Välj språk

Form 1120-S Instruktioner

Instruktioner för formulär 1120-S, US Income Tax Return för en S Corporation

Rev 2023

Relaterade formulär

  • Bild 1120-S - US Income Tax Return för en S Corporation
Detaljer
Filformat PDF
Storlek 702.2 KB
Ladda ner
Department of the Treasury  
Internal Revenue Service  
2023  
Instructions for Form 1120-S  
U.S. Income Tax Return for an S Corporation  
Section references are to the Internal Revenue Code unless  
otherwise noted.  
Contents  
Page  
Schedule M-2. Analysis of AAA, PTEP,  
Accumulated E&P, and OAA . . . . . . . . . . . . . 48  
Principal Business Activity Codes . . . . . . . . . . . . . . 52  
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55  
Contents  
Page  
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1  
Photographs of Missing Children . . . . . . . . . . . . . . . . 2  
The Taxpayer Advocate Service . . . . . . . . . . . . . . . . . 2  
Direct Deposit of Refund . . . . . . . . . . . . . . . . . . . . . . 2  
How To Get Forms and Publications . . . . . . . . . . . . . . 2  
General Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 2  
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . . 2  
How To Make the Election . . . . . . . . . . . . . . . . . . 2  
Who Must File . . . . . . . . . . . . . . . . . . . . . . . . . . 2  
Termination of Election . . . . . . . . . . . . . . . . . . . . 2  
Electronic Filing . . . . . . . . . . . . . . . . . . . . . . . . . 3  
When To File . . . . . . . . . . . . . . . . . . . . . . . . . . . 3  
Where To File . . . . . . . . . . . . . . . . . . . . . . . . . . . 4  
Who Must Sign . . . . . . . . . . . . . . . . . . . . . . . . . . 3  
Paid Preparer Authorization . . . . . . . . . . . . . . . . . 3  
Assembling the Return . . . . . . . . . . . . . . . . . . . . 4  
Tax Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 4  
Electronic Deposit Requirement . . . . . . . . . . . . . . 4  
Estimated Tax Payments . . . . . . . . . . . . . . . . . . . 5  
Interest and Penalties . . . . . . . . . . . . . . . . . . . . . 5  
Accounting Methods . . . . . . . . . . . . . . . . . . . . . . 6  
Accounting Period . . . . . . . . . . . . . . . . . . . . . . . 6  
Rounding Off to Whole Dollars . . . . . . . . . . . . . . . 6  
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . 6  
Amended Return . . . . . . . . . . . . . . . . . . . . . . . . 6  
Future Developments  
For the latest information about developments related to Form  
1120-S and its instructions, such as legislation enacted after  
they were published, go to IRS.gov/Form1120S.  
What’s New  
Electronically filed returns. The electronic filing threshold for  
corporate returns required to be filed on or after January 1, 2024,  
has decreased to 10 or more returns. See Electronic Filing, later.  
Increase in penalty for failure to file. For tax returns required  
to be filed in 2024, the minimum penalty for failure to file a return  
that is more than 60 days late has increased to the smaller of the  
tax due or $485. See Late filing of return, later.  
Deduction for certain energy efficient commercial building  
property. For tax years beginning in 2023, corporations filing  
Form 1120-S and claiming the energy efficient commercial  
buildings deduction should report the deduction on line 19. See  
the instructions for line 19.  
Expiration of 100% business meal expense deduction. The  
temporary 100% business meal expense deduction for food and  
beverages provided by a restaurant does not apply to amounts  
paid or incurred after 2022.  
Elective payment election. Applicable entities and electing  
taxpayers can elect to treat certain credits as elective payments.  
See the instructions for line 24d and the Instructions for Form  
3800.  
Other Forms and Statements That May Be  
Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7  
Digital assets. Digital assets are required to be reported. See  
At-Risk Limitations . . . . . . . . . . . . . . . . . . . . . . . 8  
Passive Activity Limitations . . . . . . . . . . . . . . . . . 8  
new question 16 on Schedule B, later.  
Schedules K and K-1 reporting codes. Separate reporting  
codes are assigned to items grouped under code H for Other  
income (loss), code S for Other deductions, code P for Other  
credits, and code AD for Other information in prior years. See the  
List of Codes in the Shareholder's Instructions for Schedule K-1  
(Form 1120-S).  
Net Investment Income Tax Reporting  
Requirements . . . . . . . . . . . . . . . . . . . . . . . . 13  
Specific Instructions . . . . . . . . . . . . . . . . . . . . . . . . 13  
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14  
Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . 16  
Tax and Payments . . . . . . . . . . . . . . . . . . . . . . 21  
Schedule B. Other Information . . . . . . . . . . . . . . 22  
Schedules K and K-1 (General Instructions) . . . . 24  
Specific Instructions (Schedule K-1 Only) . . . . . . 25  
Part I. Information About the Corporation . . . . . . 25  
Part II. Information About the Shareholder . . . . . . 25  
The following new reporting credit codes are added to  
line 13g.  
Code A. Zero-emission nuclear power production credit.  
Code B. Production from advanced nuclear power facilities  
credit.  
Code AG. Credit for military spouse participation.  
Code AX. Carbon oxide sequestration credit recapture.  
Code AY. New clean vehicle credit.  
Code BC. Eligible credits from transferor(s) under section  
Specific Instructions (Schedules K and K-1,  
6418.  
Part III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26  
Schedule L. Balance Sheets per Books . . . . . . . 47  
Reminder  
Schedule M-1. Reconciliation of Income  
Election by a small business corporation. Don't file Form  
(Loss) per Books With Income (Loss) per  
Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48  
1120-S unless the corporation has filed or is attaching Form  
Jan 17, 2024  
Cat. No. 11515K  
 
2553, Election by a Small Business Corporation. For details, see  
the Instructions for Form 2553.  
corporation or other entity for any tax year covered by an election  
to be an S corporation.  
Photographs of  
Missing Children  
How To Make the Election  
For details about the election, see Form 2553, Election by a  
Small Business Corporation, and the Instructions for Form 2553.  
The Internal Revenue Service is a proud partner with the  
Photographs of missing children selected by the Center may  
appear in instructions on pages that would otherwise be blank.  
You can help bring these children home by looking at the  
photographs and calling 1-800-THE-LOST (1-800-843-5678) if  
you recognize a child.  
Who Must File  
A corporation or other entity must file Form 1120-S if (a) it  
elected to be an S corporation by filing Form 2553, (b) the IRS  
accepted the election, and (c) the election remains in effect.  
After filing Form 2553, you should have received confirmation  
that Form 2553 was accepted. If you didn't receive notification of  
acceptance or nonacceptance of the election within 2 months of  
filing Form 2553 (5 months if you checked box Q1 to ask for a  
letter ruling), please follow up by calling 800-829-4933. Don't file  
Form 1120-S for any tax year before the year the election takes  
effect.  
The Taxpayer Advocate Service  
The Taxpayer Advocate Service (TAS) is an independent  
organization within the IRS that helps taxpayers and protects  
taxpayer rights. TAS strives to ensure that every taxpayer is  
treated fairly and knows and understands their rights under the  
Relief for late elections. If you haven't filed Form 2553, or  
didn't file Form 2553 on time, you may be entitled to relief for a  
late-filed election to be an S corporation. See the Instructions for  
Form 2553 for details.  
As a taxpayer, the corporation has rights that the IRS must  
abide by in its dealings with the corporation. TAS can help the  
corporation if:  
A problem is causing financial difficulty for the business;  
The business is facing an immediate threat of adverse action;  
Termination of Election  
Once the election is made, it stays in effect until it is terminated.  
If the election is terminated, the corporation (or a successor  
corporation) can make another election on Form 2553 only with  
IRS consent for any tax year before the fifth tax year after the first  
tax year in which the termination took effect. See Regulations  
section 1.1362-5 for details.  
or  
The corporation has tried repeatedly to contact the IRS but no  
one has responded, or the IRS hasn't responded by the date  
promised.  
TAS has offices in every state, the District of Columbia, and  
Puerto Rico. Local advocates' numbers are in their local  
directories and at TaxpayerAdvocate.IRS.gov. The corporation  
can also call TAS at 877-777-4778.  
An election terminates automatically in any of the following  
cases.  
1. The corporation is no longer a small business corporation  
as defined in section 1361(b). This kind of termination of an  
election is effective as of the day the corporation no longer  
meets the definition of a small business corporation. Attach to  
Form 1120-S for the final year of the S corporation a statement  
notifying the IRS of the termination and the date it occurred.  
TAS also works to resolve large-scale or systemic problems  
that affect many taxpayers. If the corporation knows of one of  
these broad issues, please report it to TAS through the Systemic  
Advocacy Management System at IRS.gov/SAMS.  
For more information, go to IRS.gov/Advocate.  
2. For each of 3 consecutive tax years, the corporation (a)  
has accumulated earnings and profits (AE&P), and (b) derives  
more than 25% of its gross receipts from passive investment  
income as defined in section 1362(d)(3)(C). The election  
terminates on the first day of the 1st tax year beginning after the  
3rd consecutive tax year. The corporation must pay a tax for  
each year it has excess net passive income. See the line 23a  
instructions for details on how to figure the tax.  
3. The election is revoked. An election can be revoked only  
with the consent of shareholders who, at the time the revocation  
is made, hold more than 50% of the number of issued and  
outstanding shares of stock (including nonvoting stock). The  
revocation can specify an effective revocation date that is on or  
after the day the revocation is filed. If no date is specified, the  
revocation is effective at the start of the tax year if the revocation  
is made on or before the 15th day of the 3rd month of that tax  
year. If no date is specified and the revocation is made after the  
15th day of the 3rd month of the tax year, the revocation is  
effective at the start of the next tax year.  
Direct Deposit of Refund  
To request a direct deposit of the corporation's income tax refund  
into an account at a U.S. bank or other financial institution, attach  
Form 8050, Direct Deposit of Corporate Tax Refund. See the  
How To Get Forms and Publications  
Internet. You can access the IRS website 24 hours a day, 7  
days a week, at IRS.gov to:  
Download forms, instructions, and publications;  
Order IRS products online;  
Research your tax questions online;  
Search publications online by topic or keyword;  
View Internal Revenue Bulletins (IRBs) published in recent  
years; and  
Sign up to receive local and national tax news by email.  
Tax forms and publications. The corporation can view, print,  
or download all of the forms and publications it may need on  
IRS.gov/FormsPubs. Otherwise, the corporation can go to  
IRS.gov/OrderForms to place an order and have forms mailed to  
it.  
To revoke the election, the corporation must file a statement  
with the appropriate service center listed under Where To File in  
the Instructions for Form 2553. In the statement, the corporation  
must notify the IRS that it is revoking its election to be an S  
corporation. The statement must be signed by each shareholder  
who consents to the revocation and contain the information  
required by Regulations section 1.1362-6(a)(3).  
General Instructions  
Purpose of Form  
Use Form 1120-S to report the income, gains, losses,  
deductions, credits, and other information of a domestic  
A revocation can be rescinded before it takes effect. See  
Regulations section 1.1362-6(a)(4) for details.  
2
Instructions for Form 1120-S (2023)  
               
For rules on allocating income and deductions between an S  
corporation's short year and a C corporation's short year and  
other special rules that apply when an election is terminated, see  
section 1362(e) and Regulations section 1.1362-3.  
that has dissolved must generally file by the 15th day of the 3rd  
month after the date it dissolved.  
If the due date falls on a Saturday, Sunday, or legal holiday,  
the corporation can file on the next day that isn’t a Saturday,  
Sunday, or legal holiday.  
If an election was terminated under (1) or (2) above and the  
corporation believes the termination was inadvertent, the  
corporation can ask for permission from the IRS to continue to  
be treated as an S corporation. See Regulations section  
1.1362-4 for the specific requirements that must be met to  
qualify for inadvertent termination relief.  
If the S corporation election was terminated during the tax  
year and the corporation reverts to a C corporation, file Form  
1120-S for the S corporation's short year by the due date  
(including extensions) of the C corporation's short year return.  
Private Delivery Services  
Electronic Filing  
Corporations can use certain private delivery services (PDS)  
designated by the IRS to meet the “timely mailing as timely filing”  
rule for tax returns. Go to IRS.gov/PDS for the current list of  
designated services.  
S corporations can generally electronically file (e-file) Form  
1120-S, related forms, schedules, statements, and attachments;  
Form 7004 (automatic extension of time to file); and Forms 940,  
941, and 944 (employment tax returns). Form 1099 and other  
information returns can also be electronically filed. The option to  
e-file doesn't, however, apply to certain returns.  
The PDS can tell you how to get written proof of the mailing  
date.  
For returns filed on or after January 1, 2024, S corporations  
that file 10 or more returns are required to e-file Form 1120-S.  
See Regulations section 301.6037-2. However, these  
corporations can request a waiver of the electronic filing  
requirements.  
For the IRS mailing address to use if you are using a PDS, go  
Private delivery services can't deliver items to P.O.  
boxes. You must use the U.S. Postal Service to mail any  
!
CAUTION  
item to an IRS P.O. box address.  
For more information on e-filing, see E-file for Business and  
Extension of Time To File  
File Form 7004, Application for Automatic Extension of Time To  
File Certain Business Income Tax, Information, and Other  
Returns, to ask for an extension of time to file. Generally, the  
corporation must file Form 7004 by the regular due date of the  
return. See the Instructions for Form 7004.  
Exclusions From Electronic Filing Requirement  
Waivers. The IRS may waive the electronic filing rules if the S  
corporation demonstrates that a hardship would result if it were  
required to file its return electronically. A corporation interested in  
requesting a waiver of the mandatory electronic filing  
requirement must file a written request, and request one in the  
manner prescribed by the IRS. All written requests for waivers  
should be mailed to:  
Who Must Sign  
The return must be signed and dated by:  
The president, vice president, treasurer, assistant treasurer,  
Internal Revenue Service  
Ogden Submission Processing Center  
Attn: Form 1120 e-file Waiver Request  
Mail Stop 1057  
chief accounting officer; or  
Any other corporate officer (such as tax officer) authorized to  
sign.  
If a return is filed on behalf of a corporation by a receiver,  
Ogden, UT 84201  
trustee, or assignee, the fiduciary must sign the return instead of  
the corporate officer. Returns and forms signed by a receiver or  
trustee in bankruptcy on behalf of a corporation must be  
accompanied by a copy of the order or instructions of the court  
authorizing signing of the return or form.  
If using a delivery service, requests for waivers should be  
mailed to:  
Internal Revenue Service  
Ogden Submission Processing Center  
Attn: Form 1120 e-file Waiver Request  
Mail Stop 1057  
If an employee of the corporation completes Form 1120-S,  
the paid preparer space should remain blank. Anyone who  
prepares Form 1120-S but doesn't charge the corporation  
shouldn't complete that section. Generally, anyone who is paid to  
prepare the return must sign it and fill in the “Paid Preparer Use  
Only” area.  
1973 N. Rulon White Blvd.  
Ogden, UT 84404  
Waiver requests can also be faxed to 877-477-0575. Contact  
the e-Help Desk at 866-255-0654 for questions regarding the  
waiver procedures or process.  
The paid preparer must complete the required preparer  
information and:  
Sign the return in the space provided for the preparer's  
Exemptions. The IRS may provide exemptions from the  
requirements to electronically file. If using the technology  
required to electronically file conflicts with religious beliefs, the  
corporation is exempt from the requirement. Clearly indicate the  
exemption on the corporation’s return. Write “Religious  
Exemption” at the top of the Form 1120-S. File the return at the  
applicable IRS address. See Where To File, later. For more  
information, see Notice 2024-18.  
signature,  
Include their Preparer Tax Identification Number (PTIN), and  
Give a copy of the return to the taxpayer.  
A paid preparer may sign original or amended returns by  
rubber stamp, mechanical device, or computer software  
program.  
TIP  
Paid Preparer Authorization  
When To File  
If the corporation wants to allow the IRS to discuss its 2023 tax  
return with the paid preparer who signed it, check the “Yes” box  
in the signature area of the return. This authorization applies only  
to the individual whose signature appears in the “Paid Preparer  
Generally, an S corporation must file Form 1120-S by the 15th  
day of the 3rd month after the end of its tax year. For calendar  
year corporations, the due date is March 15, 2024. A corporation  
3
Instructions for Form 1120-S (2023)  
               
