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were acquired, for any asset with a basis

Line 8–Total Tax

vote or at least 80% of the total value of

determined by reference to its basis (or

all classes of stock of one or more of the

Include any deferred tax on the

the basis of any other property) in the

other corporations in the group. Stock

termination of a section 1294 election

hands of a C corporation) exceeds the

owned directly by other members of the

applicable to shareholders in a qualified

aggregate adjusted basis of such assets

group is not counted when computing the

electing fund in the amount entered on

at that time.

voting power or value.

line 8. See Form 8621, Part V, and How

to report, below.

Enter on line c the REIT’s net

See section 1563(d)(1) for the

unrealized built-in gain reduced by the net

definition of “stock” for purposes of

Subtract. Amounts to subtract from

recognized built-in gain for prior years.

determining stock ownership above.

the total for line 8 are the deferred tax on

See sections 1374(c)(2) and (d)(1).

the REIT’s share of the undistributed

Question 5

earnings of a qualified electing fund (see

Line d. If the amount on line b

Check the “Yes” box if one foreign person

Form 8621, Part II).

exceeds the amount on line a, the excess

owned at least 25% of (a) the total voting

is treated as a recognized built-in gain in

How to report. Attach a schedule

power of all classes of stock of the

the succeeding tax year.

showing the computation of each item

corporation entitled to vote or (b) the total

included in, or subtracted from, the total

Line e. Enter the section 1374(b)(2)

value of all classes of stock of the

for line 8. On the dotted line next to line 8,

deduction. Generally, this is any net

corporation.

enter the amount of tax or interest,

operating loss carryforward or capital loss

identify it as tax or interest, and specify

The constructive ownership rules of

carryforward (to the extent of net capital

the Code section that applies.

section 318 apply in determining if a REIT

gain included in recognized built-in gain

is foreign owned. See section 6038A(c)(5)

for the tax year) arising in tax years for

and the related regulations.

which the REIT was a C corporation.

Schedule K—Other

These loss carryforwards must be used to

Enter on line 5a the percentage owned

reduce recognized built-in gain for the tax

Information

by the foreign person specified in line 5.

year to the greatest extent possible

On line 5b, write the name of the owner’s

Be sure to answer all the lines that apply

before they can be used to reduce real

country.

to the REIT.

estate investment trust taxable income.

Note: If there is more than one

Question 3

Line h. Credit carryforwards arising in

25%-or-more foreign owner, complete

tax years for which the REIT was a C

Check the “Yes” box for question 3 if the

lines 5a and 5b for the foreign person with

corporation must be used to reduce the

REIT is a subsidiary in a

the highest percentage of ownership.

tax on net built-in gain for the tax year to

parent-subsidiary controlled group

Foreign person. The term “foreign

the greatest extent possible before the

(defined below), even if the REIT is a

person” means:

credit carryforwards can be used to

subsidiary member of one group and the

•

A foreign citizen or nonresident alien.

reduce the tax on real estate investment

parent corporation of another.

•

An individual who is a citizen of a U.S.

trust taxable income.

Note: If the REIT is an “excluded

possession (but who is not a U.S. citizen

member” of a controlled group (see

Line i. The REIT’s tax on net

or resident).

section 1563(b)(2)), it is still considered a

•

recognized built-in gain is treated as a

A foreign partnership.

member of a controlled group for this

•

loss sustained by the REIT during the

A foreign corporation.

purpose.

•

same tax year. Deduct the tax attributable

Any foreign estate or trust within the

to:

Parent-subsidiary controlled group.

meaning of section 7701(a)(31).

•

Ordinary gain as a deduction for taxes

The term “parent-subsidiary controlled

A foreign government (or one of its

on Form 1120-REIT, line 14.

group” means one or more chains of

agencies or instrumentalities) if it is

•

Short-term capital gain as a short-term

corporations connected through stock

engaged in the conduct of a commercial

capital loss on Schedule D (Form 1120),

ownership (section 1563(a)(1)). Both of

activity as described in section 892.

line 1.

the following requirements must be met:

•

Owner’s country. For individuals, the

Long-term capital gain as a long-term

1. At least 80% of the total combined

term “owner’s country” means the country

capital loss on Schedule D (Form 1120),

voting power of all classes of voting stock

of residence. For all others, it is the

line 6.

entitled to vote or at least 80% of the total

country where incorporated, organized,

How to report. If the REIT checked the

value of all classes of stock of each

created, or administered.

“Other” box, attach a schedule showing

corporation in the group (except the

the computation of each item included in

parent) must be owned by one or more of

Requirement to file Form 5472. If the

the total for line 7, Schedule J. In addition,

the other corporations in the group and

REIT checked “Yes” to line 5, it may have

identify (a) the applicable Code section,

2. The common parent must own at

to file Form 5472. Generally, a 25%

(b) the type of taxes or interest, and (c)

least 80% of the total combined voting

foreign-owned corporation that had a

enter the amount of tax or interest.

power of all classes of stock entitled to

reportable transaction with a foreign or

Built-in Gains Tax Worksheet (keep for your records)

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . a.

b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.

Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior years c.

d. Net recognized built-in gain (enter the smallest of lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . d.

Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.

Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . f.

g. Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation

years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.

Tax. Subtract line h from line g ( if zero or less, enter -0-). Enter here and include on line 7 of

Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

-14-

Instructions For Form 1120-Reit - U.s. Income Tax Return For Real Estate Investment Trusts - 2002 Page 14

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