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property may be by someone other than the

deduction is allowed if a principal purpose of

which the RIC is at risk for each separate

donor or the donee.

the organization is to entertain, or provide

activity at the close of the tax year. If the RIC is

entertainment facilities for, members or their

involved in one or more activities, any of which

Contributions to organizations

guests.

incurs a loss for the year, report the losses for

conducting lobbying activities.

each activity separately. Attach Form 6198,

Contributions made to an organization that

In addition, the RIC may not deduct

At-Risk Limitations, showing the amount at risk

conducts lobbying activities are not deductible

membership dues in any club organized for

and gross income and deductions for the

if:

business, pleasure, recreation, or other social

•

activities with the losses.

The lobbying activities relate to matters of

purpose. This includes country clubs, golf and

direct financial interest to the donor’s trade or

athletic clubs, airline and hotel clubs, and clubs

If the RIC sells or otherwise disposes of an

business and

operated to provide means under conditions

asset or its interest (either total or partial) in an

•

The principal purpose of the contribution was

favorable to business discussion.

activity to which the at-risk rules apply,

to avoid Federal income tax by obtaining a

determine the net profit or loss from the activity

Entertainment facilities. The RIC cannot

deduction for activities that would have been

by combining the gain or loss on the sale or

deduct an expense paid or incurred for a

nondeductible under the lobbying expense

disposition with the profit or loss from the

facility (such as a yacht or hunting lodge) used

rules if conducted directly by the donor.

activity. If the RIC has a net loss, it may be

for an activity usually considered

Pension, profit-sharing, etc., plans. Include

limited because of the at-risk rules.

entertainment, amusement, or recreation.

contributions to qualified pension,

Amounts treated as compensation.

Treat any loss from an activity not allowed

profit-sharing, or other funded-deferred

Generally, the RIC may be able to deduct

for the tax year as a deduction allocable to the

compensation plans. Employers who maintain

otherwise nondeductible meals, travel, and

activity in the next tax year.

such a plan generally must file one of the forms

entertainment expenses if the amounts are

listed below, even if the plan is not a qualified

treated as compensation and reported on Form

Tax and Payments

plan under the Internal Revenue Code. The

W-2 for an employee or on Form 1099-MISC

filing requirement applies even if the RIC does

Line 28b. Estimated Tax Payments. Enter

for an independent contractor.

not claim a deduction for the current tax year.

any estimated tax payments the RIC made for

However, if the recipient is an officer,

There are penalties for failure to file these

the tax year.

director, or beneficial owner (directly or

forms on time and for overstating the pension

Line 28f. Credit for Tax Paid on

indirectly) of more than 10% of any class of

plan deduction. See sections 6652(e) and

Undistributed Capital Gains. Enter the credit

stock, the deduction for otherwise

6662(f).

(from Form 2439, Notice to Shareholder of

nondeductible meals, travel, and entertainment

Form 5500. Annual Return/Report of

Undistributed Long-Term Capital Gains) for the

expenses incurred after October 22, 2004, is

Employee Benefit Plan. File this form for a plan

RIC’s share of the tax paid by another RIC or a

limited to the amount treated as compensation.

that is not a one-participant plan (see below).

REIT on undistributed long-term capital gains

See section 274(e)(2).

Form 5500-EZ. Annual Return of

included in the RIC’s income. Attach Form

Deduction for clean-fuel vehicles and

One-Participant (Owners and Their Spouses)

2439 to Form 1120-RIC.

certain refueling property. Section 179A

Retirement Plan. File this form for a plan that

allows a deduction for part of the cost of

Line 28g. Credit for Federal Tax on Fuels.

only covers the owner (or the owner and his or

qualified clean-fuel vehicle property and

Complete and attach Form 4136, Credit for

her spouse) but only if the owner (or the owner

qualified clean-fuel vehicle refueling property

Federal Tax Paid on Fuels, if the RIC qualifies

and his or her spouse) owns the entire

placed in service during the tax year. For more

to take this credit.

business.

information, see Pub. 535, Business Expenses.