Where To File  
File the corporation's return at the applicable IRS address listed below.  
If the corporation's principal business,  
office, or agency is located in:  
And the total assets at the end of the tax  
year (Form 1120-S, page 1, item F) are:  
Use the following address:  
Connecticut, Delaware, District of Columbia,  
Georgia, Illinois, Indiana, Kentucky, Maine,  
Maryland, Massachusetts, Michigan, New  
Hampshire, New Jersey, New York, North  
Carolina, Ohio, Pennsylvania, Rhode Island,  
South Carolina, Tennessee, Vermont, Virginia,  
West Virginia, Wisconsin  
Department of the Treasury  
Internal Revenue Service Center  
Kansas City, MO 64999-0013  
Less than $10 million and  
Schedule M-3 isn't filed  
$10 million or more, or  
less than $10 million and  
Schedule M-3 is filed  
Department of the Treasury  
Internal Revenue Service Center  
Ogden, UT 84201-0013  
Alabama, Alaska, Arizona, Arkansas, California,  
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,  
Louisiana, Minnesota, Mississippi, Missouri,  
Montana, Nebraska, Nevada, New Mexico,  
North Dakota, Oklahoma, Oregon, South  
Dakota, Texas, Utah, Washington, Wyoming  
Department of the Treasury  
Internal Revenue Service Center  
Ogden, UT 84201-0013  
Any amount  
Any amount  
Internal Revenue Service Center  
P.O. Box 409101  
A foreign country or U.S. territory  
Ogden, UT 84409  
Use Only” section of the return. It doesn't apply to the firm, if any,  
shown in that section.  
10. Form 8941, Credit for Small Employer Health Insurance  
Premiums.  
11. Form 3800, General Business Credit.  
If the “Yes” box is checked, the corporation is authorizing the  
IRS to call the paid preparer to answer any questions that may  
arise during the processing of its return. The corporation is also  
authorizing the paid preparer to:  
12. Form 8997, Initial and Annual Statement of Qualified  
Opportunity Fund (QOF) Investments.  
13. Form 6252, Installment Sale Income.  
14. Schedule A (Form 8936), Clean Vehicle Credit Amount.  
Give the IRS any information that is missing from the return;  
Call the IRS for information about the processing of the return  
15. Schedules K-1 (Form 1120-S), Shareholder's Share of  
or the status of any related refund or payment(s); and  
Income, Deductions, Credits, etc.  
Respond to certain IRS notices about math errors, offsets,  
16. Form 8938, Statement of Specified Foreign Financial  
Assets.  
17. Additional schedules in alphabetical order, including  
Schedule K-2 (Form 1120-S), Shareholders' Pro Rata Share  
Items—International, and Schedules K-3 (Form 1120-S),  
Shareholder's Share of Income, Deductions, Credits,  
etc.—International.  
and return preparation.  
The corporation isn't authorizing the paid preparer to receive  
any refund check, bind the corporation to anything (including any  
additional tax liability), or otherwise represent the corporation  
before the IRS.  
The authorization will automatically end no later than the due  
date (excluding extensions) for filing the corporation's 2024 tax  
return. If the corporation wants to expand the paid preparer's  
authorization or revoke the authorization before it ends, see Pub.  
947, Practice Before the IRS and Power of Attorney.  
18. Additional forms in numerical order.  
Complete every applicable entry space on Form 1120-S and  
Schedule K-1. Don't enter “See Attached” or “Available Upon  
Request” instead of completing the entry spaces. If more space  
is needed on the forms or schedules, attach separate sheets  
using the same size and format as the printed forms.  
If there are supporting statements and attachments, arrange  
them in the same order as the schedules or forms they support  
and attach them last. Show the totals on the printed forms. Enter  
the corporation's name and EIN on each supporting statement or  
attachment.  
Assembling the Return  
To ensure that the corporation's tax return is correctly processed,  
attach all schedules and other forms after page 5 of Form  
1120-S in the following order.  
1. Schedule N (Form 1120), Foreign Operations of U.S.  
Corporations.  
2. Schedule D (Form 1120-S), Capital Gains and Losses  
and Built-in Gains.  
Tax Payments  
Generally, the corporation must pay any tax due in full no later  
than the due date for filing its tax return (not including  
3. Form 4797, Sales of Business Property.  
4. Form 8949, Sales and Other Dispositions of Capital  
extensions). See the instructions for line 26. If the due date falls  
on a Saturday, Sunday, or legal holiday, the payment is due on  
the next day that isn't a Saturday, Sunday, or legal holiday.  
Assets.  
5. Form 8996, Qualified Opportunity Fund.  
6. Form 8825, Rental Real Estate Income and Expenses of  
Electronic Deposit Requirement  
a Partnership or an S Corporation.  
Corporations must use electronic funds transfers to make all  
federal tax deposits (such as deposits of employment, excise,  
and corporate income tax). Generally, electronic funds transfers  
are made using the Electronic Federal Tax Payment System  
7. Form 1125-A, Cost of Goods Sold.  
8. Form 8050, Direct Deposit of Corporate Tax Refund.  
9. Form 4136, Credit for Federal Tax Paid on Fuels.  
4
Instructions for Form 1120-S (2023)  
         
(EFTPS). However, if the corporation doesn't want to use  
EFTPS, it can arrange for its tax professional, financial  
institution, payroll service, or other trusted third party to make  
deposits on its behalf. Also, it may arrange for its financial  
institution to submit a same-day wire payment (discussed below)  
on its behalf. EFTPS is a free service provided by the  
Department of the Treasury. Services provided by a tax  
professional, financial institution, payroll service, or other third  
party may have a fee.  
Interest and Penalties  
If the corporation receives a notice about penalties after  
it files its return, send the IRS an explanation and we will  
!
CAUTION  
determine if the corporation meets reasonable-cause  
criteria. Don't attach an explanation when the corporation's  
return is filed.  
Interest. Interest is charged on taxes paid late even if an  
extension of time to file is granted. Interest is also charged on  
penalties imposed for failure to file, negligence, fraud, substantial  
valuation misstatements, substantial understatements of tax,  
and reportable transaction understatements from the due date  
(including extensions) to the date of payment. The interest  
charge is figured at a rate determined under section 6621.  
To get more information about EFTPS or to enroll in EFTPS,  
visit www.EFTPS.gov or call 800-555-4477. To contact EFTPS  
using the Telecommunications Relay Services (TRS), for people  
who are deaf, hard of hearing, or have a speech disability, dial  
711 and provide the TRS assistant the 800-555-4477 number  
above or 800-733-4829.  
Late filing of return. A penalty may be assessed if the return is  
filed after the due date (including extensions) or the return  
doesn't show all the information required, unless each failure is  
due to reasonable cause. See Caution, earlier. For returns on  
which no tax is due, the penalty is $235 for each month or part of  
a month (up to 12 months) the return is late or doesn't include  
the required information, multiplied by the total number of  
persons who were shareholders in the corporation during any  
part of the corporation's tax year for which the return is due. If tax  
is due, the penalty is the amount stated above plus 5% of the  
unpaid tax for each month or part of a month the return is late, up  
to a maximum of 25% of the unpaid tax. The minimum penalty  
for a tax return required to be filed in 2024 that is more than 60  
days late is the smaller of the tax due or $485.  
Depositing on time. For any deposit made by EFTPS to be on  
time, the corporation must submit the deposit by 8 p.m. Eastern  
time the day before the date the deposit is due. If the corporation  
uses a third party to make deposits on its behalf, they may have  
different cutoff times.  
Same-day wire payment option. If the corporation fails to  
submit a deposit transaction on EFTPS by 8 p.m. Eastern time  
the day before the date a deposit is due, it can still make its  
deposit on time by using the Federal Tax Collection Service  
(FTCS). To use the same-day wire payment method, the  
corporation will need to make arrangements with its financial  
institution ahead of time regarding availability, deadlines, and  
costs. Financial institutions may charge a fee for payment made  
this way. To learn more about the information the corporation will  
need to provide to its financial institution to make a same-day  
wire payment, go to IRS.gov/SameDayWire.  
Late payment of tax. A corporation that doesn't pay the tax  
when due may generally be penalized 1/2 of 1% of the unpaid tax  
for each month or part of a month the tax isn't paid, up to a  
maximum of 25% of the unpaid tax. The penalty won't be  
imposed if the corporation can show that the failure to pay on  
time was due to reasonable cause. See Caution, earlier.  
Estimated Tax Payments  
Generally, the corporation must make installment payments of  
estimated tax for the following taxes if the total of these taxes is  
$500 or more: (a) the tax on built-in gains, (b) the excess net  
passive income tax, and (c) the investment credit recapture tax,  
each discussed later.  
Failure to furnish information timely. For each failure to  
furnish Schedule K-1 (and Schedule K-3, if applicable) to a  
shareholder when due and each failure to include on  
Schedule K-1 (and Schedule K-3, if applicable) all the  
information required to be shown (or the inclusion of incorrect  
information), a $310 penalty may be imposed with respect to  
each Schedule K-1 (and Schedule K-3, if applicable) for which a  
failure occurs. If the requirement to report correct information is  
intentionally disregarded, each $310 penalty is increased to  
$630 or, if greater, 10% of the aggregate amount of items  
required to be reported. See sections 6722 and 6724 for more  
information.  
The amount of estimated tax required to be paid annually is  
the smaller of (a) the total of the above taxes shown on the return  
for the tax year (or if no return is filed, the total of these taxes for  
the year), or (b) the sum of (i) the investment credit recapture tax  
and the built-in gains tax shown on the return for the tax year (or  
if no return is filed, the total of these taxes for the tax year), and  
(ii) any excess net passive income tax shown on the  
corporation's return for the preceding tax year. If the preceding  
tax year was less than 12 months, the estimated tax must be  
determined under (a).  
The penalty won't be imposed if the corporation can show  
that not furnishing information timely was due to reasonable  
cause. See Caution, earlier.  
The estimated tax is generally payable in four equal  
installments. However, the corporation may be able to lower the  
amount of one or more installments by using the annualized  
income installment method or adjusted seasonal installment  
method under section 6655(e).  
Trust fund recovery penalty. This penalty may apply if certain  
excise, income, social security, and Medicare taxes that must be  
collected or withheld aren't collected or withheld, or these taxes  
aren't paid. These taxes are generally reported on:  
Form 720, Quarterly Federal Excise Tax Return;  
Form 941, Employer's QUARTERLY Federal Tax Return;  
Form 943, Employer's Annual Federal Tax Return for  
For a calendar year corporation, the payments are due for  
2024 by April 15, June 15, September 15, and December 15. For  
a fiscal year corporation, they are due by the 15th day of the 4th,  
6th, 9th, and 12th months of the year. If any date falls on a  
Saturday, Sunday, or legal holiday, the installment is due on the  
next day that isn't a Saturday, Sunday, or legal holiday.  
Agricultural Employees;  
Form 944, Employer's ANNUAL Federal Tax Return; or  
Form 945, Annual Return of Withheld Federal Income Tax.  
The trust fund recovery penalty may be imposed on all  
persons who are determined by the IRS to have been  
The corporation must make the payments using electronic  
funds transfers as described earlier.  
responsible for collecting, accounting for, or paying over these  
taxes, and who acted willfully in not doing so. The penalty is  
equal to the full amount of the unpaid trust fund tax. See the  
Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax  
Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax  
For information on penalties that may apply if the corporation  
fails to make required payments, see the Instructions for Form  
2220.  
5
Instructions for Form 1120-S (2023)  
         
