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Worksheet 4

Line 3, column (a). Enter any Form

the unallowed loss attributable to the total

Form 1120 deductions by each of the

4797 losses from line 9 of Worksheet 1

Use Worksheet 4 to allocate the

ratios in column (b). Enter the portion of

plus any prior year unallowed Form 4797

unallowed deductions and losses for each

the unallowed loss in Worksheet 3,

losses for that activity.

activity among Form 1120 deductions and

column (c) that is attributable to a

any losses to be reported on Form 4797

Schedule D or Form 4797 loss in column

and Schedule D.

Line 1, column (b). Divide each of the

individual Form 1120 deductions shown in

If the unallowed loss is reported on

Column (d). Subtract column (c) from

column (a) by the total of all of the Form

one form or schedule, skip the following

column (a) and enter the results in this

example and complete Worksheet 4.

1120 deductions in column (a) and enter

column. Enter the deductions allowed for

the ratio for each of the deductions in

If the unallowed loss is from losses

Form 1120 on the proper lines of Form

column (b). The total of the ratios must

reported on more than one form or

1120 and enter the allowed Schedule D

equal 1.00.

schedule, allocate the unallowed loss

and Form 4797 losses on that form or

from column (c) of Worksheet 3 among

schedule.

the net losses as follows:

Column (c). Allocate the portion of the

Example. The corporation has one

loss in Worksheet 3, column (c), among

passive activity. The activity has an

the Form 1120 deductions by multiplying

unallowed loss of $18,000 in column (c)

of Worksheet 3 and the following net

Worksheet 4—Allowed Deductions and Losses

losses and net gain:

Name of activity:

(d) Allowed

(b) Ratio

(a) Deductions

Form 1120

deductions and

and losses

Gross receipts

$100,000

losses

Deductions

120,000

1. Form 1120 deductions:

Net loss

($20,000)

Cost of goods sold

Schedule D

Form 4797

b. Compensation of officers

Gain

$1,000

Gain

$5,000

Salaries and wages

Loss

(2,000)

Loss

(2,000)

Net loss

($1,000)

Net gain

$3,000

d. Repairs and maintenance

Bad debts

Add the net losses of $20,000 and

$1,000, for a total of $21,000. Divide the

f. Rents

net loss reported on each form by the

g. Taxes and licenses

total of the net losses, and multiply the

h. Interest

result by the unallowed loss of $18,000,

i. Depreciation

as shown below:

j. Depletion

$20,000

Form 1120:

$18,000 = $17,143

$21,000

k. Advertising

$1,000

l. Other deductions

Schedule D:

$18,000 = $857

$21,000

1.00

Total Form 1120 deductions

On Form 4797, report the $2,000 loss

2. Schedule D losses

and the $5,000 gain. On Worksheet 4,

3. Form 4797 losses

enter the $17,143 of unallowed

Name of activity:

(d) Allowed

(b) Ratio

deductions allocated to Form 1120 in

(a) Deductions

deductions and

and losses

column (c) on the line for total Form 1120

losses

deductions. Enter the $857 of unallowed

1. Form 1120 deductions:

Schedule D losses in column (c) of line 2.

Cost of goods sold

Worksheet 4 is used to allocate the

$17,143 to the Form 1120 deductions and

Compensation of officers

show the allowed and unallowed

Salaries and wages

Schedule D loss.

Repairs and maintenance

Line 1, column (a). Enter the current

Bad debts

year deductions for each Form 1120

Rents

expense (lines 6a through 6l of

Worksheet 1) plus any prior year

Taxes and licenses

unallowed Form 1120 deduction for that

Interest

activity. For example, if line 6i of

Depreciation

Worksheet 1 shows current year

depreciation for the activity of $2,200, and

Depletion

the activity had prior year unallowed

Advertising

depreciation of $1,200, enter $3,400 on

Other deductions

line 1i, column (a), of Worksheet 4.

1.00

Total Form 1120 deductions

Line 2, column (a). Enter any Schedule

2. Schedule D losses

D losses from line 8 of Worksheet 1 plus

3. Form 4797 losses

any prior year unallowed Schedule D

losses for that activity.

-9-

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2002 Page 9

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