Instructions For Form 1120-Reit - 2001 (Page 11 of 15) in pdf

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corporation computing its first required

Real estate taxes; and

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Schedule A—Deduction

installment based on the prior year’s tax.

Fees charged by an independent

See the Instructions for Form 2220 for the

contractor to manage such property.

for Dividends Paid

definition of a large corporation.

Do not deduct general overhead and

administrative expenses in Part II.

Lines 1 through 5. Section 561 (taking

If Form 2220 is attached, check the

into account sections 857(b)(8),

box on line 25, page 1, Form 1120-REIT,

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

and enter the amount of any penalty on

Part III—Tax for Failure To

deduction for dividends paid.

this line.

Line 3. Dividends declared in October,

Meet Certain

November, or December and payable to

Part II—Tax on Net Income Source-of-Income

shareholders of record in October,

November, or December are treated by

From Foreclosure Property Requirements

the REIT as paid on December 31 of that

Complete Part II only if the gross income,

All REITs must complete lines 1a through

calendar year. The REIT is then eligible

gains, losses, and deductions from

8 of Part III. If line 8 is zero, do not

for the deduction for dividends paid for

foreclosure property (defined in section

complete the rest of Part III. The tax

the year the dividends are declared even

856(e)) result in net income. If an overall

imposed under section 857(b)(5) does not

though they are not actually paid until

net loss results, report the gross income,

apply. If line 8 is greater than zero,

January of the following calendar year.

gains, losses, and deductions from

complete the rest of Part III. Enter the tax

If the REIT declared dividends in any

foreclosure property on the appropriate

from line 16 on Schedule J, line 3c.

of those months and actually paid them in

lines of Part I.

January, as discussed above, enter on

If line 8 is greater than zero, the REIT

Property may be treated as foreclosure

line 3 those dividends not already

must:

property only if it meets the requirements

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included on lines 1, 2, and 4 of Schedule

Attach a schedule listing the nature and

of section 856(e) and the REIT elects to

amount of each item of its gross income

treat the property as foreclosure property

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

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

in the year it was acquired. The property

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net income from foreclosure property (as

Not have fraudulently included any

continues to be foreclosure property until

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

incorrect information in the attached

the close of the 3rd tax year following the

deduction for dividends paid to be entered

schedule; and

tax year in which the REIT acquired it. For

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

Have reasonable cause for not meeting

more information, see section 856(e).

determined by multiplying the amount on

the requirements of section 856(c)(2) and

However, if the foreclosure property is

line 5 by the following fraction:

(3).

qualified health care property, it will cease

REIT taxable income (determined without regard to the

to be foreclosure property as of the close

Important: Failure to meet the three

deduction for dividends paid)

of the 2nd year following the tax year the

conditions above will terminate the

REIT acquired it (although the REIT may

REIT taxable income (determined without regard to the

election to be treated as a REIT effective

deduction for dividends paid) +

request one or more extensions to this

for this tax year and all succeeding tax

(Net income from foreclosure property minus the tax on net

two year grace period not to extend

years.

income from foreclosure property)

beyond the 6th year). See section

856(e)(6) for details.

Schedule J—Tax

This election must be made by the

Part IV—Tax on Net

due date for filing Form 1120-REIT

Computation

Income From Prohibited

(including extensions). To make the

Note: Members of a controlled group

election, attach a statement that:

Transactions

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must attach to Form 1120-REIT a

Indicates that the election under

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

statement showing the computation of the

section 856(e) is being made;

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100% of the net income derived from

tax entered on line 3a. You may use the

Identifies the property to which the

prohibited transactions. The 100% tax is

Tax Computation Worksheet for

election applies;

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imposed to prevent a REIT from retaining

Members of a Controlled Group on

Includes the name, address, and EIN of

any profit from ordinary retailing activities

page 12 for this purpose.

the REIT, the date the property was

such as sales to customers of

acquired, and a brief description of how

Lines 1 and 2

condominium units or subdivided lots in a

the property was acquired (including the

development tract.

Members of a controlled group. A

name of the person from whom the

member of a controlled group, as defined

property was acquired); and

Line 1. Gain from sale or other

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in section 1563, must check the box on

Gives a description of the lease or debt

disposition of property. Include only

line 1 and complete lines 2a and 2b of

with respect to which default occurred or

gain from the sale or other disposition of

Schedule J.

was imminent.

property described in section 1221(a)(1)

The REIT can revoke the election by

Line 2a. Members of a controlled group

that is not foreclosure property and that

filing a revocation on or before the due

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

does not qualify as an exception. See

date (including extensions) for filing Form

and one $9,925,000 taxable income

section 857(b)(6)(C) for information on

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

bracket amount (in that order) on line 2a.

certain sales that do not qualify as

details.

prohibited transactions. See section

When a controlled group adopts or

Line 2. Gross income from foreclosure

856(j) for a special rule regarding a

later amends an apportionment plan,

property. Do not include income that

shared appreciation mortgage.

each member must attach to its tax return

qualifies under the REIT’s 75% gross

a copy of its consent to this plan. The

Do not net losses from prohibited

income test under section 856(c)(3)(A),

copy (or an attached statement) must

transactions against gains in determining

(B), (C), (D), (E), or (G). These amounts

show the part of the amount in each

the amount to enter on line 1. Enter

must be reported in Part I.

taxable income bracket apportioned to

losses from prohibited transactions on the

that member. See Regulations section

Line 4. Deductions. Deduct only those

appropriate line in Part I.

1.1561-3(b) for other requirements and

expenses that have a proximate and

for the time and manner of making the

primary relationship to earning the income

Line 2. Deductions. Deduct only those

consent.

shown on line 3. This includes:

expenses that have a proximate and

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Depreciation on foreclosure property;

primary relationship to the earning of the

Unequal apportionment plan.

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Interest paid or accrued on debt of the

income shown on line 1. Do not deduct

Members of a controlled group may elect

REIT that is attributable to the carrying of

general overhead and administrative

an unequal apportionment plan and divide

the property;

expenses in Part IV.

the taxable income brackets as they want.

-11-

Instructions For Form 1120-Reit - 2001 Page 11

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