Guide, for details, including the definition of “responsible  
persons.”  
Any other tax year (including a 52-53-week tax year) for which  
the corporation establishes a business purpose.  
Other penalties. Other penalties can be imposed for  
negligence, substantial understatement of tax, reportable  
transaction understatements, and fraud. See sections 6662,  
6662A, and 6663.  
A new S corporation must use Form 2553 to elect a tax year.  
To later change the corporation's tax year, see Form 1128,  
Application To Adopt, Change, or Retain a Tax Year, and its  
instructions (unless the corporation is making an election under  
section 444, discussed next).  
Accounting Methods  
Electing a tax year under section 444. Under the provisions  
of section 444, an S corporation can elect to have a tax year  
other than a required year, but only if the deferral period of the  
tax year isn't longer than the shorter of 3 months or the deferral  
period of the tax year being changed. This election is made by  
filing Form 8716, Election To Have a Tax Year Other Than a  
Required Tax Year.  
An S corporation may not make or continue an election under  
section 444 if it is a member of a tiered structure, other than a  
tiered structure that consists entirely of partnerships and S  
corporations that have the same tax year. For the S corporation  
to have a section 444 election in effect, it must make the  
payments required by section 7519. See Form 8752, Required  
Payment or Refund Under Section 7519.  
Figure income using the method of accounting regularly used in  
keeping the corporation's books and records. The method used  
must clearly reflect income. Permissible methods include cash,  
accrual, or any other method authorized by the Internal Revenue  
Code.  
The following rules apply.  
Generally, an S corporation can't use the cash method of  
accounting if it’s a tax shelter (as defined in section 448(d)(3)).  
See section 448 for details.  
A corporation must use an accrual method for sales and  
purchases of inventory items unless it is a small business  
taxpayer (defined later). See the Form 1125-A instructions. If you  
are a small business taxpayer, you can adopt or change your  
accounting method to account for inventories (i) in the same  
manner as materials and supplies that are non-incidental, or (ii)  
to conform to the taxpayer’s treatment of inventories in an  
applicable financial statement (as defined in section 451(b)(3))  
or, if the taxpayer doesn’t have an applicable financial statement,  
the method of accounting used in the taxpayer’s books and  
records prepared in accordance with the taxpayer’s accounting  
procedures. Generally, IRS consent is required for changes in  
accounting methods. See Rev. Proc. 2018-40 for the procedures  
by which a small business taxpayer may obtain automatic  
consent to change its method of accounting to reflect the  
statutory changes made in this area. Also, see Change in  
A section 444 election ends if an S corporation:  
Changes its accounting period to a calendar year or some  
other permitted year,  
Is penalized for willfully failing to comply with the requirements  
of section 7519, or  
Terminates its S election (unless it immediately becomes a  
personal service corporation).  
If the termination results in a short tax year, enter at the top of  
the first page of Form 1120-S for the short tax year, “SECTION  
444 ELECTION TERMINATED.”  
Rounding Off to Whole Dollars  
The corporation may enter decimal points and cents when  
completing its return. However, the corporation should round off  
cents to whole dollars on its return, forms, and schedules to  
make completing its return easier. The corporation must either  
round off all amounts on its return to whole dollars, or use cents  
for all amounts. To round, drop amounts under 50 cents and  
increase amounts from 50 to 99 cents to the next dollar. For  
example, $8.40 rounds to $8 and $8.50 rounds to $9.  
Special rules apply to long-term contracts. See section 460.  
Generally, dealers in securities must use the mark-to-market  
accounting method. Dealers in commodities and traders in  
securities and commodities can elect to use the mark-to-market  
accounting method. See section 475.  
Small business taxpayer. A small business taxpayer is a  
taxpayer that (a) has average annual gross receipts of $29  
million or less for the 3 prior tax years, and (b) isn’t a tax shelter  
(as defined in section 448(d)(3)).  
If two or more amounts must be added to figure the amount to  
enter on a line, include cents when adding the amounts and  
round off only the total.  
Change in accounting method. Generally, the corporation  
must get IRS consent to change either an overall method of  
accounting or the accounting treatment of any material item for  
income tax purposes. To obtain consent, the corporation must  
generally file Form 3115, Application for Change in Accounting  
Method, during the tax year for which the change is requested.  
See the Instructions for Form 3115 and Pub. 538, Accounting  
Periods and Methods, for more information and exceptions. See  
also the Instructions for Form 3115 for procedures that may  
apply for obtaining automatic consent to change certain  
methods of accounting, non-automatic change procedures, and  
reduced Form 3115 filing requirements.  
Recordkeeping  
Keep the corporation's records for as long as they may be  
needed for the administration of any provision of the Internal  
Revenue Code. Usually, records that support an item of income,  
deduction, or credit on the return must be kept for 3 years from  
the date each shareholder's return is due or filed, whichever is  
later. Keep records that verify the corporation's basis in property  
for as long as they are needed to figure the basis of the original  
or replacement property.  
The corporation should keep copies of all filed returns. They  
help in preparing future and amended returns.  
Accounting Period  
A corporation must figure its income on the basis of a tax year. A  
tax year is the annual accounting period a corporation uses to  
keep its records and report its income and expenses.  
Amended Return  
To correct a previously filed Form 1120-S, file an amended Form  
1120-S and check box H(4) on page 1. Attach a statement that  
identifies the line number of each amended item, the corrected  
amount or treatment of the item, and an explanation of the  
reasons for each change.  
An S corporation must use one of the following tax years.  
A tax year ending December 31.  
A natural business year.  
An ownership tax year.  
A tax year elected under section 444.  
A 52-53-week tax year that ends with reference to a year  
If the income, deductions, credits, or other information  
provided to any shareholder on Schedule K-1 or K-3 is incorrect,  
file an amended Schedule K-1 or K-3 (Form 1120-S) for that  
listed above.  
6
Instructions for Form 1120-S (2023)  
           
shareholder with the amended Form 1120-S. Also give a copy of  
the amended Schedule K-1 or K-3 to that shareholder. Check  
the “Amended K-1” or “Amended K-3” box at the top of the  
Schedule K-1 or K-3 to indicate that it is an amended  
Schedule K-1 or K-3.  
Election to reduce basis under section 362(e)(2)(C). If  
property is transferred to a corporation subject to section 362(e)  
(2), the transferor and the acquiring corporation may elect, under  
section 362(e)(2)(C), to reduce the transferor's basis in the stock  
received instead of reducing the acquiring corporation's basis in  
the property transferred. Once made, the election is irrevocable.  
For more information, see section 362(e)(2) and Regulations  
section 1.362-4. If an election is made, a statement must be filed  
in accordance with Regulations section 1.362-4(d)(3).  
A change to the corporation's federal return may affect its  
state return. This includes changes made as the result of an IRS  
examination. For more information, contact the state tax agency  
for the state(s) in which the corporation's return was filed.  
Regulations section 1.1411-10(g) (section 1411 election  
with respect to CFCs and QEFs). A corporation that directly  
or indirectly owns stock of a controlled foreign corporation (CFC)  
(within the meaning of section 953(c)(1)(B) or section 957(a)) or  
a passive foreign investment company (within the meaning of  
section 1297(a)) that the corporation treats as a qualified  
electing fund (QEF) under section 1293 may make the election  
provided in Regulations section 1.1411-10(g). The election must  
be made no later than the first tax year beginning after 2013  
during which the corporation (i) includes an amount in gross  
income for chapter 1 purposes under section 951(a) or section  
1293(a) for the CFC or QEF, and (ii) has a direct or indirect  
owner that is subject to tax under section 1411 or would have  
been if the election were made. This election must be made on  
an entity-by-entity basis, and applies only to the particular CFCs  
and QEFs for which an election is made. In general, for purposes  
of section 1411, if an election is in effect for a CFC or QEF, the  
amounts included in income under section 951 and section 1293  
derived from the CFC or QEF are included in net investment  
income, and distributions described in section 959(d) or section  
1293(c) are excluded from net investment income. Additionally, if  
the corporation elected to be treated as owning stock of a foreign  
corporation within the meaning of section 958(a) under  
Other Forms and Statements That  
May Be Required  
Reportable transaction disclosure statement. Disclose  
information for each reportable transaction in which the  
corporation participated. Form 8886, Reportable Transaction  
Disclosure Statement, must be filed for each tax year the  
corporation participated in the transaction. The corporation may  
have to pay a penalty if it is required to file Form 8886 and  
doesn't do so. The following are reportable transactions.  
1. Any listed transaction, which is a transaction that is the  
same as or substantially similar to one of the types of  
transactions that the IRS has determined to be a tax avoidance  
transaction and identified by notice, regulation, or other  
published guidance as a listed transaction.  
2. Any transaction offered under conditions of confidentiality  
for which the corporation (or a related party) paid an advisor a  
fee of at least $50,000.  
3. Certain transactions for which the corporation (or a  
related party) has contractual protection against disallowance of  
the tax benefits.  
4. Certain transactions resulting in a loss of at least $2  
million in any single year or $4 million in any combination of  
years.  
Proposed Regulations section 1.958-1(e)(2), and an election  
under Regulations section 1.1411-10(g) is in effect for a CFC,  
the amount of global intangible low-taxed income included in  
income under section 951A is included in net investment income  
to the extent that it is allocated to the CFC under section 951A(f)  
(2). An election that is made under Regulations section  
5. Any transaction identified by the IRS by notice, regulation,  
or other published guidance as a “transaction of interest.”  
1.1411-10(g) can't be revoked. For more information regarding  
this election, see Regulations section 1.1411-10(g).  
For more information, see Regulations section 1.6011-4. Also  
see the Instructions for Form 8886.  
The election must be made in a statement that is filed with the  
corporation's original or amended return for the tax year in which  
the election is made. An election can be made on an amended  
return only if the tax year for which the election is made, and all  
tax years affected by the election, aren't closed by the period of  
limitations on assessments under section 6501. The statement  
must include:  
Penalties. The corporation may have to pay a penalty if it is  
required to disclose a reportable transaction under section 6011  
and fails to properly complete and file Form 8886. Penalties may  
also apply under section 6707A if the corporation fails to file  
Form 8886 with its corporate return, fails to provide a copy of  
Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a  
form that fails to include all the information required (or includes  
incorrect information). Other penalties, such as an  
The name and EIN of the corporation making the election;  
A declaration that all of its shareholders consent to each  
accuracy-related penalty under section 6662A, may also apply.  
See the Instructions for Form 8886 for details on these and other  
penalties.  
election made in the statement;  
A declaration that the corporation elects under Regulations  
section 1.1411-10(g) to apply the rules in Regulations section  
1.1411-10(g) to the CFCs and QEFs identified in the statement;  
and  
Reportable transactions by material advisors. Material  
advisors to any reportable transaction must disclose certain  
information about the reportable transaction by filing Form 8918,  
Material Advisor Disclosure Statement, with the IRS. For details,  
see the Instructions for Form 8918.  
The following information for each CFC and QEF for which an  
election is made (i) the name of the CFC or QEF; and (ii) either  
the EIN of the CFC or QEF, or, if the CFC or QEF doesn't have an  
EIN, the reference ID number of the CFC or QEF.  
Transfers to a corporation controlled by the transferor.  
Every significant transferor (as defined in Regulations section  
1.351-3(d)) that receives stock of a corporation in exchange for  
property in a nonrecognition event must include the statement  
required by Regulations section 1.351-3(a) on or with the  
transferor's tax return for the tax year of the exchange. The  
transferee corporation must include the statement required by  
Regulations section 1.351-3(b) on or with its return for the tax  
year of the exchange, unless all the required information is  
included in any statement(s) provided by a significant transferor  
that is attached to the same return for the same section 351  
exchange.  
In addition, for each CFC or QEF held by the corporation for  
which an election under Regulations section 1.1411-10(g) has  
already been made by the corporation, the statement should  
include (i) the name of the CFC or QEF; and (ii) either the EIN of  
the CFC or QEF, or, if the CFC or QEF doesn't have an EIN, the  
reference ID number of the CFC or QEF.  
Annual information reporting by specified domestic enti-  
ties under section 6038D. Certain domestic corporations that  
are formed or availed of to hold specified foreign financial assets  
(“specified domestic entities”) must file Form 8938, Statement of  
7
Instructions for Form 1120-S (2023)  
   
Specified Foreign Financial Assets. Form 8938 must be filed  
each year the value of the corporation's specified foreign  
financial assets meets or exceeds the reporting threshold. For  
more information on domestic corporations that are specified  
domestic entities and the types of foreign financial assets that  
must be reported, see the Instructions for Form 8938, generally,  
and in particular, Who Must File, Specified Domestic Entity,  
Types of Reporting Thresholds, Specified Foreign Financial  
Assets, Interests in Specified Foreign Financial Assets, Assets  
Not Required To Be Reported, and Exceptions to Reporting.  
In addition, a domestic corporation required to file Form 8938  
with its Form 1120-S for the tax year should check “Yes” to  
Schedule N (Form 1120), question 8, and also include that  
schedule with its Form 1120-S.  
Aggregation of Activities  
Activities described in (6) under Activities Covered by the At-Risk  
Rules, earlier, that constitute a trade or business are treated as  
one activity if:  
You actively participate in the management of the trade or  
business, or  
The trade or business is carried on by a partnership or S  
corporation and 65% or more of its losses for the tax year are  
allocable to persons who actively participate in the management  
of the trade or business.  
Similar rules apply to activities described in (1) through (5) of  
that earlier discussion. For more information, see Pub. 925. If  
you aggregate your activities under these rules for section 465  
purposes, check the appropriate box in item J.  
Certification as a qualified opportunity fund. If the  
corporation is organized to invest in qualified opportunity zone  
property, it must attach Form 8996 to Form 1120-S to self-certify  
as a QOF. In addition, the corporation files Form 8996 annually  
to report that the QOF meets the investment standard of section  
1400Z-2 or to figure the penalty if it fails to meet the investment  
standard. The corporation must also complete line 15 of  
Schedule B. For more information, see the Instructions for Form  
8996.  
At-Risk Activity Reporting Requirements  
If the corporate items of income, loss, or deduction reported on  
Schedule K-1 are from more than one activity covered by the  
at-risk rules, the corporation must report information separately  
for each activity.  
The following information must be provided on an attachment  
to Schedule K-1 for each activity.  
A statement that the information is a breakdown of the items  
Qualified opportunity fund investment. If the corporation  
deferred a capital gain in a qualified opportunity fund (QOF), the  
corporation must file its return with Schedule D (Form 1120-S),  
Form 8949, and Form 8997 attached. The corporation will need  
to file Form 8997 annually until it disposes of the investment. See  
the instructions for Form 8997 for details.  
of income, loss, or deduction by at-risk activity.  
The identity of the at-risk activity; the items of income, loss, or  
deduction for the activity; other items of income, loss, or  
deduction; and any other information that relates to the activity  
(that is, distributions, shareholder loans, etc.).  
Form 8975, Country-by-Country Report. Certain U.S.  
persons that are the ultimate parent entity of a U.S. multinational  
enterprise group with annual revenue for the preceding reporting  
period of $850 million or more are required to file Form 8975. For  
more information, see the Instructions for Form 8975.  
Passive Activity Limitations  
In general, section 469 limits the amount of losses, deductions,  
and credits that shareholders can claim from “passive activities.”  
The passive activity limitations don't apply to the corporation.  
Instead, they apply to each shareholder's share of any income or  
loss and credit attributable to a passive activity. Because the  
treatment of each shareholder's share of corporate income or  
loss and credit depends on the nature of the activity that  
generated it, the corporation must report income or loss and  
credits separately for each activity.  
Other forms and statements. See Pub. 542, Corporations, for  
a list of other forms and statements a corporation may need to  
file in addition to the forms and statements discussed throughout  
these instructions.  
At-Risk Limitations  
The following instructions and the instructions for Schedules  
K and K-1, later, explain the applicable passive activity limitation  
rules and specify the type of information the corporation must  
provide to its shareholders for each activity. If the corporation  
had more than one activity, it must report information for each  
activity on an attachment to Schedules K and K-1.  
In general, section 465 limits the amount of deductible net losses  
shareholders can claim from certain activities. The at-risk  
limitations don't apply to the corporation, but instead apply to  
each shareholder's share of net losses attributable to each  
activity. Because the treatment of each shareholder's share of  
corporate net losses depends on the nature of the activity that  
generated it, the corporation must report the items of income,  
loss, and deduction separately for each activity. See Pub. 925,  
Passive Activity and At-Risk Rules, for additional information.  
Generally, passive activities include (a) activities that involve  
the conduct of a trade or business if the shareholder doesn't  
materially participate in the activity, and (b) all rental activities  
(defined later) regardless of the shareholder's participation. For  
The level of each shareholder's participation in an activity must  
be determined by the shareholder.  
Activities Covered by the At-Risk Rules  
If the S corporation is involved in one of the following activities as  
a trade or business or for the production of income, the  
shareholder may be subject to the at-risk rules.  
The passive activity rules provide that losses and credits from  
passive activities can generally be applied only against income  
and tax (respectively) from passive activities. Thus, passive  
losses can't be applied against income from salaries, wages,  
professional fees, or a business in which the shareholder  
materially participates or against “portfolio income” (defined  
later). Passive credits can't be applied against the tax related to  
any of these types of income.  
1. Holding, producing, or distributing motion picture films or  
video tapes.  
2. Farming.  
3. Leasing section 1245 property, including personal  
property and certain other tangible property that is depreciable  
or amortizable.  
4. Exploring for, or exploiting, oil and gas.  
Special rules require that net income from certain activities  
that would otherwise be treated as passive income must be  
recharacterized as nonpassive income for purposes of the  
passive activity limitations. See Recharacterization of Passive  
Income, later.  
5. Exploring for, or exploiting, geothermal deposits (for wells  
started after September 1978).  
6. Any other activity not included in (1) through (5) that is  
carried on as a trade or business or for the production of income.  
8
Instructions for Form 1120-S (2023)  
           
