Instructions For Form 1120-Pc - 2016 (Page 11 of 23) in pdf

original return. The election applies when

Transactions between related taxpay-

Limitation on tax benefits for remuner-

figuring taxable income for the current tax

ers. Generally, an accrual basis taxpayer

ation under the Patient Protection and

year and all subsequent years.

can only deduct business expenses and

Affordable Care Act. The $1 million

interest owed to a related party in the year

The corporation can choose to forgo

compensation limit is reduced to $500,000

the payment is included in the income of

the election by affirmatively electing to

for remuneration for services provided by

the related party. See sections 163(e)(3),

capitalize its start-up or organizational

individuals for or on behalf of certain

163(j), and 267 for limitations on

costs on its income tax return filed by the

health insurance providers in tax years

deductions for unpaid interest and

due date (including extensions) for the tax

beginning after 2009. The $500,000

expenses.

year in which the active trade or business

limitation applies to remuneration that is

begins.

deductible in the tax year during which the

Corporations use Form 8926,

services were performed and

Disqualified Corporate Interest Expense

Note. The election to either amortize or

remuneration for services during the year

Disallowed Under Section 163(j) and

capitalize start-up costs is irrevocable and

that is deductible in a future tax year

Related Information, to figure the amount

applies to all start-up costs that are related

(called “deferred deduction

of any corporate interest expense

to the trade or business.

remuneration”). The $500,000 limitation is

disallowed by section 163(j).

reduced by any amounts disallowed as

Report the deductible amount of such

Section 291 limitations. Corporations

excess parachute payments. See section

costs and any amortization on

may be required to adjust certain

162(m)(6) and Regulations section

Schedule A, line 31. For amortization that

deductions. See section 291 to determine

1.162-31 for definitions and other special

begins during the 2016 tax year, complete

the amount of the adjustment.

rules. Also see Notice 2011-2, 2011-2

and attach Form 4562, Depreciation and

I.R.B. 260.

Amortization.

Golden parachute payments. A portion

of the payments made by a corporation to

Line 15. Compensation of officers.

Reducing certain expenses for which

key personnel that exceeds their usual

Enter deductible officers' compensation

credits are allowable. If the corporation

compensation may not be deductible. This

on line 15. See Employment credits, later,

claims certain credits, it may need to

occurs when the corporation has an

for employment credits that may reduce

reduce the otherwise allowable

agreement (golden parachute) with these

your deduction for officers' compensation.

deductions for expenses used to figure the

key employees to pay them these excess

Do not include compensation deductible

credit. This applies to credits such as the

amounts if control of the corporation

elsewhere on the return, such as elective

following.

changes. See section 280G and

contributions to a section 401(k) cash or

Employment credits. See Employment

Regulations section 1.280G-1. Also see

deferred arrangement, or amounts

credits, later.

the instructions for line 15.

contributed under a salary reduction SEP

Credit for increasing research activities

agreement or a SIMPLE IRA plan.

(Form 6765).

Business start-up and organizational

Orphan drug credit (Form 8820).

costs. A corporation can elect to deduct

Include only the deductible part of each

Disabled access credit (Form 8826).

a limited amount of start-up and

officer's compensation on line 15. (See

Employer credit for social security and

organizational costs it paid or incurred.

Disallowance of deduction for employee

Medicare taxes paid on certain employee

Any remaining costs generally must be

compensation in excess of $1 million,

tips (Form 8846).

amortized over an 180-month period. See

below). Attach a statement for all officers

Credit for small employer pension plan

sections 195 and 248 and the related

using the following columns:

startup costs (Form 8881).

regulations.

1. Name of officer.

Credit for employer-provided childcare

Time for making an election. The

2. Social security number.

facilities and services (Form 8882).

corporation generally elects to deduct

Credit for small employer health

3. Percentage of time devoted to

start-up or organizational costs by

insurance premiums (Form 8941).

business.

claiming the deduction on its income tax

If the corporation has any of these

4. Amount of compensation.

return filed by the due date (including

credits, figure the current year credit

extensions) for the tax year in which the

If a consolidated return is filed, each

before figuring the deduction for expenses

active trade or business begins. However,

member of an affiliated group must furnish

on which the credit is based. If the

for start-up or organizational costs paid or

this information.

corporation capitalized any costs on which

incurred before September 9, 2008, the

Disallowance of deduction for

it figured the credit, it may need to reduce

corporation is required to attach a

employee compensation in excess of

the amount capitalized by the credit

statement to its return to elect to deduct

$1 million. Publicly held corporations

attributable to these costs.

those costs.

cannot deduct compensation to a

See the instructions for the form used

For more details including special rules

“covered employee” to the extent that the

to figure the applicable credit for more

for costs paid or incurred before

compensation exceeds $1 million.

details.

September 9, 2008, see the Instructions

Generally, a covered employee is:

for Form 4562. Also see Pub. 535,

Limitations on deductions related to

The principal executive officer of the

Business Expenses.

property leased to tax-exempt entities.

corporation (or an individual acting in that

If a corporation leases property to a

capacity) as of the end of the tax year or

If the corporation timely filed its return

governmental or other tax-exempt entity,

An employee whose total

for the year without making an election, it

the corporation cannot claim deductions

compensation must be reported to

can still make an election by filing an

related to the property to the extent that

shareholders under the Securities

amended return within 6 months of the

they exceed the corporation's income from

Exchange Act of 1934 because the

due date of the return (excluding

the lease payments. This disallowed

employee is among the three highest

extensions). Clearly indicate the election

tax-exempt use loss can be carried over to

compensated officers for that tax year

on the amended return and write “Filed

the next tax year and treated as a

(other than the principal executive officer).

pursuant to Regulations section

deduction with respect to the property for

301.9100-2” at the top of the amended

For this purpose, compensation does

that tax year. See section 470(d) for

return. File the amended return at the

not include the following.

exceptions.

same address the corporation filed its

Instructions for Form 1120-PC (2016)

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Instructions For Form 1120-Pc - 2016 Page 11

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