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those expense deductions that an individually owned business is al-

Line 38

lowed. Deductions that are itemized by an individual on Schedule A

Enter the amount of any loss on the sale exchange or involuntary

of U.S. Form 1040, are not allowed. The deductions for a net oper-

conversion of property used in a trade or business and held for one

ating loss carryover or carryback are neither allowed to the S corpo-

year or less (from U.S. Form 4797).

ration nor to an individual under Massachusetts income tax law.

Line 41

If an S corporation is taxable at the federal level, and thus at the

Enter in line 41 any long-term capital gain or loss that is not in-

state level, on passive investment income under IRC sec. 1375,

cluded in lines 39 and/or 40 that is granted capital gains treatment

then such income passed through to the shareholder is reduced by

by the U.S. government or is classified as a capital gain or loss for

the item’s portion of the tax paid at the U.S. and state level. Reduce

Massachusetts purposes.

the S corporation’s Massachusetts ordinary income by the amount

For Massachusetts purposes capital gain or loss is the gain or loss

of the federal and state tax paid by the S corporation. Enclose the

from the sale or exchange of a capital asset. A capital asset is: (1)

computation of the tax shown on U.S. Form 1120S, line 22(b).

an asset which is capital asset for U.S. income tax purposes or (2)

Also report the cost of renovating a qualifying abandoned building.

property that is used in a trade or business within the meaning of

Enclose a statement detailing the location and cost of renovating

IRC sec. 1231(b) without regard to the holding period defined in

the qualifying abandoned building.

said section 1231(b).

Line 28

Line 42

Add U.S. Form 1120S, Schedule K, lines 4, 5a and 6 and enter the

Enter the amount of any gain from collectibles held for more than

total in line 28.

one year. Collectibles are defined as any capital asset that is a col-

lectible within the meaning of IRC sec. 408(m), as amended and in

Line 29

effect for the taxable year, including works of art, rugs, antiques,

Enter the total amount of interest on U.S. debt obligations reported

metals, gems, stamps, alcoholic beverages, certain coins, and any

in line 28 which is taxable by the U.S. government, but is tax-ex-

other items treated as collectibles for federal tax purposes.

empt in Massachusetts.

Line 43

Line 30

Report any adjustments to Massachusetts capital gain and losses.

Enter the total amount of interest from Massachusetts banks in-

Enclose a complete statement explaining any such adjustments. If

cluded in line 28. Report any interest from Massachusetts savings

an S corporation is taxable at the federal level, and thus the state

accounts, saving share accounts and NOW accounts. Also report

level, on certain capital gains under IRC sec. 1374, then the amount

any interest from term and time deposits. Enclose a statement list-

of the capital gains passed through to the shareholder is reduced by

ing bank sources and amounts.

the tax paid at the federal and state level. Reduce the S corpora-

Note: This amount should not include any 5.25% interest from Mass-

tion’s capital gain by the amount of federal and state tax paid by the

achusetts banks derived in the ordinary course of the trade or busi-

S corporation and enclose the computation of the tax shown on

ness activity of the S corporation, and properly reported in line 18.

U.S. Form 1120S, line 22(b).

Line 31

Resident and Nonresident Reconciliation

Enter the total amount of interest (other than from Massachusetts

Lines 44 through 47 should be completed only if all three of the fol-

banks) and dividend income included in line 28. Do not include in-

lowing conditions are met: (a) there is one or more nonresident

terest on U.S. debt obligations that is taxable by the U.S. govern-

shareholders; (b) there is any income derived from business activi-

ment, but is tax-exempt in Massachusetts. Enclose a statement

ties or ownership of any interest in real or tangible property in an-

listing sources and amounts.

other state; (c) such business activities provide the other state the

jurisdiction to levy any income or franchise tax.

Line 32

When completing line 45 exclude any income from unrelated busi-

Enter the total amount of the S corporation’s non-Massachusetts

ness activities prior to apportionment, see Regulation 830 CMR

state and municipal bond interest. This interest is taxable in Mass-

63.38.1, sections (3) and (4). Enclose a statement and explain any

achusetts but not taxed by the U.S. government and thus not re-

adjustments.

ported on U.S. Form 1120S, Schedule K, line 4.

Form 63FI, Schedule E should be completed before completing

Line 33

lines 44 through 47.

Enter the total amount of royalty income included in line 28.

Note: This amount should not include any royalty income derived in

the ordinary course of the trade or business activity of the S corpo-

Schedule SK-1

ration and properly reported in line 18.

On the Schedule SK-1 for each shareholder, the S corporation

Line 34

should indicate the entity type of the shareholder. The S corporation

should obtain this information from the shareholder. The S corpora-

Enter the total amount of other income included in line 28, less the

tion should select “Bank” if the shareholder is an IRA or a Roth IRA

amounts of other income included in lines 29 through 33.

and the S corporation is a bank or depository institution holding

Capital Gains and Losses

company. The S corporation should select “Exempt organization” if

If the S corporation had any income or loss reported in U.S. Form

the shareholder is exempt from federal income tax under IRC sec.

1120S, Schedule K, line 10 that is granted capital gains treatment

501.

by the U.S. government, include that amount in lines 35 through 42,

S corporations that have indicated on the SK-1 that they are report-

as applicable.

ing transactions under M.G.L. Ch. 62C, 32A, identified as IRC sec-

Instructions For Form 63 Fi - Massachusetts Financial Institution Excise Tax Return - 2012 Page 7

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