Instructions For Form 1120-Reit - 2011 (Page 13 of 16) in pdf

prohibited transactions. See section

following identification of the failure, each

Tax Rate Schedule

856(j) for a special rule regarding a

of the following requirements are met:

•

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

shared appreciation mortgage.

The REIT sets forth a description of

Exceptions apply for certain sales of

each asset that causes the REIT to fail to

Of the

timber property by a timber REIT. See

satisfy the requirements of the asset test

But not

amount

Over —

over —

Tax is:

over —

section 857(b)(6)(D).

at the close of a quarter in a schedule for

the quarter attached to its timely filed

Do not net losses from prohibited

15%

$50,000

Form 1120-REIT;

transactions against gains in determining

50,000

75,000

$ 7,500 + 25%

50,000

•

The failure must be due to reasonable

the amount to enter on line 1. Enter

75,000

100,000

13,750 + 34%

75,000

cause and not due to willful neglect; and

100,000

335,000

22,250 + 39% 100,000

losses from prohibited transactions on the

•

The REIT either: (a) disposes of the

113,900 + 34% 335,000

335,000

10,000,000

appropriate line in Part I.

assets shown on the specified schedule

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

10,000,000

Line 2. Deductions. Deduct only those

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

within 6 months after the last day of the

15,000,000

expenses that have a proximate and

18,333,333

- - - - -

35%

quarter in which the REIT’s identification

primary relationship to the earning of the

of the failure occurred (or such other time

income shown on line 1. Do not deduct

and in the manner prescribed by

Line 2c

general overhead and administrative

regulations); or (b) the requirements of

expenses in Part IV.

Attach a statement providing an

the asset test of section 856(c)(4) are

explanation of why the REIT failed to

otherwise met within the specified time

meet the source-of-income requirements,

period.

Schedule A—Deduction

and a description of why such failure is

In addition, if section 856(c)(7)(A)

due to reasonable cause and not to willful

for Dividends Paid

applies to a REIT for any tax year, the

neglect. See section 856(c)(6).

REIT must pay a tax which is the greater

Lines 1 through 5. Section 561 (taking

Line 2e

of:

into account sections 857(b)(8),

•

$50,000 or

Enter the amount of the 100% REIT tax

857(d)(3)(B), and 858(a)) determines the

•

the amount determined (as prescribed

imposed on the following:

deduction for dividends paid.

by regulations to be promulgated by the

•

Income of a REIT for services provided

Line 3. Dividends declared in October,

Secretary) by multiplying the net income

to the REIT’s tenants that is improperly

November, or December and payable to

generated by the assets described in the

included in rents from real property

shareholders of record in October,

specified schedule for the quarter in

reported by the REIT instead of being

November, or December are treated by

which the failure occurred by 35% (the

reported by the TRS;

the REIT as paid on December 31 of that

highest corporate tax rate).

•

Deductions that are improperly

calendar year. The REIT is then eligible

Note. There is no tax imposed and you

allocated between the REIT to its TRS;

for the deduction for dividends paid for

and

are not required to attach a schedule of

the year the dividends are declared even

•

Interest deductions of a TRS to the

assets to Form 1120-REIT for the de

though they are not actually paid until

extent that interest payments to its REIT

minimis relief provision under section

January of the following calendar year.

are in excess of a rate that is

856(c)(7)(B).

If the REIT declared dividends in any

commercially reasonable.

Under section 856(c)(7)(B), a REIT

of those months and actually paid them in

See section 857(b)(7) for details and

may avoid loss of its REIT status as a

January, as discussed above, enter on

result of certain failures to meet the asset

exceptions.

line 3 those dividends not already

test requirements of section

included on lines 1, 2, and 4 of Schedule

Line 2f–Taxes Imposed Under

856(c)(4)(B)(iii) if:

Section 856(c)(7) and Section

•

Following its identification of the failure,

Line 7. If, for any tax year the REIT has

856(g)(5)

the REIT disposes of assets within 6

net income from foreclosure property (as

months after the last day of the quarter in

Enter the taxes imposed for the following

defined in section 857(b)(4)(B)), the

which the REIT’s identification of the

relief provisions:

deduction for dividends paid to be entered

•

failure occurred (or such time period

Section 856(c)(7) relating to failures to

on line 6 (and on line 21b, page 1) is

prescribed by the Secretary and in the

meet the requirements of the asset test of

determined by multiplying the amount on

manner prescribed by the Secretary), or

section 856(c)(4); and

•

line 5 by the following fraction:

•

The requirements of the asset test of

Section 856(g)(5) relating to failures to

section 856(c)(4) are otherwise met within

meet certain requirements under sections

REIT taxable income (determined without regard to

the specified time period.

856 through 859 (other than sections

the deduction for dividends paid)

856(c)(2), 856(c)(3), and 856(c)(4)).

Certain REIT qualification failures of

REIT taxable income (determined without regard to

sections 856 – 859 (other than sections

the deduction for dividends paid) +

See section 856(c)(7) and 856(g)(5)

856(c)(2), 856(c)(3) and 856(c)(4)).

(Net income from foreclosure property minus the

for detailed information on the

tax on net income from foreclosure property)

Under section 856(g)(5), a REIT that fails

requirements for these relief provisions

to meet the REIT qualification

and check the appropriate box(es) for the

requirements under sections 856 – 859,

tax(es) imposed under them.

Schedule J—Tax

except for section 856(c)(2), 856(c)(3),

If a tax is imposed under sections

and 856(c)(4), may avoid loss of its REIT

Computation

856(c)(7) or 856(g)(5), attach a statement

status if the failure is due to reasonable

providing an explanation of why the REIT

cause and not due to willful neglect. In

Line 1

failed to meet the requirements of the

addition, the REIT must pay (as

asset test or other qualification

prescribed by regulations and in the same

A member of a controlled group must

requirements under sections 856 - 859,

check the box on line 1 and complete and

manner as tax) a penalty of $50,000 for

and a description of why such failure is

attach Schedule O (Form 1120). See

each failure to satisfy a provision of

due to reasonable cause and not to willful

sections 856 – 859. See section 856(g)(5).

Schedule O (Form 1120) and its

neglect.

instructions for more information.

Line 2g–Alternative Minimum

Failures to meet the asset test

Line 2a–Tax on REIT Taxable

Tax (AMT)

requirements of section 856(c)(4)

Income

(other than de minimis failures). Under

Unless the REIT is treated as a small

Most REITs figure their tax by using the

section 856(c)(7)(A), a REIT may avoid

corporation exempt from the AMT, it may

Tax Rate Schedule below. A member of a

loss of its REIT status as a result of

owe the AMT if it has any of the

controlled group must use Schedule O

certain failures to meet the asset test

adjustments and tax preference items

(Form 1120) to figure its tax.

requirements of section 856(c)(4) if,

listed on Form 4626, Alternative Minimum

-13-

Instructions For Form 1120-Reit - 2011 Page 13

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