Instructions For Form 1120-Reit - 2001 (Page 5 of 15) in pdf

foreign partnership during the preceding

method must be used for sales and

A REIT must adopt a calendar year

12-month period, exceeds $100,000.

purchases of merchandise.

unless it first qualified for REIT status

Also, the REIT may have to file Form

before October 5, 1976.

Generally, a REIT must use the

8865 to report certain dispositions by a

Change of tax year. A REIT may not

accrual method of accounting if its

foreign partnership of property it

change its tax year to any tax year other

average annual gross receipts exceed $5

previously contributed to that foreign

million. See section 448(c).

than the calendar year. Generally, a REIT

partnership if it was a partner at the time

must get the consent of the IRS before

Under the accrual method, an amount

of the disposition. For more details,

changing its tax year by filing Form 1128,

is includible in income when:

including penalties for failing to file Form

•

Application To Adopt, Change, or Retain

All the events have occurred that fix the

8865, see Form 8865 and its separate

a Tax Year. However, upon electing to be

right to receive the income, which is the

instructions.

taxed as a REIT, an entity that has not

earliest of the date: (a) the required

engaged in any active trade or business

Form 8875, Taxable REIT Subsidiary

performance takes place, (b) payment is

may change its tax year to a calendar

Election, is filed jointly by a corporation

due, or (c) payment is received, and

•

year without getting the consent. See

and a REIT to have the corporation

The amount can be determined with

Regulations section 1.442-1 and Pub.

treated as a taxable REIT subsidiary.

reasonable accuracy.

538.

See Regulations section 1.451-1(a) for

Statements

details.

Rounding Off to Whole

Stock ownership in foreign

Generally, an accrual basis taxpayer

corporations. Attach the statement

Dollars

can deduct accrued expenses in the tax

required by section 551(c) if (a) the REIT

year when:

The REIT may show amounts on the

•

owned 5% or more in value of the

All events that determine the liability

return and accompanying schedules as

outstanding stock of a foreign personal

have occurred,

whole dollars. To do so, drop amounts

holding company and (b) the REIT was

•

The amount of the liability can be

less than 50 cents and increase amounts

required to include in its gross income

figured with reasonable accuracy, and

from 50 cents through 99 cents to the

any undistributed foreign personal holding

•

Economic performance takes place

next higher dollar.

company income from a foreign personal

with respect to the expense.

holding company.

Recordkeeping

There are exceptions to the economic

Transfers to a corporation controlled

performance rule for certain items,

Keep the REIT’s records for as long as

by the transferor. If a person receives

including recurring expenses. See section

they may be needed for the

stock of a corporation in exchange for

461(h) and the related regulations for the

administration of any provision of the

property, and no gain or loss is

rules for determining when economic

Internal Revenue Code. Usually, records

recognized under section 351, the person

performance takes place.

that support an item of income, deduction,

(transferor) and the transferee must each

or credit on the return must be kept for 3

Change in accounting method.

attach to their tax returns the information

years from the date the return is due or

Generally, the REIT must get IRS consent

required by Regulations section 1.351-3.

filed, whichever is later. Keep records that

to change the method of accounting used

Assembling the Return

verify the REIT’s basis in property for as

to report taxable income (for income as a

long as they are needed to figure the

whole or for any material item). To do so,

To ensure that the REIT’s tax return is

basis of the original or replacement

correctly processed, attach all schedules

it must file Form 3115, Application for

property.

Change in Accounting Method. For more

and other forms after page 4, Form

information, get Pub. 538, Accounting

1120-REIT and in the following order.

The REIT should also keep copies of

Periods and Methods.

1. Schedule N (Form 1120).

all filed returns. They help in preparing

2. Form 4136 and Form 4626.

future and amended returns.

The REIT may also have to make an

3. Additional schedules in alphabetical

adjustment to prevent amounts of income

order.

Depository Method of Tax

or expense from being duplicated or

4. Additional forms in numerical order.

omitted. This is called a section 481(a)

Payment

adjustment, which is taken into account

Complete every applicable entry space

A REIT must pay the tax due in full no

over a period not to exceed 4 years.

on Form 1120-REIT. Do not write “See

later than the 15th day of the 3rd month

attached” instead of completing the entry

Example. A REIT changes to the cash

after the end of the tax year. The two

spaces. If more space is needed on the

method of accounting. It accrued sales in

methods of depositing REIT income

forms or schedules, attach separate

2000 for which it received payments in

taxes, including the capital gains tax, are

sheets using the same size and format as

2001. It must report those sales in both

discussed below.

the printed forms. If there are supporting

years as a result of changing its

statements and attachments, arrange

accounting method and must make a

Electronic Deposit Requirement

them in the same order as the schedules

section 481(a) adjustment to prevent

The REIT must make electronic deposits

or forms they support and attach them

duplication of income.

of all depository taxes (such as

last. Show the totals on the printed forms.

See Rev. Proc. 99-49, 1999-2 C.B.

employment tax, excise tax, and REIT

Also, be sure to enter the REIT’s name

725, to figure the amount of this

income tax) using the Electronic Federal

and EIN on each supporting statement or

adjustment for 2001. Include any positive

Tax Payment System (EFTPS) in 2002 if:

attachment.

•

section 481(a) adjustment on Form

The total deposits of such taxes in

1120-REIT, line 7. If the section 481(a)

2000 were more than $200,000 or

Accounting Methods

•

adjustment is negative, report it on Form

The REIT was required to use EFTPS

An accounting method is a set of rules

1120-REIT, line 18.

in 2001.

used to determine when and how income

If the REIT is required to use EFTPS

and expenses are reported.

Accounting Periods

and fails to do so, it may be subject to a

10% penalty. If the REIT is not required to

Figure taxable income using the

A REIT must figure its taxable income on

use EFTPS, it may participate voluntarily.

method of accounting regularly used in

the basis of a tax year. The tax year is the

To enroll in or get more information about

keeping the REIT’s books and records.

annual accounting period the REIT uses

EFTPS, call 1-800-555-4477 or

Generally, permissible methods include

to keep its records and report its income

1-800-945-8400. To enroll online visit

cash, accrual, or any other method

and expenses. A REIT adopts a tax year

authorized by the Internal Revenue Code.

when it files its first income tax return. It

In all cases, the method used must

must adopt a tax year by the due date

Depositing on time. For EFTPS

clearly show taxable income. If

(not including extensions) of its first

deposits to be made timely, the REIT

inventories are required, the accrual

income tax return.

must initiate the transaction at least 1

-5-

Instructions For Form 1120-Reit - 2001 Page 5

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