Instructions For Form 8810 - 2016 (Page 5 of 13) in pdf

In addition, the statement must contain a

which the corporation had a direct or indirect

Recharacterization of Passive

declaration that the activities make up an

ownership interest. It also may result from

Income

appropriate economic unit for the

loans between one partnership and another

measurement of gain or loss under the

if each owner in the borrowing entity has the

Certain income from passive activities can

passive activity rules.

same proportional ownership interest in the

be recharacterized and excluded from

lending entity. The self-charged interest rules

passive activity income. The amount of

Regrouping. The corporation must file a

do not apply to the corporation's partnership

income recharacterized equals the net

written statement with its original income tax

interest if the partnership made an election

income from the sources described below. If

return for the tax year in which the

during the tax year the corporation received

under Regulations section 1.469-7(g) to

corporation regroups activities under

avoid the application of these rules. See

net income from any of these sources (either

Regulations section 1.469-4(e)(2). The

Regulations section 1.469-7 for details.

directly or through a partnership), see Pub.

statement must provide the names,

925 for details on reporting net income or

Passive Activity Income

addresses, and EINs, if applicable, for the

loss from these sources.

activities that are being regrouped. If the

Passive activity income includes all income

corporation regroups two or more activities

from passive activities, including (with certain

Income from the following sources may

into a single activity, the statement must

exceptions described in Temporary

be subject to the net income

contain a declaration that the regrouped

Regulations section 1.469-2T(c)(2) and

recharacterization rules.

activities make up an appropriate economic

Regulations section 1.469-2(c)(2)) gain from

Significant participation passive activities.

unit for the measurement of gain or loss

the disposition of an interest in a passive

A significant participation passive activity is

under the passive activity rules. In addition,

activity or property used in a passive activity

any trade or business activity (see Trade or

the statement must contain an explanation of

at the time of the disposition.

Business Activities, earlier), in which the

why the original grouping was clearly

corporation is treated as having participated

inappropriate or the nature of the material

Passive activity income does not include

for more than 100 hours during the tax year

change in the facts and circumstances that

the following.

but did not materially participate.

made the original grouping clearly

Income from an activity that is not a

Rental of property when less than 30% of

inappropriate.

passive activity.

the unadjusted basis of the property is

Portfolio income, including interest,

Reporting of pre-existing groupings re-

subject to depreciation.

dividends, annuities, and royalties not

quired only upon change. The corporation

Passive equity-financed lending activities.

derived in the ordinary course of a trade or

is not required to file a written statement

Rental of property incidental to a

business, and gain or loss from the

reporting the grouping of the trade or

development activity.

disposition of property that produces

business activities and rental activities that

Rental of property to a nonpassive

portfolio income or is held for investment

have been made for tax years beginning

activity.

(see section 163(d)(5)). See Temporary

before January 25, 2010 (pre-existing

Acquisition of an interest in a

Regulations section 1.469-2T(c)(3). See

groupings), until the corporation makes a

pass-through entity that licenses intangible

Self-Charged Interest above for an

change to the grouping.

property.

exception.

Effect of failure to report. If the

Personal service income, including

Passive Activity Deductions

corporation fails to report these changes,

commissions and income from trade or

Passive activity deductions include all

each trade or business activity or rental

business activities in which the corporation

deductions from activities that are passive

activity will be treated as a separate activity.

materially participated for the tax year. See

activities for the current tax year and all

The corporation will be considered to have

Temporary Regulations section 1.469-2T(c)

deductions from passive activities that were

made a timely disclosure if it has filed all

(4).

disallowed under the PAL rules in prior tax

affected income tax returns consistent with

Income from positive section 481

years and carried forward to the current tax

the claimed grouping and makes the

adjustments allocated to activities other than

year under section 469(b).

required disclosure on the income tax return

passive activities. See Temporary

for the year in which the corporation first

Regulations section 1.469-2T(c)(5).

Passive activity deductions include

discovered the failure to disclose. If the IRS

Income or gain from investments of

losses from dispositions of property used in

first discovers the failure to disclose,

working capital.

a passive activity at the time of the

however, the corporation must have

Income from an oil or gas property if the

disposition and losses from a disposition of

reasonable cause for not making the

corporation treated any loss from a working

less than an entire interest in a passive

required disclosure.

interest in the property for any tax year

activity. See Dispositions below, for the

beginning after 1986 as a nonpassive loss

treatment of losses upon certain dispositions

Passive Activity Income

under the rule excluding working interests in

of an entire interest in an activity.

oil and gas wells from passive activities. See

and Deductions

Regulations section 1.469-2(c)(6).

Passive activity deductions do not include

Take into account only passive activity

Any income treated as income not from a

the following.

income and passive activity deductions to

passive activity under Temporary

Deductions for expenses (other than

figure the corporation's overall gain or overall

Regulations section 1.469-2T(f) and

interest expense) that are clearly and directly

loss from all passive activities or any passive

Regulations section 1.469-2(f). See

allocable to portfolio income.

activity. In figuring the PAL, a closely held

Recharacterization of Passive Income below.

Dividends-received deductions for

corporation subtracts both passive activity

Overall gain from any interest in a PTP.

dividends not included in passive activity

income and net active income from its

State, local, and foreign income tax

gross income.

passive activity deductions. See the

refunds.

Interest expense, other than interest

instructions for line 2, later, for the definition

Any reimbursement of a casualty or theft

expense properly allocable under Temporary

of net active income.

loss included in income as recovery of all or

Regulations section 1.163-8T to passive

part of a prior year loss deduction, if the

Self-Charged Interest

activities or self-charged interest treated as a

deduction for the loss was not treated as a

passive activity deduction (see Self-Charged

Certain “self-charged” interest income or

passive activity deduction.

Interest above). For example, capitalized

expense can be treated as passive activity

Cancellation of debt income to the extent

interest expense is not a passive activity

gross income or passive activity deductions

that at the time the debt was discharged it

deduction.

if the loan proceeds are used in a passive

was not properly allocable under Temporary

Losses from dispositions of property that

activity. Generally, self-charged interest

Regulations section 1.163-8T to passive

produce portfolio income or property held for

income and expense result from loans

activities.

investment.

between the corporation and a partnership in

State, local, and foreign income taxes.

Instructions for Form 8810 (2016)

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Instructions For Form 8810 - 2016 Page 5

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