To allow each shareholder to correctly apply the passive  
activity limitations, the corporation must report income or loss  
and credits separately by activity for each of the following.  
Each shareholder must determine if he or she materially  
participated in an activity. As a result, while the corporation's  
ordinary business income (loss) is reported on page 1 of Form  
1120-S, the specific income and deductions from each separate  
trade or business activity must be reported on attachments to  
Form 1120-S. Similarly, while each shareholder's allocable share  
of the corporation's ordinary business income (loss) is reported  
in box 1 of Schedule K-1, each shareholder's allocable share of  
the income and deductions from each trade or business activity  
must be reported on statements attached to each Schedule K-1.  
information.  
Trade or business activities.  
Rental real estate activities.  
Rental activities other than rental real estate.  
Portfolio income.  
Activities That Are Not Passive Activities  
The following aren't passive activities.  
1. Trade or business activities in which the shareholder  
materially participated for the tax year.  
2. Any rental real estate activity in which the shareholder  
materially participated if the shareholder met both of the  
following conditions for the tax year.  
a. More than half of the personal services the shareholder  
performed in trades or businesses were performed in real  
property trades or businesses in which the shareholder  
materially participated.  
b. The shareholder performed more than 750 hours of  
services in real property trades or businesses in which the  
shareholder materially participated.  
For purposes of this rule, each interest in rental real estate is  
a separate activity unless the shareholder elects to treat all  
interests in rental real estate as one activity.  
If the shareholder is married filing jointly, either the  
shareholder or the shareholder’s spouse must separately meet  
both of the above conditions, without taking into account  
services performed by the other spouse.  
A real property trade or business is any real property  
development, redevelopment, construction, reconstruction,  
acquisition, conversion, rental, operation, management, leasing,  
or brokerage trade or business. Services the shareholder  
performed as an employee aren't treated as performed in a real  
property trade or business unless the shareholder owned more  
than 5% of the stock in the employer.  
Rental Activities  
Generally, except as noted below, if the gross income from an  
activity consists of amounts paid principally for the use of real or  
personal tangible property held by the corporation, the activity is  
a rental activity.  
There are several exceptions to this general rule. Under these  
exceptions, an activity involving the use of real or personal  
tangible property isn't a rental activity if any of the following  
apply.  
The average period of customer use (defined later) for such  
property is 7 days or less.  
The average period of customer use for such property is 30  
days or less and significant personal services (defined later) are  
provided by or on behalf of the corporation.  
Extraordinary personal services (defined later) are provided  
by or on behalf of the corporation.  
The rental of such property is treated as incidental to a  
nonrental activity of the corporation under Regulations section  
1.469-1(e)(3)(vi).  
The corporation customarily makes the property available  
during defined business hours for nonexclusive use by various  
customers.  
The corporation provides property for use in a nonrental  
activity of a partnership in its capacity as an owner of an interest  
in such partnership. Whether the corporation provides property  
used in an activity of a partnership in the corporation's capacity  
as an owner of an interest in the partnership is determined on  
the basis of all the facts and circumstances.  
3. The rental of a dwelling unit used by a shareholder for  
personal purposes during the year for more than the greater of  
14 days or 10% of the number of days that the residence was  
rented at fair rental value.  
In addition, a guaranteed payment described in section  
707(c) is never income from a rental activity.  
4. An activity of trading personal property for the account of  
owners of interests in the activity. For purposes of this rule,  
personal property means property that is actively traded, such as  
stocks, bonds, and other securities. See Temporary Regulations  
section 1.469-1T(e)(6).  
Average period of customer use. Figure the average period  
of customer use for a class of property by dividing the total  
number of days in all rental periods by the number of rentals  
during the tax year. If the activity involves renting more than one  
class of property, multiply the average period of customer use of  
each class by the ratio of the gross rental income from that class  
to the activity's total gross rental income. The activity's average  
period of customer use equals the sum of these class-by-class  
average periods weighted by gross income. See Regulations  
section 1.469-1(e)(3)(iii).  
The section 469(c)(3) exception for a working interest in  
oil and gas properties doesn't apply to an S corporation  
because state law generally limits the liability of  
TIP  
shareholders.  
Trade or Business Activities  
A trade or business activity is an activity (other than a rental  
activity or an activity treated as incidental to an activity of holding  
property for investment) that:  
Significant personal services. Personal services include only  
services performed by individuals. To determine if personal  
services are significant personal services, consider all the  
relevant facts and circumstances. Relevant facts and  
circumstances include:  
1. Involves the conduct of a trade or business (within the  
meaning of section 162),  
2. Is conducted in anticipation of starting a trade or  
business, or  
How often the services are provided,  
The type and amount of labor required to perform the  
services, and  
3. Involves research or experimental expenditures under  
The value of the services in relation to the amount charged for  
section 174.  
use of the property.  
If the shareholder doesn't materially participate in the activity,  
a trade or business activity of the corporation is a passive activity  
for the shareholder.  
The following services aren't considered in determining  
whether personal services are significant.  
Services necessary to permit the lawful use of the rental  
property.  
9
Instructions for Form 1120-S (2023)  
   
Services performed in connection with improvements or  
estate activities on lines 13c and 13d of Schedule K (box 13,  
codes E and F, of Schedule K-1) and low-income housing credits  
on lines 13a and 13b of Schedule K (box 13, codes C and D of  
Schedule K-1).  
Report income (loss) from rental activities other than rental  
real estate on line 3 of Schedule K and credits related to rental  
activities other than rental real estate on line 13e of Schedule K  
and in box 13, code G, of Schedule K-1.  
repairs to the rental property that extend the useful life of the  
property substantially beyond the average rental period.  
Services provided in connection with the use of any improved  
real property that are similar to those commonly provided in  
connection with long-term rentals of high-grade commercial or  
residential property. Examples include cleaning and  
maintenance of common areas, routine repairs, trash collection,  
elevator service, and security at entrances.  
Portfolio Income  
Extraordinary personal services. Services provided in  
connection with making rental property available for customer  
use are extraordinary personal services only if the services are  
performed by individuals and the customers' use of the rental  
property is incidental to their receipt of the services.  
For example, a patient's use of a hospital room is generally  
incidental to the care received from the hospital's medical staff.  
Similarly, a student's use of a dormitory room in a boarding  
school is incidental to the personal services provided by the  
school's teaching staff.  
Generally, portfolio income includes all gross income, other than  
income derived in the ordinary course of a trade or business,  
that is attributable to interest; dividends; royalties; income from a  
real estate investment trust, a regulated investment company, a  
real estate mortgage investment conduit, a common trust fund, a  
controlled foreign corporation, a qualified electing fund, or a  
cooperative; income from the disposition of property that  
produces income of a type defined as portfolio income; and  
income from the disposition of property held for investment. See  
Self-Charged Interest, later, for an exception.  
Rental activity incidental to a nonrental activity. An activity  
isn't a rental activity if the rental of the property is incidental to a  
nonrental activity, such as the activity of holding property for  
investment, a trade or business activity, or the activity of dealing  
in property.  
Solely for purposes of the preceding paragraph, gross  
income derived in the ordinary course of a trade or business  
includes (and portfolio income, therefore, doesn't include) the  
following types of income.  
Interest income on loans and investments made in the  
Rental of property is incidental to an activity of holding  
ordinary course of a trade or business of lending money.  
property for investment if both of the following apply.  
Interest on accounts receivable arising from the performance  
The main purpose for holding the property is to realize a gain  
of services or the sale of property in the ordinary course of a  
trade or business of performing such services or selling such  
property, but only if credit is customarily offered to customers of  
the business.  
from the appreciation of the property.  
The gross rental income from such property for the tax year is  
less than 2% of the smaller of the property's unadjusted basis or  
its fair market value (FMV).  
Income from investments made in the ordinary course of a  
Rental of property is incidental to a trade or business activity  
trade or business of furnishing insurance or annuity contracts or  
reinsuring risks underwritten by insurance companies.  
if all of the following apply.  
The corporation owns an interest in the trade or business at all  
Income or gain derived in the ordinary course of an activity of  
times during the year.  
trading or dealing in any property if such activity constitutes a  
trade or business (unless the dealer held the property for  
investment at any time before such income or gain is  
recognized).  
The rental property was mainly used in the trade or business  
activity during the tax year or during at least 2 of the 5 preceding  
tax years.  
The gross rental income from the property for the tax year is  
Royalties derived by the taxpayer in the ordinary course of a  
less than 2% of the smaller of the property's unadjusted basis or  
its FMV.  
trade or business of licensing intangible property.  
Amounts included in the gross income of a patron of a  
cooperative by reason of any payment or allocation to the patron  
based on patronage occurring with respect to a trade or  
business of the patron.  
If the corporation sells or exchanges property that is also  
rented during the tax year (in which the gain or loss is  
recognized), the rental is treated as incidental to the activity of  
dealing in property if, at the time of the sale or exchange, the  
property was held primarily for sale to customers in the ordinary  
course of the corporation's trade or business.  
See Temporary Regulations section 1.469-1T(e)(3) and  
Regulations section 1.469-1(e)(3) for more information on the  
definition of rental activities for purposes of the passive activity  
limitations.  
Other income identified by the IRS as income derived by the  
taxpayer in the ordinary course of a trade or business.  
See Temporary Regulations section 1.469-2T(c)(3) for more  
information on portfolio income.  
Report portfolio income and related deductions on  
Schedule K rather than on page 1 of Form 1120-S.  
Reporting of rental activities. In reporting the corporation's  
income or losses and credits from rental activities, the  
corporation must separately report rental real estate activities  
and rental activities other than rental real estate activities.  
Shareholders who actively participate in a rental real estate  
activity may be able to deduct part or all of their rental real estate  
losses (and the deduction equivalent of rental real estate credits)  
against income (or tax) from nonpassive activities. Generally, the  
combined amount of rental real estate losses and the deduction  
equivalent of rental real estate credits from all sources (including  
rental real estate activities not held through the corporation) that  
may be claimed is limited to $25,000.  
Self-Charged Interest  
Certain self-charged interest income and deductions may be  
treated as passive activity gross income and passive activity  
deductions if the loan proceeds are used in a passive activity.  
Generally, self-charged interest income and deductions result  
from loans between the corporation and its shareholders.  
Self-charged interest also occurs in loans between the  
corporation and another S corporation or partnership if each  
owner in the borrowing entity has the same proportional  
ownership interest in the lending entity.  
The self-charged interest rules don't apply to a shareholder's  
interest in an S corporation if the S corporation makes an  
election under Regulations section 1.469-7(g) to avoid the  
application of these rules. To make the election, the S  
Report rental real estate activity income (loss) on Form 8825  
and line 2 of Schedule K and box 2 of Schedule K-1, rather than  
on page 1 of Form 1120-S. Report credits related to rental real  
corporation must attach to its original or amended Form 1120-S  
10  
Instructions for Form 1120-S (2023)  
   
