1. Line 8, Part I,

compensation, elective contributions to a

Interest expense cannot be used

2. Net capital gain from line 1, Part II,

section 401(k) cash or deferred

to offset interest income.

and

arrangement, or amounts contributed

3. Line 9a, Form 2438.

CAUTION

under a salary reduction SEP agreement

Interest allocation. The RIC must

or a SIMPLE IRA plan.

Do not include compensation

make an interest allocation if the

deductible elsewhere on the return, such

If the RIC provided taxable fringe

proceeds of a loan were used for more

as elective contributions to a section

benefits to its employees, such as

than one purpose (for example, to

401(k) cash or deferred arrangement, or

personal use of a car, do not

purchase a portfolio investment and to

CAUTION

amounts contributed under a salary

deduct as wages any amounts deducted

acquire an interest in a passive activity).

reduction SEP agreement or a SIMPLE

elsewhere.

See Temporary Regulations section

IRA plan.

1.163-8T for the interest allocation rules.

Line 11. Rents. If the RIC rented or

Include only the deductible part of

leased a vehicle, enter the total annual

The following interest is not deductible:

officers’ compensation on Schedule E.

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rent or lease expense paid or incurred

Interest on indebtedness incurred or

Complete Schedule E, columns (a)

during the year. Also, complete Part V of

continued to purchase or carry obligations

through (e), for all officers. The RIC

Form 4562, Depreciation and

if the interest is wholly exempt from

determines who is an officer under the

Amortization. If the RIC leased a vehicle

income tax. For exceptions, see section

laws of the state where incorporated.

for a term of 30 days or more, the

265(b).

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Disallowance of deduction for

deduction for the vehicle lease expense

For cash basis taxpayers, prepaid

employee compensation in excess of

may have to be reduced by an amount

interest allocable to years following the

$1 million. Publicly held corporations

called the inclusion amount.

current tax year.

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cannot deduct compensation to a

Interest and carrying charges on

The RIC may have an inclusion

“covered employee” to the extent that the

straddles. Generally, these amounts must

amount if:

compensation exceeds $1 million.

be capitalized. See section 263(g).

Generally, a covered employee is:

Special rules apply to:

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And the

The principal executive officer (or an

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Disqualified interest on certain

vehicle’s

individual acting in that capacity) as of the

FMV on the

indebtedness under section 163(j). See

end of the tax year; or

first day of

Form 8926, Disqualified Corporate

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A principal employee whose total

the

Interest Expense Disallowed Under

compensation must be reported to

lease

Section 163(j) and Related Information,

shareholders under the Securities

The lease term began:

exceeded:

and the related instructions.

Exchange Act of 1934 because the

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After 12/31/07 but before 1/1/09

$18,500

Interest on which no tax is imposed

employee is among the three highest

(see section 163(j)).

After 12/31/06 but before 1/1/08

$15,500

compensated officers for that tax year

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Original issue discount on certain

(other than the principal executive officer).

After 12/31/04 but before 1/1/07

$15,200

high-yield discount obligations (see

For this purpose, compensation does

section 163(e)(5)(C) to figure the

After 12/31/03 but before 1/1/05

$17,500

not include:

disqualified portion).

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If the lease term began before January 1, 2004, see

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Income from certain employee trusts,

The deduction for interest when the

Pub. 463, Travel, Entertainment, Gift, and Car

annuity plans, or pensions.

Expenses, to find out if the RIC has an inclusion

RIC is a policyholder or beneficiary with

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Any benefit paid to an employee that is

amount. The inclusion amount for lease terms

respect to a life insurance, endowment, or

excluded from the employee’s income.

beginning in 2009 will be published in the Internal

annuity contract issued after June 8,

Revenue Bulletin in early 2009.

The deduction limit does not apply to:

1997. For details, see section 264(f).

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies Page 8

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