Instructions For Form 8810 - 2016


Department of the Treasury
Internal Revenue Service
Instructions for Form 8810
Corporate Passive Activity Loss and Credit Limitations
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
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
they were published, go to
performance of personal services. The
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
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
Employee-owner. A person is
net active income.
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
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
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
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


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