a statement that includes the name, address, EIN of the S  
corporation, and a declaration that the election is being made  
under Regulations section 1.469-7(g). The election will apply to  
the tax year for which it was made and all subsequent tax years.  
Once made, the election can only be revoked with the consent of  
the IRS.  
461(k)(4)) if that other activity is holding, producing, or  
distributing motion picture films or videotapes; farming; leasing  
section 1245 property; or exploring for or exploiting oil and gas  
resources or geothermal deposits.  
Activities conducted through partnerships. Once a  
partnership determines its activities under these rules, the  
corporation as a partner can use these rules to group those  
activities with:  
For more details on the self-charged interest rules, see  
Regulations section 1.469-7.  
Each other,  
Grouping Activities  
Activities conducted directly by the corporation, or  
Activities conducted through other partnerships.  
Generally, one or more trade or business or rental activities may  
be treated as a single activity if the activities make up an  
appropriate economic unit for measurement of gain or loss under  
the passive activity rules. Whether activities make up an  
appropriate economic unit depends on all the relevant facts and  
circumstances. The factors given the greatest weight in  
determining whether activities make up an appropriate economic  
unit are:  
The corporation can't treat as separate activities those  
activities grouped together by a partnership.  
Recharacterization of Passive Income  
Under Temporary Regulations section 1.469-2T(f) and  
Regulations section 1.469-2(f), net passive income from certain  
passive activities must be treated as nonpassive income. Net  
passive income is the excess of an activity's passive activity  
gross income over its passive activity deductions (current year  
deductions and prior year unallowed losses).  
Similarities and differences in types of trades or businesses,  
The extent of common control,  
The extent of common ownership,  
Geographical location, and  
Reliance between or among the activities.  
Any net passive income recharacterized as nonpassive  
income is treated as investment income for purposes of figuring  
investment interest expense limitations if it is from (a) an activity  
of renting substantially nondepreciable property from an  
equity-financed lending activity, or (b) an activity related to an  
interest in a pass-through entity that licenses intangible property.  
Example. The corporation has a significant ownership  
interest in a bakery and a movie theater in Baltimore and a  
bakery and a movie theater in Philadelphia. Depending on the  
relevant facts and circumstances, there may be more than one  
reasonable method for grouping the corporation's activities. For  
instance, the following groupings may or may not be permissible.  
The amount of income from the activities in items (1) through  
(3) below that any shareholder will be required to recharacterize  
as nonpassive income may be limited under Temporary  
Regulations section 1.469-2T(f)(8). Because the corporation  
won't have information regarding all of a shareholder's activities,  
it must identify all corporate activities meeting the definitions in  
items (2) and (3) as activities that may be subject to  
recharacterization.  
A single activity.  
A movie theater activity and a bakery activity.  
A Baltimore activity and a Philadelphia activity.  
Four separate activities.  
Once the corporation chooses a grouping under these rules,  
it must continue using that grouping in later tax years unless  
either:  
The corporation determines that the original grouping was  
Income from the following six sources is subject to  
recharacterization.  
clearly inappropriate, or  
A material change in the facts and circumstances makes that  
grouping clearly inappropriate.  
1. Significant participation passive activities. A  
significant participation passive activity is any trade or business  
activity in which the shareholder participated for more than 100  
hours during the tax year but didn't materially participate.  
Because each shareholder must determine the shareholder's  
level of participation, the corporation won't be able to identify  
significant participation passive activities.  
2. Certain nondepreciable rental property activities.  
Net passive income from a rental activity is nonpassive income if  
less than 30% of the unadjusted basis of the property used or  
held for use by customers in the activity is subject to  
depreciation under section 167.  
3. Passive equity-financed lending activities. If the  
corporation has net income from a passive equity-financed  
lending activity, the smaller of the net passive income or the  
equity-financed interest income from the activity is nonpassive  
income.  
4. Rental of property incidental to a development  
activity. Net rental activity income is the excess of passive  
activity gross income from renting or disposing of property over  
passive activity deductions (current year deductions and prior  
year unallowed losses) that are reasonably allocable to the  
rented property. Net rental activity income is nonpassive income  
for a shareholder if all of the following apply.  
The IRS may regroup the corporation's activities if the  
corporation's grouping isn't an appropriate economic unit and  
one of the primary purposes for the grouping (or failure to  
regroup as required under Regulations section 1.469-4(e)) is to  
avoid the passive activity limitations. If you group your activities  
under these rules for section 469 purposes, check the  
appropriate box in item J.  
Limitation on grouping certain activities. The following  
activities may not be grouped together.  
1. A rental activity with a trade or business activity unless  
the activities being grouped together make up an appropriate  
economic unit and:  
a. The rental activity is insubstantial relative to the trade or  
business activity or vice versa; or  
b. Each owner of the trade or business activity has the same  
proportionate ownership interest in the rental activity. If so, the  
portion of the rental activity involving the rental of property to be  
used in the trade or business activity can be grouped with the  
trade or business activity.  
2. An activity involving the rental of real property with an  
activity involving the rental of personal property (except personal  
property provided in connection with the real property or vice  
versa).  
a. The corporation recognizes gain from the sale, exchange,  
or other disposition of the rental property during the tax year.  
3. Any activity with another activity in a different type of  
business and in which the corporation holds an interest as a  
limited partner or as a limited entrepreneur (as defined in section  
b. The use of the item of property in the rental activity  
started less than 12 months before the date of disposition. The  
11  
Instructions for Form 1120-S (2023)  
   
use of an item of rental property begins on the first day on which  
(a) the corporation owns an interest in the property, (b)  
substantially all of the property is either rented or held out for rent  
and ready to be rented, and (c) no significant value-enhancing  
services remain to be performed.  
c. The shareholder materially or significantly participated for  
any tax year in an activity that involved performing services to  
enhance the value of the property (or any other item of property,  
if the basis of the property disposed of is determined in whole or  
in part by reference to the basis of that item of property).  
a. Identify the activity in which the property was used at the  
time of disposition;  
b. If the property was used in more than one activity during  
the 12 months preceding the disposition, identify the activities in  
which the property was used and the adjusted basis allocated to  
each activity; and  
c. For gains only, if the property was substantially  
appreciated at the time of the disposition and the applicable  
holding period specified in Regulations section 1.469-2(c)(2)(iii)  
(A) wasn't satisfied, identify the amount of the nonpassive gain  
and indicate whether or not the gain is investment income under  
Regulations section 1.469-2(c)(2)(iii)(F).  
7. Specify the amount of gross portfolio income, the interest  
expense properly allocable to portfolio income, and expenses  
other than interest expense that are clearly and directly allocable  
to portfolio income.  
Because the corporation can't determine a shareholder's level  
of participation, the corporation must identify net income from  
property described above (without regard to the shareholder's  
level of participation) as income that may be subject to  
recharacterization.  
5. Rental of property to a nonpassive activity. If a  
taxpayer rents property to a trade or business activity in which  
the taxpayer materially participates, the taxpayer's net rental  
activity income (defined in item (4)) from the property is  
nonpassive income.  
6. Acquisition of an interest in a pass-through entity  
that licenses intangible property. Generally, net royalty  
income from intangible property is nonpassive income if the  
taxpayer acquired an interest in the pass-through entity after the  
pass-through entity created the intangible property or performed  
substantial services or incurred substantial costs in developing  
or marketing the intangible property. Net royalty income is the  
excess of passive activity gross income from licensing or  
transferring any right in intangible property over passive activity  
deductions (current year deductions and prior year unallowed  
losses) that are reasonably allocable to the intangible property.  
See Temporary Regulations section 1.469-2T(f)(7)(iii) for  
exceptions to this rule.  
8. Identify the ratable portion of any section 481 adjustment  
(whether a net positive or a net negative adjustment) allocable to  
each corporate activity.  
9. Identify any gross income from sources specifically  
excluded from passive activity gross income, including:  
a. Income from intangible property, if the shareholder is an  
individual whose personal efforts significantly contributed to the  
creation of the property;  
b. Income from state, local, or foreign income tax refunds;  
and  
c. Income from a covenant not to compete, if the  
shareholder is an individual who contributed the covenant to the  
corporation.  
10. Identify any deductions that aren't passive activity  
deductions.  
11. If the corporation makes a full or partial disposition of its  
interest in another entity, identify the gain (loss) allocable to each  
activity conducted through the entity, and the gain allocable to a  
passive activity that would have been recharacterized as  
nonpassive gain had the corporation disposed of its interest in  
property used in the activity (because the property was  
substantially appreciated at the time of the disposition, and the  
gain represented more than 10% of the shareholder's total gain  
from the disposition).  
Passive Activity Reporting Requirements  
To allow shareholders to correctly apply the passive activity loss  
and credit limitation rules, the corporation must do the following.  
1. If the corporation carries on more than one activity,  
provide an attached statement for each activity conducted  
through the corporation that identifies the type of activity  
conducted (trade or business, rental real estate, or rental activity  
other than rental real estate). See Grouping Activities, earlier.  
2. The attachment(s) must identify each group. The  
attached group activity description must be sufficient for the  
shareholders to determine if their other activities qualify to be  
added to any groups provided by the corporation.  
12. Identify the following items from activities that may be  
subject to the recharacterization rules (see Recharacterization of  
Passive Income, earlier).  
a. Net income from an activity of renting substantially  
nondepreciable property.  
3. On the attached statement for each activity, provide a  
statement using the same box numbers as shown on  
Schedule K-1 and detailing the net income (loss), credits, and all  
items required to be separately stated under section 1366(a)(1)  
from each trade or business activity, from each rental real estate  
activity, from each rental activity other than a rental real estate  
activity, and from investments.  
4. Identify the net income (loss) and the shareholder's share  
of corporation interest expense from each activity of renting a  
dwelling unit that any shareholder uses for personal purposes  
during the year for more than the greater of 14 days or 10% of  
the number of days that the residence is rented at fair rental  
value.  
5. Identify the net income (loss) and the shareholder's share  
of interest expense from each activity of trading personal  
property conducted through the corporation.  
6. For any gain (loss) from the disposition of an interest in an  
activity or of an interest in property used in an activity (including  
dispositions before 1987 from which gain is being recognized  
after 1986):  
b. The smaller of equity-financed interest income or net  
passive income from an equity-financed lending activity.  
c. Net rental activity income from property developed (by the  
shareholder or the corporation), rented, and sold within 12  
months after the rental of the property commenced.  
d. Net rental activity income from the rental of property by  
the corporation to a trade or business activity in which the  
shareholder had an interest (either directly or indirectly).  
e. Net royalty income from intangible property if the  
shareholder acquired the shareholder's interest in the  
corporation after the corporation created the intangible property  
or performed substantial services, or incurred substantial costs  
in developing or marketing the intangible property.  
13. Identify separately the credits from each activity  
conducted by or through the corporation.  
14. Identify the shareholder's pro rata share of the  
corporation's self-charged interest income or expense (see  
Self-Charged Interest, earlier).  
12  
Instructions for Form 1120-S (2023)  
 
a. Loans between a shareholder and the corporation.  
Identify the lending or borrowing shareholder's share of the  
self-charged interest income or expense. If the shareholder  
made the loan to the corporation, also identify the activity in  
which the loan proceeds were used. If the proceeds were used  
in more than one activity, allocate the interest to each activity  
based on the amount of the proceeds used in each activity.  
Specific Instructions  
Period Covered  
File the 2023 return for calendar year 2023 and fiscal years that  
begin in 2023 and end in 2024. For a fiscal or short tax year  
return, fill in the tax year space at the top of the form.  
b. Loans between the corporation and another S  
corporation or partnership. If the corporation's shareholders  
have the same proportional ownership interest in the corporation  
and the other S corporation or partnership, identify each  
shareholder's share of the interest income or expense from the  
loan. If the corporation was the borrower, also identify the activity  
in which the loan proceeds were used. If the proceeds were  
used in more than one activity, allocate the interest to each  
activity based on the amount of the proceeds used in each  
activity.  
The 2023 Form 1120-S can also be used if:  
The corporation has a tax year of less than 12 months that  
begins and ends in 2024, and  
The 2024 Form 1120-S isn't available at the time the  
corporation is required to file its return.  
The corporation must show its 2024 tax year on the 2023  
Form 1120-S and take into account any tax law changes that are  
effective for tax years beginning after December 31, 2023.  
Name and Address  
Net Investment Income Tax Reporting  
Requirements  
Enter the corporation's true name (as set forth in the charter or  
other legal document creating it) and address on the appropriate  
lines. Enter the address of the corporation's principal office or  
place of business. Include the suite, room, or other unit number  
after the street address. If the post office doesn't deliver mail to  
the street address and the corporation has a P.O. box, show the  
box number instead.  
The information described in this section should be  
given directly to the shareholder and shouldn't be  
reported by the corporation to the IRS.  
TIP  
To allow shareholders to correctly figure the net investment  
income tax where a shareholder disposes of stock in the  
corporation during the tax year, the corporation may be required  
to provide the shareholder with certain information. The net  
investment income tax is a tax imposed on an individual's,  
trust's, or estate's net investment income. Net investment income  
includes the net gains or losses from the sale of stock in the  
corporation. A shareholder who is actively involved in one or  
more of the corporation or subsidiary pass-through entities'  
trades or businesses (other than trading in financial instruments  
or commodities) can reduce the amount of the gain or loss  
included in its net investment income. However, to figure its net  
investment income, the active shareholder needs certain  
information from the corporation.  
Don't use the address of the registered agent for the  
state in which the corporation is incorporated. For  
example, if a business is incorporated in Delaware or  
TIP  
Nevada and the corporation's principal office is located in Little  
Rock, Arkansas, the corporation should enter the Little Rock  
address.  
If the corporation receives its mail in care of a third party  
(such as an accountant or an attorney), enter “C/O” on the street  
address line, followed by the third party's name and street  
address or P.O. box.  
If the corporation has a foreign address, include the city or  
town, state or province, country, and foreign postal code. Don't  
abbreviate the country name. Follow the country's practice for  
entering the name of the state or province and postal code.  
Generally, the corporation must provide certain information to  
the shareholder if the corporation knows, or has reason to know,  
the following.  
Item B. Business Code  
1. The shareholder disposed of stock in the corporation.  
See Principal Business Activity Codes, later. For nonstore  
retailers, select the principal business activity (PBA) code by the  
primary product that your establishment sells. For example,  
establishments primarily selling prescription and  
non-prescription drugs, select PBA code 456110 Pharmacies &  
Drug Retailers.  
2. The shareholder materially participates (within the  
meaning of the passive activity loss rules (section 469)) in one or  
more of the trades or businesses (within the meaning of section  
162) of the corporation or a subsidiary pass-through entity (other  
than trading in financial instruments or commodities).  
3. The shareholder doesn't qualify for the optional simplified  
reporting method for figuring its net investment income  
associated with the disposition of the stock. For more  
information, see the instructions for Form 8960, line 5c.  
Item C. Schedule M-3 Information  
For 2023, a corporation that (a) is required to file Schedule M-3  
(Form 1120-S), Net Income (Loss) Reconciliation for S  
Corporations With Total Assets of $10 Million or More, and has  
less than $50 million total assets at the end of the tax year, or (b)  
isn't required to file Schedule M-3 (Form 1120-S) and voluntarily  
files Schedule M-3 (Form 1120-S), must either complete  
Schedule M-3 (Form 1120-S) entirely or complete Schedule M-3  
(Form 1120-S) through Part I and complete Form 1120-S,  
Schedule M-1, instead of completing Parts II and III of  
Schedule M-3 (Form 1120-S). If a corporation chooses to  
complete Form 1120-S, Schedule M-1, instead of completing  
Parts II and III of Schedule M-3 (Form 1120-S), line 1, of Form  
1120-S, Schedule M-1, must equal line 11 of Part I of  
Schedule M-3 (Form 1120-S).  
Information to be provided to shareholder. Generally, the  
corporation must provide the shareholder with its pro rata share  
of the net gain and loss from the deemed sale for fair market  
value of the corporation's property, other than property that  
relates to the trades or businesses in which the shareholder  
materially participates, as determined under the passive activity  
loss rules applicable to the transfer of an interest in a  
pass-through entity. For more information, see the instructions  
for Form 8960, line 5c.  
If a shareholder, who qualifies for the optional simplified  
reporting method, prefers to determine net gain or loss  
under the general calculation, the corporation may, but  
TIP  
Any corporation that completes Parts II and III of  
Schedule M-3 (Form 1120-S) must complete all columns,  
without exception.  
isn't obligated to, provide the information to the shareholder at  
the shareholder's request.  
13  
Instructions for Form 1120-S (2023)  
     
