Instructions For Form 1120-Reit - 2003 (Page 9 of 12) in pdf

This election must be made by the due

customers of condominium units or subdivided

Tax and Payments

date for filing Form 1120-REIT (including

lots in a development tract.

Line 24b. Estimated tax payments. Enter

extensions). To make the election, attach a

Line 1. Gain from sale or other disposition

any estimated tax payments the REIT made for

statement that:

of property. Include only gain from the sale or

•

the tax year.

Indicates that the election under section

other disposition of property described in

856(e) is being made;

Line 24f. Enter the credit (from Form 2439) for

section 1221(a)(1) that is not foreclosure

•

the REIT’s share of the tax paid by a regulated

Identifies the property to which the election

property and that does not qualify as an

applies;

investment company or another REIT on

exception. See section 857(b)(6)(C) for

•

undistributed long-term capital gains included

Includes the name, address, and EIN of the

information on certain sales that do not qualify

REIT, the date the property was acquired, and

in the REIT’s income. Attach Form 2439 to

as prohibited transactions. See section 856(j)

Form 1120-REIT.

a brief description of how the property was

for a special rule regarding a shared

acquired (including the name of the person

appreciation mortgage.

Line 24g. Enter the credit from Form 4136,

from whom the property was acquired); and

Credit for Federal Tax Paid on Fuels, if the

Do not net losses from prohibited

•

Gives a description of the lease or debt with

REIT qualifies to take this credit. Attach Form

transactions against gains in determining the

respect to which default occurred or was

4136 to Form 1120-REIT.

amount to enter on line 1. Enter losses from

imminent.

prohibited transactions on the appropriate line

Line 24h. Add the amounts on lines 24d

The REIT can revoke the election by filing

in Part I.

through 24g and enter the total on line 24h.

a revocation on or before the due date

Line 2. Deductions. Deduct only those

Backup withholding. If the REIT had income

(including extensions) for filing Form

expenses that have a proximate and primary

tax withheld from any payments it received

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

relationship to the earning of the income shown

because, for example, it failed to give the payer

details.

on line 1. Do not deduct general overhead and

its correct EIN, include the amount withheld in

Line 2. Gross income from foreclosure

administrative expenses in Part IV.

the total for line 24h. This type of withholding is

property. Do not include income that qualifies

called “Backup Withholding.” Show the amount

under the REIT’s 75% gross income test under

withheld in the blank space in the right-hand

Schedule A—Deduction for

section 856(c)(3)(A), (B), (C), (D), (E), or (G).

column between lines 23 and 24h, and write

These amounts must be reported in Part I.

“Backup Withholding.”

Dividends Paid

Line 25. Estimated tax penalty. A REIT that

Line 4. Deductions. Deduct only those

does not make estimated tax payments when

expenses that have a proximate and primary

Lines 1 through 5. Section 561 (taking into

due may be subject to an underpayment

account sections 857(b)(8), 857(d)(3)(B), and

relationship to earning the income shown on

penalty for the period of underpayment.

line 3. This includes:

858(a)) determines the deduction for dividends

•

Generally, a REIT is subject to the penalty if its

paid.

Depreciation on foreclosure property,

•

tax liability is $500 or more and it did not timely

Interest paid or accrued on debt of the REIT

Line 3. Dividends declared in October,

pay the smaller of:

that is attributable to the carrying of the

November, or December and payable to

•

Its alternative minimum tax minus the credit

property,

shareholders of record in October, November,

•

for Federal tax paid on fuels for 2003 as shown

Real estate taxes, and

or December are treated by the REIT as paid

•

on the return or

Fees charged by an independent contractor

on December 31 of that calendar year. The

•

Its prior year’s tax (computed in the same

to manage such property.

REIT is then eligible for the deduction for

manner). See section 6655 for details and

dividends paid for the year the dividends are

Do not deduct general overhead and

exceptions, including special rules for large

declared even though they are not actually

administrative expenses in Part II.

corporations.

paid until January of the following calendar

year.

