Instructions For Form 1120-Reit - 2003 (Page 8 of 12) in pdf

1. Related to the purpose or function of the

travel is for a bona fide business purpose and

The at-risk rules do not apply to:

•

donee,

would otherwise be deductible by that

Holding real property placed in service by

2. For use within the United States, and

individual.

the taxpayer before 1987;

•

3. For educational purposes.

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

Meals and entertainment. Generally, the

•

The contribution is made not later than 3

(5), and (6); or

REIT can deduct only 50% of the amount

•

years after the date the taxpayer acquired or

Any qualifying business of a qualified

otherwise allowable for meals and

substantially completed the construction of the

corporation under section 465(c)(7).

entertainment expenses paid or incurred in its

property;

trade or business. In addition (subject to

•

However, the at-risk rules do apply to the

The original use of the property is by the

exceptions under section 274(k)(2)), meals

holding of mineral property.

donor or the donee;

must not be lavish or extravagant; a bona fide

•

The property is not transferred by the donee

For more information, see section 465 and

business discussion must occur during,

for money, service, or other property, except

Form 6198, At-Risk Limitations.

immediately before, or immediately after the

for shipping, transfer, and installation costs;

meal; and an employee of the REIT must be

•

Line 21a. Net operating loss deduction. A

The property fits productively into the

present at the meal.

REIT may use the net operating loss (NOL)

donee’s education plan; and

•

incurred in one tax year to reduce its taxable

The property meets standards, if any, that

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

income in another tax year.

applies to expenses for meals consumed by

may be prescribed by future regulations to

assure it meets minimum functionality and

individuals subject to the hours of service limits

Generally, a REIT may carry an NOL over

of the Department of Transportation.

suitability for educational purposes.

to each of the 20 years (15 years for NOLs

Eligible donee. The term “eligible donee”

Membership dues. The REIT may deduct

incurred in tax years beginning before August

means:

6, 1997) following the year of loss. REITs are

amounts paid or incurred for membership dues

•

An educational organization that normally

in civic or public service organizations,

not permitted to carry back an NOL to any year

maintains a regular faculty and curriculum and

preceding the year of the loss. In addition, an

professional organizations (such as bar and

has a regularly enrolled body of pupils in

NOL from a year that is not a REIT year may

medical associations), business leagues, trade

attendance at the place where its educational

not be carried back to any year that is a REIT

associations, chambers of commerce, boards

activities are regularly conducted,

year.

of trade, and real estate boards. However, no

•

A section 501(c)(3) entity organized primarily

deduction is allowed if a principal purpose of

Enter on line 21a the total NOL carryovers

for purposes of supporting elementary and

the organization is to entertain, or provide

from other tax years, but do not enter more

secondary education, or

entertainment facilities for, members or their

•

than the REIT’s taxable income. The REIT’s

A public library (as described in section

guests. In addition, REITs may not deduct

taxable income for purposes of the NOL

170(e)(6)(B)(i)(III)).

membership dues in any club organized for

deduction is taxable income (line 20) reduced

business, pleasure, recreation, or other social

Exceptions. The following exceptions

by the dividends paid deduction (line 21b) and

purpose. This includes country clubs, golf and

apply to the above rules for computer

the section 857(b)(2)(E) deduction (line 21c). If

athletic clubs, airline and hotel clubs, and clubs

technology and equipment:

this amount is less than zero, an NOL

•

operated to provide meals under conditions

Contributions to private foundations may

deduction cannot be taken for the tax year.

favorable to business discussion.

qualify if the foundation contributes the

Attach a schedule showing the computation of

property to an eligible donee within 30 days

Entertainment facilities. The REIT cannot

the NOL deduction. Also complete item 9 on

after the contribution and notifies the donor of

deduct an expense paid or incurred for a

Schedule K.

the contribution. For more details, see section

facility (such as a yacht or hunting lodge) used

170(e)(6)(C).

If capital gain dividends are paid during any

for an activity that is usually considered

•

For contributions of property reacquired by

tax year, the amount of the net capital gain for

entertainment, amusement, or recreation.

the manufacturer of the property, the 3-year

such tax year (to the extent of the capital gain

Note: The REIT may be able to deduct

period begins on the date that the original

dividends) is excluded in determining:

otherwise nondeductible meals, travel, and

construction of the property was substantially

1. The NOL for the tax year and

entertainment expenses if the amounts are

completed. Also, the original use of the

2. The amount of the NOL of any prior tax

treated as compensation and reported on Form

property may be by someone other than the

year that may be carried over to any

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

donor or the donee.

succeeding tax year.

for an independent contractor.