If you are filing Schedule M-3, check the “Check if Sch. M-3  
attached” box. See the Instructions for Schedule M-3 for more  
details.  
Item J. Aggregation or Grouping of  
Certain Activities  
For information about aggregating at-risk activities, see  
Aggregation of Activities under At-Risk Limitations, earlier. For  
information about grouping passive activities, see Grouping  
Activities under Passive Activity Limitations, earlier.  
Item D. Employer Identification  
Number (EIN)  
Enter the corporation's EIN. If the corporation doesn't have an  
EIN, it must apply for one. An EIN can be applied for in the  
following ways.  
Income  
Online—Go to IRS.gov/EIN. The EIN is issued immediately  
Report only trade or business activity income on lines 1a  
once the application information is validated.  
through 5. Don't report rental activity income or portfolio  
!
By faxing or mailing Form SS-4, Application for Employer  
CAUTION  
income on these lines. See Passive Activity Limitations,  
Identification Number.  
earlier, for definitions of rental income and portfolio income.  
Rental activity income and portfolio income are reported on  
Schedules K and K-1. Rental real estate activities are also  
reported on Form 8825.  
If the corporation hasn't received its EIN by the time the return  
is due, enter “Applied for” and the date the corporation applied in  
the space for the EIN. However, if the corporation is filing its  
returns electronically, an EIN is required at the time the return is  
filed. For more information, see the Instructions for Form SS-4.  
Tax-exempt income. Don't include any tax-exempt income on  
lines 1a through 5. A corporation that receives any tax-exempt  
income other than interest, or holds any property or engages in  
any activity that produces tax-exempt income, reports this  
income on line 16b of Schedule K and in box 16 of Schedule K-1  
using code B.  
Report tax-exempt interest income, including exempt-interest  
dividends received as a shareholder in a mutual fund or other  
regulated investment company, on line 16a of Schedule K and in  
box 16 of Schedule K-1 using code A.  
Item F. Total Assets  
Enter the corporation's total assets (as determined by the  
accounting method regularly used in keeping the corporation's  
books and records) at the end of the tax year. If there were no  
assets at the end of the tax year, enter -0-.  
If the corporation is required to complete Schedule L, enter  
total assets from Schedule L, line 15, column (d), on page 1,  
item F. If the S election terminated during the tax year, see the  
instructions for Schedule L, later, for special rules that may apply  
when figuring the corporation's year-end assets.  
See Deductions, later, for information on how to report  
expenses related to tax-exempt income.  
Canceled debt exclusion. If the corporation has had debt  
discharged resulting from a title 11 bankruptcy proceeding or  
while insolvent, see Form 982, Reduction of Tax Attributes Due  
to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax  
Guide.  
Item G. Electing To Be an S  
Corporation  
If “Yes,attach Form 2553 if not already filed. Form 2553 must  
generally be filed no more than 2 months and 15 days after the  
beginning of the tax year the election is to take effect. A Form  
2553 filed with Form 1120-S will generally be a late election. But  
with reasonable cause you may be able to request relief for the  
late election on Form 2553. See “Relief for Late Elections” in the  
Instructions for Form 2553.  
Line 1a. Gross Receipts or Sales  
Enter on line 1a gross receipts or sales from all business  
operations except for amounts that must be reported on lines 4  
and 5. If a cost offset method under section 451(b) or (c) is  
elected, the resulting gross income is reported on line 1a.  
Item H. Final Return, Name Change,  
Address Change, Amended Return, or  
S Election Termination  
Special rules apply to certain income, as discussed below.  
Advance payments. In general, advance payments are  
reported in the year of receipt. For exceptions to this general rule  
for corporations that use an accrual method of accounting, see  
the following.  
If this is the corporation's final return and it will no longer exist,  
To report income from long-term contracts, see section 460.  
For rules that allow a limited deferral of advance payments  
check the “Final return” box. Also check the “Final K-1” box on  
each Schedule K-1.  
beyond the current tax year, see section 451(c) and Regulations  
section 1.451-8.  
If the corporation changed its name since it last filed a return,  
check the “Name change” box. Generally, a corporation must  
also have amended its articles of incorporation and filed the  
amendment with the state in which it was incorporated.  
For information on adopting or changing to a permissible  
method for reporting advance payments for goods and services  
by an accrual method corporation, see the Instructions for Form  
3115.  
If the corporation has changed its address since it last filed a  
return (including a change to an “in care of” address), check the  
“Address change” box.  
Installment sales. Generally, the installment method can't be  
used for dealer dispositions of property. A dealer disposition” is  
any disposition of:  
If this amends a previously filed return, check the “Amended  
return” box. If Schedules K-1 are also being amended, check the  
“Amended K-1” box on each Schedule K-1.  
Personal property by a person who regularly sells or otherwise  
If the corporation has terminated its S election, check the “S  
disposes of personal property of the same type on the  
installment plan, or  
election termination” box. See Termination of Election, earlier.  
Real property held for sale to customers in the ordinary  
If a change in address or responsible party occurs after  
course of the taxpayer's trade or business.  
the return is filed, use Form 8822-B, Change of Address  
or Responsible Party — Business, to notify the IRS. See  
TIP  
These restrictions on using the installment method don't  
apply to dispositions of property used or produced in a farming  
business or sales of timeshares and residential lots for which the  
corporation elects to pay interest under section 453(l)(3).  
the Instructions for Form 8822-B for details.  
14  
Instructions for Form 1120-S (2023)  
         
For sales of timeshares and residential lots reported under  
the installment method, each shareholder's income tax is  
increased by the shareholder's pro rata share of the interest  
payable under section 453(l)(3).  
The recapture amount under section 280F if the business use  
of listed property drops to 50% or less. To figure the recapture  
amount, complete Part IV of Form 4797.  
The ratable portion of any positive section 481(a) adjustments  
resulting from changes in accounting methods. Show the  
computation of the positive section 481(a) adjustments on an  
attached statement. In the statement, include, for each section  
481(a) adjustment, the total section 481(a) adjustment, the  
ratable portion included in current year taxable income, and a  
brief description of the changes in methods of accounting to  
which the section 481(a) adjustment relates. See Rev. Proc.  
2015-13, 2015-5 I.R.B. 419, available at IRS.gov/irb/  
Enter on line 1a the gross profit on collections from  
installment sales for any of the following.  
Dispositions of property used or produced in the trade or  
business of farming.  
Certain dispositions of timeshares and residential lots  
reported under the installment method.  
Attach a statement showing the following information for the  
current and the 3 preceding years.  
Gross sales.  
Part or all of the proceeds received from certain  
Cost of goods sold.  
corporate-owned life insurance contracts issued after August 17,  
2006. Corporations that own one or more employer-owned life  
insurance contracts issued after this date must file Form 8925,  
Report of Employer-Owned Life Insurance Contracts. See Form  
8925.  
Gross profits.  
Percentage of gross profits to gross sales.  
Amount collected.  
Gross profit on the amount collected.  
Any payroll tax credit taken by an employer on its 2023  
Line 1b. Returns and Allowances  
employment tax returns (Forms 941, 943, and 944) for qualified  
paid sick and qualified paid family leave under FFCRA and ARP  
(both the nonrefundable and refundable portions). The  
corporation must include the full amount of the credit for qualified  
sick and family leave wages in gross income for the tax year that  
includes the last day of the calendar quarter in which the credit is  
allowed.  
Enter cash and credit refunds the corporation made to  
customers for returned merchandise, rebates, and other  
allowances made on gross receipts or sales.  
Line 2. Cost of Goods Sold  
Complete and attach Form 1125-A, Cost of Goods Sold, if  
applicable. Enter on line 2 the amount from Form 1125-A, line 8.  
See Form 1125-A and its instructions.  
Note. A credit is available only if the leave was taken after  
March 31, 2020, and before October 1, 2021, and only after the  
qualified leave wages were paid, which might, under certain  
circumstances, not occur until a quarter after September 30,  
2021, including quarters in 2023.  
Line 4. Net Gain (Loss) From Form 4797  
Include only ordinary gains or losses from the sale,  
exchange, or involuntary conversion of assets used in a  
!
CAUTION  
Don't include items requiring separate computations by  
shareholders that must be reported on Schedules K and K-1.  
See the instructions for Schedules K and K-1 later in these  
instructions.  
trade or business activity. Ordinary gains or losses from  
the sale, exchange, or involuntary conversion of rental activity  
assets are reported separately on line 19 of Form 8825, or line 3  
of Schedule K, and box 3 of Schedule K-1, generally as a part of  
the net income (loss) from the rental activity.  
Ordinary Income (Loss) From a Partnership,  
Estate, or Trust  
A corporation that is a partner in a partnership must include  
on Form 4797, Sales of Business Property, its share of ordinary  
gains (losses) from sales, exchanges, or involuntary conversions  
(other than casualties or thefts) of the partnership's trade or  
business assets.  
Enter the ordinary income (loss) shown on Schedule K-1 (Form  
1065) or Schedule K-1 (Form 1041), or other ordinary income  
(loss) from a foreign partnership, estate, or trust. Show the  
partnership's, estate's, or trust's name, address, and EIN on a  
separate statement attached to this return. If the amount entered  
is from more than one source, identify the amount from each  
source.  
Corporations shouldn't use Form 4797 to report the sale or  
other disposition of property if a section 179 expense deduction  
was previously passed through to any of its shareholders for that  
property. Instead, report it in box 17 of Schedule K-1 using code  
(code K), later, for details.  
Don't include portfolio income or rental activity income (loss)  
from a partnership, estate, or trust on this line. Instead, report  
these amounts on Schedules K and K-1, or on line 20a of Form  
8825 if the amount is from a rental real estate activity.  
Line 5. Other Income (Loss)  
Enter any other trade or business income (loss) not included on  
lines 1a through 4. List the type and amount of income on an  
attached statement.  
Ordinary income or loss from a partnership that is a publicly  
traded partnership isn't reported on this line. Instead, report the  
amount separately on line 10 of Schedule K and in box 10 of  
Schedule K-1 using code ZZ.  
Examples of other income include the following.  
Interest income derived in the ordinary course of the  
corporation's trade or business, such as interest charged on  
receivable balances. See Temporary Regulations section  
1.469-2T(c)(3).  
Treat shares of other items separately reported on  
Schedule K-1 issued by the other entity as if the items were  
realized or incurred by this corporation.  
Recoveries of bad debts deducted in prior years under the  
specific charge-off method.  
Taxable income from insurance proceeds.  
If there is a loss from a partnership, the amount of the loss  
that may be claimed by the S corporation is subject to the basis  
limitations.  
Any amount included in income from line 2 of Form 6478,  
Biofuel Producer Credit.  
Any amount included in income from line 10 of Form 8864,  
Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels  
Credit.  
If the tax year of the S corporation doesn't coincide with the  
tax year of the partnership, estate, or trust, include the ordinary  
15  
Instructions for Form 1120-S (2023)  
   
