Instructions For Form 8810 - 2016 printable pdf download

2016

Department of the Treasury

Internal Revenue Service

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Definitions

Section references are to the Internal

more than five individuals, and the

Revenue Code unless otherwise noted.

corporation is not a personal service

Except as otherwise indicated, the following

corporation.

terms are defined as shown below.

Future Developments

Certain organizations are treated as

Personal service corporation. A personal

individuals for this test (see section 542(a)).

For the latest information about

service corporation is a corporation whose

For rules of determining stock ownership,

developments related to Form 8810 and its

principal activity for the testing period

see section 544 (as modified by section

instructions, such as legislation enacted after

(defined below) for the tax year is the

465(a)(3)).

they were published, go to

performance of personal services. The

form8810.

Other Passive Activity Terms

services must be substantially performed by

General Instructions

employee-owners. Employee-owners must

Net income. The excess of current year

own more than 10% of the fair market value

income over current year deductions from

(FMV) of the corporation's outstanding stock

the activity. This includes any current year

Purpose of Form

on the last day of the testing period.

gains or losses from the disposition of assets

Personal service corporations and closely

or an interest in the activity.

Testing period. Generally, the testing

held corporations use Form 8810 to figure

period for a tax year is the prior tax year. The

Net loss. The excess of current year

the amount of any passive activity loss (PAL)

testing period for a new corporation starts

deductions over current year income from

or credit for the current tax year and the

with the first day of its first tax year and ends

the activity. This includes any current year

amount of losses and credits from passive

on the earlier of:

gains or losses from the disposition of assets

activities allowed on the corporation's tax

The last day of its first tax year, or

or an interest in the activity.

return. Form 8810 is also used to make the

The last day of the calendar year in which

election to increase the basis of credit

the first tax year began.

Overall gain. The excess of the “net

property when the corporation disposes of its

income” from the activity over the prior year

Principal activity. The principal activity

interest in an activity for which it has an

unallowed losses from the activity.

of a corporation is considered to be the

unused credit.

Overall loss. The excess of the prior year

performance of personal services if, during

unallowed losses from the activity over the

the testing period, the corporation's

Generally, passive activities include trade

“net income” from the activity or the prior

compensation costs for the performance of

or business activities in which the

year unallowed losses from the activity plus

personal services are more than 50% of its

corporation did not materially participate for

the “net loss” from the activity.

total compensation costs.

the tax year, and rental activities regardless

of its participation.

Prior year unallowed losses. The

Performance of personal services.

deductions and losses from an activity that

Personal services are those performed in the

Who Must File

were disallowed under the PAL limitations in

health, law, engineering, architecture,

a prior year and carried forward to the tax

accounting, actuarial science, performing

Personal service corporations and closely

year under section 469(b). See Regulations

arts, or consulting fields (as defined in

held corporations that have losses or credits

section 1.469-1(f)(4).

Temporary Regulations section

(including prior year unallowed losses and

1.448-1T(e)). The term “performance of

credits) from passive activities must file Form

Coordination With Other

personal services” includes any activity

8810.

Limitations

involving the performance of personal

Passive activity loss (PAL). A personal

services in these areas.

service corporation has a PAL for the year if

Generally, items of deduction or loss from a

the total losses (including prior year

Substantial performance by

passive activity are subject to other

unallowed losses) from its passive activities

employee-owners. Personal services are

limitations before they are subject to the PAL

exceed the total income from its passive

substantially performed by employee-owners

limitations. Once a deduction or loss

activities. A closely held corporation has a

if, for the testing period, more than 20% of

becomes allowable under these other

PAL for the year if the total losses (including

the corporation's compensation costs for the

limitations, the corporation must determine

prior year unallowed losses) from all its

performance of personal services are for

whether the deduction or loss is limited

passive activities exceed the sum of the total

services performed by employee-owners.

under the PAL rules. Examples include the

income from all its passive activities and its

following.

Employee-owner. A person is

net active income.

Basis.

considered to be an employee-owner if the

Section 163(j) interest deduction

Passive activity credit. A personal service

person is an employee of the corporation on

limitations.

corporation has a passive activity credit for

any day of the testing period, and owns any

At-risk limitations. See Form 6198,

the year if its credits from passive activities

outstanding stock of the corporation on any

At-Risk Limitations, for details on the at-risk

(including prior year unallowed credits)

day of the testing period. Stock ownership is

rules.

exceed the tax attributable to net passive

determined under the attribution rules of

income. A closely held corporation has a

section 318, except that “any” is substituted

In addition, certain allowances under the

passive activity credit for the year if its

for “50 percent or more in value” in section

PAL rules may be limited under other rules.

credits from passive activities (including prior

318(a)(2)(C).

This includes the following.

year unallowed credits) exceed the sum of

Capital losses allowable under the PAL

Closely held corporation. A corporation is

the tax attributable to net passive income

rules may be limited under the capital loss

a closely held corporation if at any time

and the tax attributable to net active income.

limitations of section 1211(a).

during the last half of the tax year more than

Percentage depletion deductions

50% in value of its outstanding stock is

For more information, see Pub. 925,

allowable under the PAL rules may be limited

directly or indirectly owned, by or for not

Passive Activity and At-Risk Rules.

under section 613A(d).

Nov 22, 2016

Cat. No. 10357E

Instructions For Form 8810 - 2016

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