Instructions For Form 1120-Reit - 2004 (Page 10 of 13) in pdf

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Includes the name, address, and EIN of the

as prohibited transactions. See section 856(j)

Unequal apportionment plan. Members

REIT, the date the property was acquired, and

for a special rule regarding a shared

of a controlled group may elect an unequal

a brief description of how the property was

appreciation mortgage. For tax years beginning

apportionment plan and divide the taxable

acquired (including the name of the person

after October 22, 2004, certain sales of timber

income brackets as they want. There is no

from whom the property was acquired); and

property by a timber REIT qualify as an

need for consistency between taxable income

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Gives a description of the lease or debt with

exception. See new section 857(b)(6)(D).

brackets. Any member may be entitled to all,

respect to which default occurred or was

some, or none of the taxable income brackets.

Do not net losses from prohibited

imminent.

However, the total amount for all members

transactions against gains in determining the

cannot be more than the total amount in each

The REIT can revoke the election by filing

amount to enter on line 1. Enter losses from

taxable income bracket.

a revocation on or before the due date

prohibited transactions on the appropriate line

(including extensions) for filing Form

in Part I.

Equal apportionment plan. If no

1120-REIT. See section 856(e) for more

apportionment plan is adopted, the members of

Line 2. Deductions. Deduct only those

details.

the controlled group must divide the amount in

expenses that have a proximate and primary

Line 2. Gross income from foreclosure

each taxable income bracket equally among

relationship to the earning of the income shown

property. Do not include income that qualifies

themselves. For example, Controlled Group AB

on line 1. Do not deduct general overhead and

under the REIT’s 75% gross income test under

consists of Corporation A and Corporation B.

administrative expenses in Part IV.

section 856(c)(3)(A), (B), (C), (D), (E), or (G).

They do not elect an apportionment plan.

These amounts must be reported in Part I.

Therefore, each corporation is entitled to:

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$25,000 (one-half of $50,000) on line 2a(1);

Line 4. Deductions. Deduct only those

Schedule A—Deduction for

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$12,500 (one-half of $25,000) on line 2a(2);

expenses that have a proximate and primary

Dividends Paid

and

relationship to earning the income shown on

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$4,962,500 (one-half of $9,925,000) on line

line 3. This includes:

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Lines 1 through 5. Section 561 (taking into

2a(3).

Depreciation on foreclosure property,

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account sections 857(b)(8), 857(d)(3)(B), and

Interest paid or accrued on debt of the REIT

Line 2b. Members of a controlled group are

858(a)) determines the deduction for dividends

that is attributable to the carrying of the

treated as one corporation to figure the

paid.

property,

applicability of the additional 5% tax and the

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Line 3. Dividends declared in October,

Real estate taxes, and

additional 3% tax. If an additional tax applies,

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November, or December and payable to

Fees charged by an independent contractor

each member will pay that tax based on the

shareholders of record in October, November,

to manage such property.

part of the amount used in each taxable

or December are treated by the REIT as paid

Do not deduct general overhead and

income bracket to reduce that member’s tax.

on December 31 of that calendar year. The

administrative expenses in Part II.

See section 1561(a). If an additional tax

REIT is then eligible for the deduction for

applies, attach a schedule showing the taxable

dividends paid for the year the dividends are

income of the entire group and how the

declared even though they are not actually

Part III—Tax for Failure To

corporation figured its share of the additional

paid until January of the following calendar

tax.

Meet Certain

year.

Line 2b(1). Enter the REIT’s share of the

If the REIT declared dividends in any of

Source-of-Income

additional 5% tax on line 2b(1).

those months and actually paid them in

Requirements

Line 2b(2). Enter the REIT’s share of the

January, as discussed above, enter on line 3

additional 3% tax on line 2b(2).

those dividends not already included on lines

All REITs must complete lines 1a through 8 of

1, 2, and 4 of Schedule A.