income (loss) from the other entity in the tax year in which the  
other entity's tax year ends.  
The corporation must report the following costs separately to  
the shareholders for purposes of determinations under section  
59(e).  
Deductions  
Research and experimental costs under section 174.  
Intangible drilling costs for oil, gas, and geothermal property.  
Mining exploration and development costs.  
Report only trade or business activity deductions on  
lines 7 through 20.  
!
Indirect costs. Corporations subject to the uniform  
CAUTION  
capitalization rules are required to capitalize not only direct costs  
but an allocable part of most indirect costs (including taxes) that  
benefit the assets produced or acquired for resale, or are  
incurred because of the performance of production or resale  
activities.  
Don't report the following expenses on lines 7 through 20.  
Rental activity expenses. Report these expenses on Form  
8825 or line 3b of Schedule K.  
Deductions allocable to portfolio income. Report these  
deductions on line 12d of Schedule K and in box 12 of  
Schedule K-1 using code I or L.  
For inventory, indirect costs that must be capitalized include  
the following.  
Nondeductible expenses (for example, expenses connected  
Administration expenses.  
with the production of tax-exempt income). Report  
nondeductible expenses on line 16c of Schedule K and in box 16  
of Schedule K-1 using code C.  
Taxes.  
Depreciation.  
Insurance.  
Qualified expenditures to which an election under section  
Compensation paid to officers attributable to services.  
Rework labor.  
59(e) may apply. The instructions for line 12c of Schedule K and  
for Schedule K-1, box 12, code J, explain how to report these  
amounts.  
Contributions to pension, stock bonus, and certain  
profit-sharing, annuity, or deferred compensation plans.  
Items the corporation must state separately that require  
Regulations section 1.263A-1(e)(3) specifies other indirect  
costs that relate to production or resale activities that must be  
capitalized and those that may be currently deductible.  
Interest expense paid or incurred during the production  
period of designated property must be capitalized and is  
governed by special rules. For more details, see Regulations  
sections 1.263A-8 through 1.263A-15.  
separate computations by the shareholders. Examples include  
expenses incurred for the production of income instead of in a  
trade or business, charitable contributions, foreign taxes paid or  
accrued, intangible drilling and development costs, soil and  
water conservation expenditures, amortizable basis of  
reforestation expenditures, and exploration expenditures. The  
pro rata shares of these expenses are reported separately to  
each shareholder on Schedule K-1.  
For more details on the uniform capitalization rules, see  
Regulations sections 1.263A-1 through 1.263A-3.  
Limitations on Deductions  
Special rules for certain corporations engaged in farming.  
For S corporations not required to use an accrual method of  
accounting, the rules of section 263A don't apply to expenses of  
raising any:  
Section 263A uniform capitalization rules. The uniform  
capitalization rules of section 263A generally require  
corporations to capitalize, or include in inventory, certain costs  
incurred in connection with the following.  
Animal, or  
The production of real property and tangible personal property  
Plant that has a preproductive period of 2 years or less.  
held in inventory or held for sale in the ordinary course of  
business.  
Shareholders of S corporations not required to use an accrual  
method of accounting may elect to currently deduct the  
preproductive period expenses of certain plants that have a  
preproductive period of more than 2 years. Because each  
shareholder makes the election to deduct these expenses, the  
corporation shouldn't capitalize them. Instead, the corporation  
should report the expenses separately on line 12d of Schedule K  
and report each shareholder's pro rata share in box 12 of  
Schedule K-1 using code M.  
Real property or personal property (tangible and intangible)  
acquired for resale.  
The production of real property and tangible personal property  
by a corporation for use in its trade or business or in an activity  
engaged in for profit.  
Tangible personal property produced by a corporation  
includes a film, sound recording, videotape, book, or similar  
property.  
The costs required to be capitalized under section 263A  
aren't deductible until the property to which the costs relate is  
sold, used, or otherwise disposed of by the corporation.  
Exceptions. Section 263A doesn't apply to the following.  
See Uniform Capitalization Rules in chapter 6 of Pub. 225,  
Farmer's Tax Guide, sections 263A(d) and (e), and Regulations  
section 1.263A-4 for definitions and other details.  
Transactions between related taxpayers. Generally, an  
accrual basis S corporation can deduct business expenses and  
interest owed to a related party (including any shareholder) only  
in the tax year of the corporation that includes the day on which  
the payment is includible in the income of the related party. See  
section 267 for details.  
Inventoriable items accounted for in the same manner as  
materials and supplies that aren't incidental. See Form 1125-A  
and its instructions for more details.  
A small business taxpayer (defined earlier) isn’t required to  
capitalize costs under section 263A. A taxpayer that wants to  
discontinue capitalizing costs under section 263A must change  
its method of accounting. See section 263A(i) and the  
Instructions for Form 3115.  
Business interest. Business interest expense may be limited.  
See section 163(j) and Form 8990. Also see Schedule B,  
questions 9 and 10, and the related instructions for question 9  
and question 10, later.  
Timber.  
Most property produced under a long-term contract.  
Certain property produced in a farming business. See Special  
Section 291 limitations. If the S corporation was a C  
corporation for any of the 3 immediately preceding years, the  
corporation may be required to adjust items such as deductions  
for depletion of iron ore and coal, and the amortizable basis of  
pollution control facilities. If this applies, see section 291 to figure  
the adjustment.  
Geological and geophysical costs amortized under section  
167(h).  
Certain plants bearing fruits and nuts depreciated under  
section 168(k)(5).  
16  
Instructions for Form 1120-S (2023)  
         
Line 7. Compensation of Officers and  
Line 8. Salaries and Wages  
Business start-up and organizational costs. A corporation  
can elect to deduct a limited amount of start-up and  
organizational costs it paid or incurred. Any remaining costs  
must generally be amortized over a 180-month period. See  
sections 195 and 248 and the related regulations.  
Time for making an election. The corporation generally  
elects to deduct start-up or organizational costs by claiming the  
deduction on its income tax return filed by the due date  
(including extensions) for the tax year in which the active trade or  
business begins. For more details, see the Instructions for Form  
4562.  
Distributions and other payments by an S corporation to  
a corporate officer must be treated as wages to the  
!
CAUTION  
extent the amounts are reasonable compensation for  
services rendered to the corporation.  
Enter on line 7 the total compensation of all officers paid or  
incurred in the trade or business activities of the corporation. The  
corporation determines who is an officer under the laws of the  
state where it is incorporated.  
If the corporation timely filed its return for the year without  
making an election, it can still make an election by filing an  
amended return within 6 months of the due date of the return  
(excluding extensions). Clearly indicate the election on the  
amended return and enter “Filed pursuant to section  
Enter on line 8 the total salaries and wages paid or incurred to  
employees (other than officers) during the tax year.  
If the corporation claims a credit for any wages paid or  
incurred, it may need to reduce the amounts on lines 7  
!
CAUTION  
301.9100-2” at the top of the amended return. File the amended  
return at the same address the corporation filed its original  
return. The election applies when figuring taxable income for the  
current tax year and all subsequent years.  
are allowable, earlier.  
Don't include salaries and wages reported elsewhere on the  
return, such as amounts included in cost of goods sold, elective  
contributions to a section 401(k) cash or deferred arrangement,  
or amounts contributed under a salary reduction SEP agreement  
or a SIMPLE IRA plan.  
The corporation can choose to forgo the elections above by  
clearly electing to capitalize its start-up or organizational costs  
on its income tax return filed by the due date (including  
extensions) for the tax year in which the active trade or business  
begins.  
If the corporation's total receipts (page 1, line 1a, plus lines 4  
and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6;  
income or net gain reported on Schedule K, lines 7, 8a, 9, and  
10; and income or net gain reported on Form 8825, lines 2, 19,  
and 20a) are $500,000 or more, complete Form 1125-E,  
Compensation of Officers. Enter on Form 1120-S, line 7, the  
amount from Form 1125-E, line 4.  
The election to either amortize or capitalize start-up  
costs is irrevocable and applies to all start-up costs that  
are related to the trade or business.  
TIP  
Report the deductible amount of start-up and organizational  
costs and any amortization on line 20. For amortization that  
begins during the current tax year, complete and attach Form  
4562, Depreciation and Amortization.  
Include fringe benefit expenditures made on behalf of officers  
and employees owning more than 2% of the corporation's stock.  
Also report these fringe benefits as wages in box 1 of Form W-2.  
Don't include amounts paid or incurred for fringe benefits of  
officers and employees owning 2% or less of the corporation's  
stock. These amounts are reported on line 18. See the  
instructions for that line for information on the types of  
expenditures that are treated as fringe benefits and for the stock  
ownership rules.  
Reducing certain expenses for which credits are allowable.  
If the corporation claims certain credits, it may need to reduce  
the otherwise allowable deductions for expenses used to figure  
the credit. This applies to credits such as the following.  
Work opportunity credit (Form 5884).  
Credit for increasing research activities (Form 6765).  
Orphan drug credit (Form 8820).  
Disabled access credit (Form 8826).  
Report amounts paid for health insurance coverage for a  
more-than-2% shareholder (including that shareholder's spouse,  
dependents, and any children under age 27 who aren't  
dependents) as an information item in box 14 of that  
shareholder's Form W-2. A more-than-2% shareholder may be  
allowed to deduct such amounts on Schedule 1 (Form 1040),  
line 17.  
Empowerment zone employment credit (Form 8844).  
Credit for employer social security and Medicare taxes paid  
on certain employee tips (Form 8846).  
Credit for small employer pension plan startup costs,  
auto-enrollment, and military spouse participation (Form 8881).  
Credit for employer-provided childcare facilities and services  
(Form 8882).  
Low sulfur diesel fuel production credit (Form 8896).  
Credit for employer differential wage payments (Form 8932).  
Credit for small employer health insurance premiums (Form  
If a shareholder or a member of the family of one or more  
shareholders of the corporation renders services or furnishes  
capital to the corporation for which reasonable compensation  
isn’t paid, the IRS may make adjustments in the items taken into  
account by such individuals to reflect the value of such services  
or capital. See section 1366(e).  
8941).  
Employer credit for paid family and medical leave (Form  
8994).  
If the corporation has any of the credits listed above, figure  
the current year credit before figuring the deduction for expenses  
on which the credit is based. If the corporation capitalized any  
costs on which it figured the credit, it may need to reduce the  
amount capitalized by the credit attributable to these costs.  
Line 9. Repairs and Maintenance  
Enter the cost of repairs and maintenance not claimed  
elsewhere on the return, such as labor and supplies, that don't  
add to the value of the property or appreciably prolong its life.  
The corporation can deduct these repairs only to the extent they  
relate to a trade or business activity. See Regulations section  
1.162-4. The corporation may elect to capitalize certain repair  
and maintenance costs consistent with its books and records.  
See Regulations section 1.263(a)-3(n) for information on how to  
make the election.  
See the instructions for the form used to figure the applicable  
credit for more details.  
New buildings, machinery, or permanent improvements that  
increase the value of the property aren't deductible as repair and  
17  
Instructions for Form 1120-S (2023)  
     
maintenance expenses. These expenses must be capitalized  
and depreciated or amortized. However, amounts paid for  
routine maintenance on property, including buildings, may be  
deductible. See Regulations section 1.263(a)-3(i).  
Do not reduce the corporation’s deduction for social  
security and Medicare taxes by the nonrefundable and  
refundable portions of any FFCRA and ARP credits for  
!
CAUTION  
qualified sick and family leave wages claimed on its employment  
tax returns. Instead, report this amount as income on line 5.  
Line 10. Bad Debts  
Don't deduct the following taxes on line 12.  
Enter the total debts that became worthless in whole or in part  
during the tax year, but only to the extent such debts relate to a  
trade or business activity. Report deductible nonbusiness bad  
debts as a short-term capital loss on Form 8949, Sales and  
Other Dispositions of Capital Assets. A corporation that uses the  
cash method of accounting can't claim a bad debt deduction  
unless the amount was previously included in income.  
Federal income taxes (except for the portion of built-in gains  
tax allocable to ordinary income) or taxes reported elsewhere on  
the return.  
Creditable foreign taxes under sections 901 and 903. Report  
these taxes on line 16f of Schedule K and in box 16 of  
Schedule K-1 using code F.  
Taxes allocable to a rental activity. Report taxes allocable to a  
rental real estate activity on Form 8825. Report taxes allocable  
to a rental activity other than a rental real estate activity on  
line 3b of Schedule K.  
Line 11. Rents  
Enter rent paid on business property used in a trade or business  
activity. Don't deduct rent for a dwelling unit occupied by any  
shareholder for personal use.  
Taxes paid or incurred for the production or collection of  
income, or for the management, conservation, or maintenance of  
property held to produce income. Report these taxes separately  
on line 12d of Schedule K and in box 12 of Schedule K-1 using  
code ZZ.  
If the corporation rented or leased a vehicle, enter the total  
annual rent or lease expense paid or incurred in the trade or  
business activities of the corporation during the tax year. Also  
complete Part V of Form 4562. If the corporation leased a vehicle  
for a term of 30 days or more, the deduction for vehicle lease  
expense may have to be reduced by including in gross income  
an amount called the “inclusion amount.The corporation may  
have an inclusion amount if:  
See section 263A(a) for rules on capitalization of allocable  
costs (including taxes) for any property.  
Taxes not imposed on the corporation.  
Taxes, including state or local sales taxes, that are paid or  
incurred in connection with an acquisition or disposition of  
property (these taxes must be treated as a part of the cost of the  
acquired property or, in the case of a disposition, as a reduction  
in the amount realized on the disposition).  
And the vehicle's  
FMV on the first  
day of the lease  
The lease term began:  
exceeded:  
Taxes assessed against local benefits that increase the value  
of the property assessed (such as for paving, etc.).  
Cars (excluding trucks and vans)  
See section 164(d) for information on apportionment of taxes  
on real property between seller and purchaser.  
After 12/31/22 but before 1/1/24  
After 12/31/21 but before 1/1/23  
After 12/31/20 but before 1/1/22  
After 12/31/17 but before 1/1/21  
After 12/31/12 but before 1/1/18  
Trucks and vans  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$60,000  
$56,000  
$51,000  
$50,000  
$19,000  
Line 13. Interest  
Include only interest incurred in the trade or business activities of  
the corporation that isn't claimed elsewhere on the return.  
.
Don't include interest expense on the following.  
On debt used to purchase rental property or debt used in a  
After 12/31/22 but before 1/1/24  
After 12/31/21 but before 1/1/23  
After 12/31/20 but before 1/1/22  
After 12/31/17 but before 1/1/21  
After 12/31/13 but before 1/1/18  
After 12/31/09 but before 1/1/14  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
$60,000  
$56,000  
$51,000  
$50,000  
$19,500  
$19,000  
rental activity. Interest allocable to a rental real estate activity is  
reported on Form 8825 and is used in arriving at net income  
(loss) from rental real estate activities on line 2 of Schedule K  
and in box 2 of Schedule K-1. Interest allocable to a rental  
activity other than a rental real estate activity is included on  
line 3b of Schedule K and is used in arriving at net income (loss)  
from a rental activity (other than a rental real estate activity). This  
net amount is reported on line 3c of Schedule K and in box 3 of  
Schedule K-1.  
On debt used to buy property held for investment. Interest that  
is clearly and directly allocable to interest, dividend, royalty, or  
annuity income not derived in the ordinary course of a trade or  
business is reported on line 12b of Schedule K and in box 12 of  
Schedule K-1 using code H. See the instructions for line 12b of  
Schedule K; for box 12, code H, of Schedule K-1; and Form  
4952, Investment Interest Expense Deduction, for more  
information on investment property.  
See Pub. 463, Travel, Gift, and Car Expenses, for instructions  
on figuring the inclusion amount.  
Note. The inclusion amount for lease terms beginning in 2024  
will be published in the Internal Revenue Bulletin in early 2024.  
Line 12. Taxes and Licenses  
On debt proceeds allocated to distributions made to  
Enter taxes and licenses paid or incurred in the trade or business  
activities of the corporation, unless they are reflected elsewhere  
on the return. Federal import duties and federal excise and  
stamp taxes are deductible only if paid or incurred in carrying on  
the trade or business of the corporation.  
shareholders during the tax year. Instead, report such interest on  
line 12d of Schedule K and in box 12 of Schedule K-1 using  
code AC. To determine the amount to allocate to distributions to  
shareholders, see Notice 89-35, 1989-1 C.B. 675.  
On debt required to be allocated to the production of  
Foreign taxes are included on line 12 only if they are  
deductible and not creditable taxes under sections 901 and 903.  
See Schedule K-2 (Form 1120-S), Part II, Section 2, line 45,  
column (g).  
designated property. Designated property includes real property,  
personal property that has a class life of 20 years or more, and  
other tangible property requiring more than 2 years (1 year in the  
case of property with a cost of more than $1 million) to produce  
18  
Instructions for Form 1120-S (2023)  
       