Use Form 2220, Underpayment of

Estimated Tax by Corporations, to see if the

Part III—Tax for Failure To

If the REIT declared dividends in any of

REIT owes a penalty and to figure the amount

those months and actually paid them in

Meet Certain

of the penalty. Generally, the REIT does not

January, as discussed above, enter on line 3

have to file this form because the IRS can

those dividends not already included on lines

Source-of-Income

figure the amount of any penalty and bill the

1, 2, and 4 of Schedule A.

REIT for it. However, even if it does not owe

Requirements

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

the penalty, the REIT must complete and

income from foreclosure property (as defined in

All REITs must complete lines 1a through 8 of

attach Form 2220 if the annualized income or

section 857(b)(4)(B)), the deduction for

Part III. In certain cases, the amounts shown

adjusted seasonal installment method is used,

dividends paid to be entered on line 6 (and on

on lines 1a and 12a of Part III might differ from

or the REIT is a large corporation computing its

line 21b, page 1) is determined by multiplying

the total income entered on line 8 of Part I. For

first required installment based on the prior

the amount on line 5 by the following fraction:

example, the income items are different for a

year’s tax. See the Instructions for Form 2220

REIT that is a partner in a partnership due to

for the definition of a large corporation.

REIT taxable income (determined without regard to

the application of section 704 and Regulations

the deduction for dividends paid)

If Form 2220 is attached, check the box on

section 1.856-3(g).

line 25, page 1, Form 1120-REIT, and enter

REIT taxable income (determined without regard to

If line 8 is zero, do not complete the rest of

the amount of any penalty on this line.

the deduction for dividends paid) +

Part III. The tax imposed under section

(Net income from foreclosure property minus the

857(b)(5) does not apply.

tax on net income from foreclosure property)

Part II—Tax on Net Income

If line 8 is greater than zero, complete the

rest of Part III. Enter the tax from line 16 on

From Foreclosure Property

Schedule J, line 3c. Also, the REIT must:

Schedule J—Tax

•

Attach a schedule listing the nature and

Complete Part II only if the gross income,

gains, losses, and deductions from foreclosure

amount of each item of its gross income

Computation

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

property (defined in section 856(e)) result in

Note: Members of a controlled group must

•

net income. If an overall net loss results, report

Not have fraudulently included any incorrect

attach to Form 1120-REIT a statement

information in the attached schedule; and

the gross income, gains, losses, and

showing the computation of the tax entered on

•

deductions from foreclosure property on the

Have reasonable cause for not meeting the

line 3a. You may use the Tax Computation

appropriate lines of Part I.

requirements of section 856(c)(2) and (3).

Worksheet for Members of a Controlled

Property may be treated as foreclosure

Important: Failure to meet the three

Group below for this purpose.

property only if it meets the requirements of

conditions above will terminate the election to

Lines 1 and 2

section 856(e) and the REIT elects to treat the

be treated as a REIT effective for this tax year

property as foreclosure property in the year it

and all succeeding tax years.

Members of a controlled group. A member

was acquired. The property continues to be

of a controlled group, as defined in section

foreclosure property until the close of the 3rd

1563, must check the box on line 1 and

tax year following the tax year in which the

Part IV—Tax on Net Income

complete lines 2a and 2b of Schedule J.

REIT acquired it. For more information, see

From Prohibited

Line 2a. Members of a controlled group are

section 856(e). However, if the foreclosure

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

property is qualified health care property, it will

Transactions

$9,925,000 taxable income bracket amount (in

cease to be foreclosure property as of the

that order) on line 2a.

close of the 2nd year following the tax year the

Section 857(b)(6) imposes a tax equal to 100%

REIT acquired it (although the REIT may

of the net income derived from prohibited

When a controlled group adopts or later

request one or more extensions to this

transactions. The 100% tax is imposed to

amends an apportionment plan, each member

two-year grace period not to extend beyond the

prevent a REIT from retaining any profit from

must attach to its tax return a copy of its

6th year). See section 856(e)(6) for details.

ordinary retailing activities such as sales to

consent to this plan. The copy (or an attached

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Instructions For Form 1120-Reit - 2003 Page 9

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