Line 28h. Add the amounts on lines 28d

Travel, meals, and entertainment. Subject to

Lobbying expenses. Generally, lobbying

through 28g and enter the total on line 28h.

the limitations and restrictions discussed

expenses are not deductible. These expenses

below, the RIC can deduct ordinary and

Backup withholding. If the RIC had

include:

necessary expenses paid for travel, meals, and

•

income tax withheld from any payments it

Amounts paid or incurred in connection with

entertainment incurred in its trade or business.

received, because, for example, it failed to give

influencing Federal or state legislation (but not

Also, special rules apply to deductions for gifts,

the payer its correct EIN, include the amount

local legislation) or

skybox rentals, luxury water travel, convention

•

withheld in the total for line 28h. This type of

Amounts paid or incurred in connection with

expenses, and entertainment tickets. See

withholding is called “Backup Withholding.”

any communication with certain federal

section 274 and Pub. 463, Travel,

Show the amount withheld in the blank space

executive branch officials in an attempt to

Entertainment, Gift, and Car Expenses, for

in the right-hand column between lines 27 and

influence the official actions or positions of the

more details.

28h, and write “Backup Withholding.”

officials. See Regulations section 1.162-29 for

Travel. The RIC cannot deduct travel

the definition of “influencing legislation.”

Line 29. Estimated Tax Penalty. A RIC that

expenses of any individual accompanying a

does not make estimated tax payments when

Dues and other similar amounts paid to

corporate officer or employee, including a

due may be subject to an underpayment

certain tax-exempt organizations may not be

spouse or dependent of the officer or

penalty for the period of underpayment.

deductible. See section 162(e)(3). If certain

employee, unless:

•

Generally, a RIC is subject to the penalty if its

in-house lobbying expenditures do not exceed

That individual is an employee of the RIC;

tax liability is $500 or more and it did not timely

$2,000, they are deductible. For information on

and

•

pay the smaller of:

contributions to charitable organizations that

His or her travel is for a bona fide business

•

Its alternative minimum tax minus the credit

conduct lobbying activities, see section

purpose and would otherwise be deductible by

for Federal tax paid on fuels for 2004 as shown

170(f)(9).

that individual.

on the return or

For more information on other deductions

•

Meals and entertainment. Generally, the

Its prior year’s tax (computed in the same

that may apply to RICs, see Pub. 535.

RIC can deduct only 50% of the amount

manner). See section 6655 for details and

otherwise allowable for meals and

Line 24. Taxable Income Before Deduction

exceptions, including special rules for large

entertainment expenses paid or incurred in its

for Dividends Paid.

corporations.

trade or business. In addition (subject to

At-risk rules. Generally, special at-risk

exceptions under section 274(k)(2)):

Use Form 2220, Underpayment of

rules under section 465 apply to closely held

•

Estimated Tax by Corporations, to see if the

Meals must not be lavish or extravagant;

•

RICs engaged in any activity as a trade or

RIC owes a penalty and to figure the amount of

A bona fide business discussion must occur

business or for the production of income.

the penalty. Generally, the RIC does not have

during, immediately before, or immediately

These RICs may have to adjust the amount on

to file this form because the IRS can figure the

after the meal; and

line 24.

•

An employee of the RIC must be present at

amount of any penalty and bill the RIC for it.

The at-risk rules do not apply to:

However, even if the RIC does not owe the

the meal.

•

Holding real property placed in service by

penalty, it must complete and attach Form

See section 274(n)(3) for a special rule that

the RIC before 1987;

2220 if:

applies to expenses for meals consumed by

•

Equipment leasing under sections 465(c)(4),

The annualized income or adjusted seasonal

individuals subject to the hours of service limits

(5), and (6); and

installment method is used or

of the Department of Transportation.

•

Any qualifying business of a qualified

The RIC is a large corporation computing its

Membership dues. The RIC may deduct

corporation under section 465(c)(7).

first required installment based on the prior

amounts paid or incurred for membership dues

year’s tax. See the Instructions for Form 2220

However, the at-risk rules do apply to the

in civic or public service organizations,

for the definition of a large corporation.

holding of mineral property.

professional organizations (such as bar and

medical associations), business leagues, trade

If the at-risk rules apply, adjust the amount

If Form 2220 is attached, check the box on

associations, chambers of commerce, boards

on this line for any section 465(d) losses.

line 29, page 1, Form 1120-RIC, and enter the

of trade, and real estate boards. However, no

These losses are limited to the amount for

amount of any penalty on this line.

-9-

Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2004 Page 9

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