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

Deduction for clean-fuel vehicles and

the deduction for contributions to qualified

Carryover rules. The NOL for the current

certain refueling property. Section 179A

pension, profit-sharing, or other funded

year is computed using the REIT’s taxable

allows a deduction for part of the cost of

deferred compensation plans. Employers who

income before it is reduced by the dividends

qualified clean-fuel vehicle property and

maintain such a plan generally must file one of

paid deduction. After the REIT applies the NOL

qualified clean-fuel vehicle refueling property

the forms listed below, even if the plan is not a

to the first tax year to which it may be carried,

placed in service during the year. For more

qualified plan under the Internal Revenue

the taxable income of that year must be

information, see Pub. 535, Business

Code. The filing requirement applies even if the

modified (as described by section 172(b) and

Expenses.

REIT does not claim a deduction for the current

the modified rules for REITs in section

tax year. There are penalties for failure to file

172(d)(6)) to determine how much of the

Lobbying expenses. Generally, lobbying

these forms on time and for overstating the

remaining loss may be carried to other years.

expenses are not deductible. These expenses

pension plan deduction. See sections 6652(e)

Although the current year NOL is computed

include amounts paid or incurred in connection

and 6662(f).

without regard to the dividends paid deduction,

with influencing Federal or state legislation (but

an NOL carryover from a prior year is applied

not local legislation) or amounts paid or

Form 5500, Annual Return/Report of

to the current year using taxable income after it

incurred in connection with any communication

Employee Benefit Plan. File this form for a plan

is reduced by the dividends paid deduction.

with certain Federal executive branch officials

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

The NOL amounts carried forward by the REIT

in an attempt to influence the official actions or

Form 5500-EZ, Annual Return of

are not reduced by subsequent year dividends

positions of the officials. See Regulations

One-Participant (Owners and Their Spouses)

paid deductions. See Example 1 in Regulations

section 1.162-29 for the definition of

Retirement Plan. File this form for a plan that

section 1.172-5(a)(4).

“influencing legislation.”

only covers the owner (or the owner and his or

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

Special NOL rules apply when:

Dues and other similar amounts paid to

and his or her spouse) owns the entire

certain tax-exempt organizations may not be

•

An ownership change occurs, the amount of

business.

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

the taxable income of a loss corporation that

in-house lobbying expenditures do not exceed

Travel, meals, and entertainment. Subject to

may be offset by the pre-change NOL

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

limitations and restrictions discussed below, a

carryovers is limited (see section 382 and the

contributions to charitable organizations that

REIT can deduct ordinary and necessary

related regulations). A loss corporation must

conduct lobbying activities, see section

travel, meals, and entertainment expenses

file an information statement with its income

170(f)(9). For more information on lobbying

paid or incurred in its trade or business. Also,

tax return for each tax year that certain

expenses, see section 162(e).

special rules apply to deductions for gifts,

ownership shifts occur (see Temporary

skybox rentals, luxury water travel, convention

Line 20. Taxable income before NOL

Regulations section 1.382-2T(a)(2)(ii) for

expenses, and entertainment tickets. See

deduction, total deduction for dividends

details). See Regulations section 1.382-6(b) for

section 274 and Pub. 463 for details.

paid, and section 857(b)(2)(E) deduction.

details on how to make the

Travel. The REIT cannot deduct travel

At-risk rules. Generally, special at-risk rules

closing-of-the-books election.

•

expenses of any individual accompanying a

under section 465 apply to closely held

A REIT acquires control of another REIT (or

corporate officer or employee, including a

corporations engaged in any activity as a trade

acquires its assets in a reorganization), the

spouse or dependent of the officer or

or business or for the production of income.

amount of pre-acquisition losses that may

employee, unless that individual is an

These REITs that are closely held may have to

offset recognized built-in gains is limited (see

employee of the corporation, and his or her

adjust the amount on line 20.

section 384).

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Instructions For Form 1120-Reit - 2003 Page 8

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