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active income by taking into account an

Line 2. Closely Held

Part I. 2006

overall loss from that activity only to the

Corporations

extent it exceeds overall gain from all other

Passive Activity Loss

Closely held corporations can offset the

passive activities (the gain, if any, shown on

loss, if any, on line 1d with net active

line 1d of Form 8810).

(PAL)

income. Net active income is the

If there is an overall loss from all other

corporation’s taxable income for the tax

Lines 1d and 3

passive activities (line 1d of Form 8810 is a

year, determined without regard to the

loss), figure net active income by taking into

following items.

If line 1d or 3 shows net income or zero, all

•

account all of the overall loss from that

the deductions and losses are allowed

Net passive income or loss.

•

activity.

Portfolio income. See Passive Activity

including any prior year unallowed losses

Income on page 4.

entered on line 1c. Enter the deductions on

Line 4. Total Deductions and

•

Deductions attributable to portfolio income

the appropriate lines of Form 1120, U.S.

Losses Allowed

described in Temporary Regulations section

Corporation Income Tax Return, and any

1.469-2T(d)(2)(i), (ii), and (iv).

losses from Form 4797 or Schedule D

Columns (d) and (e) of Worksheet 2, on

•

Interest expense allocated under

(Form 1120) on that form or schedule, if

page 6, show whether an activity had an

Temporary Regulations section 1.163-8T to

applicable, including any prior year

overall gain or loss.

a portfolio expenditure (within the meaning

unallowed losses that are properly entered

Worksheet 2, column (d). A corporation

of Temporary Regulations section

on those forms.

with an overall gain in column (d) will report

1.163-8T(b)(6)).

•

all of the deductions and losses listed in

Gain on the disposition of substantially

If the prior year unallowed losses include

Worksheet 1 and any prior year unallowed

appreciated property formerly held for

deductions that would have been reported

losses in Worksheet 2 for those activities on

investment. See Regulations section

on page 1 of Form 1120 instead of on Form

the appropriate lines of Form 1120 and on

1.469-2(c)(2)(iii)(F).

•

Schedule D (Form 1120) or Form 4797, if

4797 or Schedule D (Form 1120), include

Gross income from certain oil or gas

applicable.

the prior year unallowed losses on the

properties treated under Regulations section

appropriate line along with any current year

1.469-2(c)(6) as not from a passive activity.

Worksheet 2, column (e). A corporation

•

deduction or loss from that line.

Gross income and deductions from any

uses Worksheets 3 and 4 for activities that

trade or business activity of trading certain

show an overall loss in column (e).

personal property described in Temporary

Example. The corporation had $1,000 of

Regulations section 1.469-1T(e)(6), but only

Worksheet 3. Use Worksheet 3, below,

deductions for current year repairs and

if the corporation did not materially

to figure the unallowed deductions and

maintenance and $500 of deductions for

participate in the activity for the tax year.

losses to be carried forward to Worksheet 4,

prior year unallowed repairs and

on page 8. Use Worksheet 4 to figure the

maintenance. Enter $1,500 as the deduction

If the corporation disposed of its entire

allowed deductions and losses to report on

for repairs and maintenance allowed from

interest in a passive activity to an unrelated

the forms and schedules for 2006.

passive activities on the proper line.

party in a fully taxable transaction, figure net

Worksheet 3

Overall loss in column (e). If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to

figure the unallowed deductions and losses for each activity.

Overall gain in column (d). If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses

(including prior year unallowed losses) for that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120

and enter any losses on Form 4797 or Schedule D (Form 1120), if applicable.

Prior year unallowed losses from 2005. If there were prior year unallowed losses from 2005, include the prior year unallowed

losses on the appropriate line along with any current year deduction or loss for that line. See the example in the instructions for lines

1d and 3 above. Prior year unallowed losses from Form 4797 and Schedule D (Form 1120) should have been kept separate in 2005,

and should be identified as “prior year unallowed losses” on Form 4797 and Schedule D (Form 1120).

Column (a). Enter the loss from column (e) of Worksheet 2.

Column (b). Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for each

of the activities in column (b). The total of all the ratios should equal 1.00.

Column (c). Multiply the unallowed loss from line 3 of Form 8810 by each of the ratios in column (b) and enter the results in

column (c).

Worksheet 4. Use Worksheet 4 to figure the allowed deductions and losses.

Worksheet 3 –Allocation of Unallowed Deductions and Losses

(a) Loss From

Name of Activity

(b) Ratio

Worksheet 2 Column (e)

and Losses

Totals . . . . . . . . . . . . . . . . . . . . . . . . .

1.00

-7-

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2006 Page 7

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