Part III. In certain cases, the amounts shown

Line 3a –Tax on REIT Taxable

Line 6. If, for any tax year the REIT has net

on lines 1a and 12a of Part III might differ from

Income

income from foreclosure property (as defined in

the total income entered on line 8 of Part I. For

section 857(b)(4)(B)), the deduction for

example, the income items are different for a

Most REITs figure their tax by using the Tax

dividends paid to be entered on line 6 (and on

REIT that is a partner in a partnership due to

Rate Schedule below. An exception applies to

line 21b, page 1) is determined by multiplying

the application of section 704 and Regulations

members of a controlled group (see worksheet

the amount on line 5 by the following fraction:

section 1.856-3(g).

below).

If line 8 is zero, do not complete the rest of

Tax Rate Schedule

REIT taxable income (determined without regard to

Part III. The tax imposed under section

the deduction for dividends paid)

857(b)(5) does not apply.

If taxable income (line 22, page 1) is:

REIT taxable income (determined without regard to

If line 8 is greater than zero, complete the

Of the

the deduction for dividends paid) +

rest of Part III. Enter the tax from line 16 on

But not

amount

(Net income from foreclosure property minus the

Schedule J, line 3c. Also, the REIT must:

Over —

over —

Tax is:

over —

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tax on net income from foreclosure property)

Attach a schedule listing the nature and

amount of each item of its gross income

$50,000

15%

described in section 856(c)(2) and (3);

50,000

75,000

$ 7,500 + 25%

50,000

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Not have fraudulently included any incorrect

Schedule J—Tax

75,000

100,000

13,750 + 34%

75,000

information in the attached schedule; and

100,000

335,000

22,250 + 39% 100,000

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Computation

Have reasonable cause for not meeting the

335,000

10,000,000

113,900 + 34% 335,000

requirements of section 856(c)(2) and (3).

Note. Members of a controlled group must

10,000,000

15,000,000 3,400,000 + 35% 10,000,000

Important. Failure to meet the three

attach to Form 1120-REIT a statement

15,000,000

18,333,333 5,150,000 + 38% 15,000,000

conditions above will terminate the election to

showing the computation of the tax entered on

18,333,333

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35%

be treated as a REIT effective for this tax year

line 3a. You may use the “Tax Computation

and all succeeding tax years.

Worksheet for Members of a Controlled Group”

Tax Computation Worksheet for Members

below for this purpose.

of a Controlled Group (keep for your records)

Lines 1 and 2

Part IV—Tax on Net Income

Each member of a controlled group must compute the

Members of a controlled group. A member

From Prohibited

tax using this worksheet.

of a controlled group, as defined in section

1. Enter REIT taxable income (line 22,

Transactions

1563, must check the box on line 1 and

page 1) . . . . . . . . . . . . . . . . . . .

complete lines 2a and 2b of Schedule J.

Section 857(b)(6) imposes a tax equal to 100%

2. Enter line 1 or the REIT’s share of the

Line 2a. Members of a controlled group are

of the net income derived from prohibited

$50,000 taxable income bracket,

entitled to one $50,000, one $25,000, and one

transactions. The 100% tax is imposed to

whichever is less . . . . . . . . . . . . . .

$9,925,000 taxable income bracket amount (in

prevent a REIT from retaining any profit from

that order) on line 2a.

3. Subtract line 2 from line 1 . . . . . . . .

ordinary retailing activities such as sales to

customers of condominium units or subdivided

When a controlled group adopts or later

4. Enter line 3 or the REIT’s share of the

lots in a development tract.

amends an apportionment plan, each member

$25,000 taxable income bracket,

Line 1. Gain from sale or other disposition

must attach to its tax return a copy of its

whichever is less . . . . . . . . . . . . . .

of property. Include only gain from the sale or

consent to this plan. The copy (or an attached

5. Subtract line 4 from line 3 . . . . . . . .

other disposition of property described in

statement) must show the part of the amount in

6. Enter line 5 or the REIT’s share of the

section 1221(a)(1) that is not foreclosure

each taxable income bracket apportioned to

$9,925,000 taxable income bracket,

property and that does not qualify as an

that member. See Regulations section

whichever is less . . . . . . . . . . . . . .

exception. See section 857(b)(6)(C) for

1.1561-3(b) for other requirements and for the

information on certain sales that do not qualify

time and manner of making the consent.

7. Subtract line 6 from line 5 . . . . . . . .

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Instructions For Form 1120-Reit - 2004 Page 10

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