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Column (c). Allocate the portion of the loss

Column (d). Subtract column (c) from

Worksheet 4

in Worksheet 3, column (c), among the

column (a) and enter the results in this

Use Worksheet 4 to allocate the unallowed

Form 1120 deductions by multiplying the

column. Enter the deductions allowed for

deductions and losses for each activity

unallowed loss attributable to the total Form

Form 1120 on the proper lines of Form 1120

among Form 1120 deductions and any

1120 deductions by each of the ratios in

and enter the allowed Schedule D (Form

losses to be reported on Form 4797 and

column (b). Enter the portion of the

1120) and Form 4797 losses on that form or

Schedule D (Form 1120).

unallowed loss in Worksheet 3, column (c)

schedule.

that is attributable to a Schedule D (Form

If the unallowed loss is reported on one

1120) or Form 4797 loss in column (c) of

form or schedule, skip the following example

this worksheet.

and complete Worksheet 4.

If the unallowed loss is from losses

reported on more than one form or

schedule, allocate the unallowed loss from

Worksheet 4 — Allowed Deductions and Losses

column (c) of Worksheet 3 among the net

losses as follows.

Name of Activity:

(d) Allowed

Example. The corporation has one passive

(a) Deductions

(b) Ratio

Deductions

activity. The activity has an unallowed loss

and Losses

of $18,000 in column (c) of Worksheet 3 and

the following net losses and net gain.

1. Form 1120 deductions:

a. Cost of goods sold . . . . .

Form 1120

b. Compensation of officers

Gross receipts

$100,000

Deductions

120,000

c. Salaries and wages . . . .

Net loss

($20,000)

d. Repairs and maintenance

Schedule D (Form

Form 4797

1120)

e. Bad debts . . . . . . . . . . .

Gain

$1,000

Gain

$5,000

f. Rents . . . . . . . . . . . . . .

Loss

(2,000)

Loss

(2,000)

Net loss

($1,000)

Net gain

$3,000

g. Taxes and licenses . . . . .

Add the net losses of $20,000 and

h. Interest . . . . . . . . . . . . .

$1,000, for a total of $21,000. Divide the net

loss reported on each form by the total of

i. Depreciation . . . . . . . . . .

the net losses, and multiply the result by the

unallowed loss of $18,000, as shown below.

j. Depletion . . . . . . . . . . . .

k. Advertising . . . . . . . . . .

$20,000

Form 1120:

x $18,000 = $17,143

$21,000

l. Other deductions . . . . . . .

Schedule D

Total Form 1120

$1,000

(Form

x $18,000 = $857

$21,000

deductions: . . . . . . . . . . .

1.00

1120):

2. Schedule D (Form 1120)

On Form 4797, report the $2,000 loss

losses . . . . . . . . . . . . . . .

and the $5,000 gain. On Worksheet 4, enter

the $17,143 of unallowed deductions

3. Form 4797 losses . . . . . . .

allocated to Form 1120 in column (c) on the

Name of Activity:

(d) Allowed

line for total Form 1120 deductions. Enter

(a) Deductions

(b) Ratio

Deductions

the $857 of unallowed Schedule D (Form

and Losses

1120) losses in column (c) of line 2. Use

Worksheet 4 to allocate the $17,143 to the

1. Form 1120 deductions:

Form 1120 deductions and show the

a. Cost of goods sold . . . . .

allowed and unallowed Schedule D (Form

1120) loss.

b. Compensation of officers

Line 1, column (a). Enter the current year

c. Salaries and wages . . . .

deductions for each Form 1120 expense

(lines 6a through 6l of Worksheet 1) plus

d. Repairs and maintenance

any prior year unallowed Form 1120

e. Bad debts . . . . . . . . . . .

deduction for that activity. For example, if

line 6i of Worksheet 1 shows current year

f. Rents . . . . . . . . . . . . . .

depreciation for the activity of $2,200, and

the activity had prior year unallowed

g. Taxes and licenses . . . . .

depreciation of $1,200, enter $3,400 on line

h. Interest . . . . . . . . . . . . .

1i, column (a), of Worksheet 4.

Line 2, column (a). Enter any Schedule D

i. Depreciation . . . . . . . . . .

(Form 1120) losses from line 8 of Worksheet

1 plus any prior year unallowed Schedule D

j. Depletion . . . . . . . . . . . .

(Form 1120) losses for that activity.

k. Advertising . . . . . . . . . .

Line 3, column (a). Enter any Form 4797

losses from line 9 of Worksheet 1 plus any

l. Other deductions . . . . . . .

prior year unallowed Form 4797 losses for

Total Form 1120

that activity.

deductions . . . . . . . . . . .

1.00

Line 1, column (b). Divide each of the

individual Form 1120 deductions shown in

2. Schedule D (Form 1120)

column (a) by the total of all of the Form

losses . . . . . . . . . . . . . . .

1120 deductions in column (a) and enter the

3. Form 4797 losses . . . . . . .

ratio for each of the deductions in column

(b). The total of the ratios must equal 1.00.

-8-

Instructions For Form 8810 - Corporate Passive Activity Loss And Credit Limitations - 2006 Page 8

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