or construct. Interest allocable to designated property produced  
by a corporation for its own use or for sale must be capitalized. In  
addition, a corporation must also capitalize any interest on debt  
allocable to an asset used to produce designated property. A  
shareholder may have to capitalize interest that the shareholder  
incurs during the tax year for the S corporation's production  
expenditures. Similarly, interest incurred by an S corporation may  
have to be capitalized by a shareholder for the shareholder's  
own production expenditures. The information required by the  
shareholder to properly capitalize interest for this purpose must  
be provided by the corporation on an attachment for box 17 of  
Schedule K-1 using code P. See section 263A(f) and  
Line 15. Depletion  
If the corporation claims a deduction for timber depletion,  
complete and attach Form T (Timber), Forest Activities  
Schedule.  
Don't deduct depletion for oil and gas properties. Each  
shareholder figures depletion on oil and gas properties.  
!
CAUTION  
See the instructions for Schedule K-1, box 17, code R,  
for the information on oil and gas depletion that must be supplied  
to the shareholders by the corporation.  
Line 17. Pension, Profit-Sharing, etc., Plans  
Regulations sections 1.263A-8 through 1.263A-15.  
Enter the deductible contributions not claimed elsewhere on the  
return made by the corporation for its employees under a  
qualified pension, profit-sharing, annuity, or simplified employee  
pension (SEP) or SIMPLE IRA plan, or any other deferred  
compensation plan.  
Special rules apply to the following.  
Allocating interest expense among activities so that the  
limitations on passive activity losses, investment interest, and  
personal interest can be properly figured. Generally, interest  
expense is allocated in the same manner as debt is allocated.  
Debt is allocated by tracing disbursements of the debt proceeds  
to specific expenditures. Temporary Regulations section  
1.163-8T gives rules for tracing debt proceeds to expenditures.  
If the corporation contributes to an individual retirement  
arrangement (IRA) for employees, include the contribution in  
salaries and wages on page 1, line 8, or Form 1125-A, line 3,  
and not on line 17.  
Prepaid interest, which can generally only be deducted over  
the term of the debt. See Regulations sections 1.163-7, 1.446-2,  
and 1.1273-2(g) for details. Also see section 461(g).  
Employers who maintain a pension, profit-sharing, or other  
funded deferred compensation plan, whether or not the plan is  
qualified under the Internal Revenue Code and whether or not a  
deduction is claimed for the current tax year, must generally file  
the applicable form listed below.  
Interest that is allocable to unborrowed policy cash values of  
life insurance, endowment, or annuity contracts issued after  
June 8, 1997. See section 264(f). Attach a statement showing  
the computation of the deduction.  
Form 5500, Annual Return/Report of Employee Benefit Plan.  
Form 5500-SF, Short Form Annual Return/Report of Small  
Forgone interest on below-market-rate loans (see section  
7872).  
Employee Benefit Plan. File this form instead of Form 5500  
generally if there were under 100 participants at the beginning of  
the plan year.  
Limitation on deduction. Business interest expense is  
generally limited to the sum of business interest income, 30% of  
adjusted taxable income, and floor plan financing interest. See  
Form 8990, Limitation on Business Interest Expense Under  
Section 163(j), and its instructions for more information. The  
limitation applies at the S corporation level, and any excess  
business interest expense is carried over at the corporate level.  
Form 5500-EZ, Annual Return of A One-Participant (Owners/  
Partners and Their Spouses) Retirement Plan or A Foreign Plan.  
File this form for a plan that only covers the owner (or the owner  
and the owner's spouse) but only if the owner (or the owner and  
the owner's spouse) owns the entire business.  
Business interest expense includes any interest paid or  
accrued on indebtedness properly allocable to a trade or  
business. A small business taxpayer is a taxpayer that isn’t a tax  
shelter (as defined in section 448(d)(3)) and has average annual  
gross receipts of $29 million or less for the 3 prior tax years  
under the gross receipts test of section 448(c). Gross receipts  
include the aggregate gross receipts from all persons treated as  
a single employer, such as a controlled group of corporations,  
commonly controlled partnerships or proprietorships, and  
affiliated service groups. If the corporation fails to meet the gross  
receipts test, Form 8990 is generally required. Also see  
Schedule B, questions 9 and 10.  
Form 5500 and Form 5500-SF must be filed  
electronically under the computerized ERISA Filing  
Acceptance System (EFAST2). For more information,  
TIP  
see the EFAST2 website at www.EFAST.dol.gov.  
There are penalties for not filing these forms on time and for  
overstating the pension plan deduction. See sections 6652(e)  
and 6662(f).  
Line 18. Employee Benefit Programs  
Enter amounts for fringe benefits paid or incurred on behalf of  
employees owning 2% or less of the corporation's stock. These  
fringe benefits include (a) employer contributions to certain  
accident and health plans, (b) the cost of up to $50,000 of  
group-term life insurance on an employee's life, and (c) meals  
and lodging furnished for the employer's convenience.  
Line 14. Depreciation  
Enter the depreciation claimed on assets used in a trade or  
business activity less any depreciation reported elsewhere (for  
example, on Form 1125-A). See the Instructions for Form 4562,  
or Pub. 946, How To Depreciate Property, to figure the amount of  
depreciation to enter on this line.  
Don't deduct amounts that are an incidental part of a pension,  
profit-sharing, etc., plan included on line 17 or amounts reported  
elsewhere on the return or on Form 1125-A.  
Complete and attach Form 4562 only if the corporation  
placed property in service during the tax year or claims  
depreciation on any car or other listed property.  
Report amounts for fringe benefits paid on behalf of  
employees owning more than 2% of the corporate stock on line 7  
or 8 (or Form 1125-E), whichever applies. An employee is  
considered to own more than 2% of the corporation's stock if that  
person owns on any day during the tax year more than 2% of the  
outstanding stock of the corporation or stock possessing more  
than 2% of the combined voting power of all stock of the  
corporation. See section 318 for attribution rules.  
Don't include any section 179 expense deduction on this line.  
This amount isn't deducted by the corporation. Instead, it is  
passed through to the shareholders in box 11 of Schedule K-1.  
However, reduce the basis of any asset of the S corporation by  
the amount of section 179 expense elected by the S corporation,  
even if a portion of that amount can't be passed through to its  
shareholders this year and must be carried forward because of  
limitations at the S corporation level. See Regulations section  
1.179-1(f)(2).  
19  
Instructions for Form 1120-S (2023)  
       
See section 274(n)(3) for a special rule that applies to  
expenses for meals consumed by individuals subject to the  
hours of service limits of the Department of Transportation.  
Qualified transportation fringes (QTFs). Generally, under  
section 274(a)(4), there is no deduction allowed with respect to  
QTFs provided by employers to their employees. QTFs are  
defined in section 132(f)(1) to include:  
Line 19. Energy Efficient Commercial Buildings  
Deduction  
Complete and attach Form 7205 if claiming the energy efficient  
commercial building deduction. See the Instructions for Form  
7205 for more information. Also, see section 179D.  
Line 20. Other Deductions  
Transportation in a commuter highway vehicle between the  
Enter the total allowable trade or business deductions that aren't  
deductible elsewhere on page 1 of Form 1120-S. Attach a  
statement listing by type and amount each deduction included  
on this line.  
employee's residence and place of employment,  
Any transit pass, and  
Qualified parking.  
See section 274 and Pub. 15-B, Employer’s Tax Guide to  
Fringe Benefits, for details.  
Examples of other deductions include the following.  
Membership dues. The corporation can generally deduct  
amounts paid or incurred for membership dues in civic or public  
service organizations, professional organizations (such as bar  
and medical associations), business leagues, trade  
associations, chambers of commerce, boards of trade, and real  
estate boards. However, no deduction is allowed if a principal  
purpose of the organization is to entertain or provide  
entertainment facilities for members or their guests. In addition,  
corporations can't deduct membership dues in any club  
organized for business, pleasure, recreation, or other social  
purpose. This includes country clubs, golf and athletic clubs,  
airline and hotel clubs, and clubs operated to provide meals  
under conditions favorable to business discussion.  
Entertainment facilities. The corporation can't deduct an  
expense paid or incurred for a facility (such as a yacht or hunting  
lodge) used for an activity usually considered entertainment,  
amusement, or recreation.  
Amounts treated as compensation. The corporation may  
be able to deduct otherwise nondeductible entertainment,  
amusement, or recreation expenses if the amounts are treated  
as compensation to the recipient and reported on Form W-2 for  
an employee or on Form 1099-NEC for an independent  
contractor.  
However, if the recipient is an officer, director, or beneficial  
owner (directly or indirectly) of more than 10% of the  
corporation's stock, the deductible expense is limited. See  
section 274(e)(2) and Regulations sections 1.274-9 and  
1.274-10.  
Amortization. See Part VI of Form 4562.  
Certain business start-up and organizational costs (discussed  
earlier).  
Insurance premiums.  
Legal and professional fees.  
Supplies used and consumed in the business.  
Travel, meal, and entertainment expenses. Special rules apply  
(discussed later).  
Utilities.  
Any negative section 481(a) adjustments resulting from  
changes in accounting methods. Show the computation of the  
negative section 481(a) adjustments on an attached statement.  
In the statement, for each section 481(a) adjustment, include the  
total section 481(a) adjustment and a brief description of the  
changes in methods of accounting to which the section 481(a)  
adjustment relates. See Rev. Proc. 2015-13.  
Don't deduct the following on line 20.  
Amounts paid or incurred for any settlement, payout, or  
attorney fees related to sexual harassment or sexual abuse, if  
such payments are subject to a nondisclosure agreement. See  
section 162(q).  
Expenses allocable to tax-exempt income. Report these  
expenses on Schedule K, line 16c.  
Fines or similar penalties paid to or at the direction of a  
government or governmental entity for violating any law.  
However, see exceptions (discussed later). Report these  
expenses on Schedule K, line 16c.  
Items that must be reported separately on Schedules K and  
K-1.  
Fines and similar penalties. Generally, no deduction is  
allowed for fines or similar penalties paid to or at the direction of  
a government or governmental entity for violating any law except:  
Special Rules  
Amounts that constitute restitution (including remediation of  
Travel, meals, and entertainment. Subject to limitations and  
restrictions discussed below, a corporation can deduct ordinary  
and necessary travel and meal expenses paid or incurred in its  
trade or business. Generally, entertainment expenses,  
membership dues, and facilities used in connection with these  
activities can't be deducted. Generally, no deduction is allowed  
for qualified transportation fringe benefits. Also, special rules  
apply to deductions for gifts, luxury water travel, and convention  
expenses. See section 274 and Pub. 463 for details.  
Travel. The corporation can't deduct travel expenses of any  
individual accompanying a corporate officer or employee,  
including a spouse or dependent of the officer or employee,  
unless:  
property),  
Amounts paid to come into compliance with the law,  
Amounts paid or incurred as the result of orders or  
agreements in which no government or governmental entity is a  
party, and  
Amounts paid or incurred for taxes due to the extent the  
amount would have been allowed as a deduction if timely paid,  
and the taxpayer establishes that the amount paid or incurred  
was for restitution, remediation, or to come into compliance.  
No deduction is allowed unless the amounts are specifically  
identified in the order or agreement and the taxpayer establishes  
that the amounts were paid for a purpose mentioned above.  
Also, any amount paid or incurred as reimbursement to the  
government for the costs of any investigation or litigation are not  
eligible for the exceptions and are nondeductible. See section  
162(f). Also see Regulations section 1.162-21.  
That individual is an employee of the corporation, and  
The travel is for a bona fide business purpose and would  
otherwise be deductible by that individual.  
Meals. Generally, the corporation can deduct only 50% of the  
amount otherwise allowable for meal expenses paid or incurred  
in its trade or business. In addition (subject to exceptions under  
section 274(k)(2)):  
Lobbying expenses. Generally, lobbying expenses aren't  
deductible. Report nondeductible expenses on Schedule K,  
line 16c. These expenses include:  
Amounts paid or incurred in connection with influencing  
Meals must not be lavish or extravagant, and  
federal, state, or local legislation; or  
An employee of the corporation must be present at the meal.  
20  
Instructions for Form 1120-S (2023)  
       
Amounts paid or incurred in connection with any  
Tax and Payments  
communication with certain federal executive branch officials in  
an attempt to influence the official actions or positions of the  
officials. See Regulations section 1.162-29 for the definition of  
“influencing legislation.”  
Line 23a. Excess Net Passive Income and LIFO  
Recapture Tax  
These taxes can apply if the corporation was previously a C  
corporation or if the corporation engaged in a tax-free  
reorganization with a C corporation.  
Dues and other similar amounts paid to certain tax-exempt  
organizations may not be deductible. If certain in-house lobbying  
expenditures don't exceed $2,000, they are deductible. For  
information on contributions to charitable organizations that  
conduct lobbying activities, see section 170(f)(9).  
Excess net passive income tax. If the corporation has AE&P  
at the close of its tax year and has passive investment income for  
the tax year that is in excess of 25% of gross receipts, the  
corporation must figure its excess net passive income and pay  
tax on it. To make this determination, complete lines 1 through 3  
and line 9 of the Excess Net Passive Income Tax Worksheet for  
Line 23a. If line 2 is greater than line 3 and the corporation has  
taxable income (see the instructions for line 9 of the worksheet),  
it must pay the tax. Complete a separate statement using the  
format of lines 1 through 11 of the worksheet to figure the tax.  
Enter the tax on line 23a, page 1, Form 1120-S, and attach the  
computation statement to Form 1120-S.  
Certain corporations engaged in farming. Section 464(d)  
limits the deduction for certain expenditures of S corporations  
engaged in farming if they use the cash method of accounting,  
and their prepaid farm supplies are more than 50% of other  
deductible farming expenses.  
Prepaid farm supplies include expenses for feed, seed,  
fertilizer, and similar farm supplies not used or consumed during  
the year. They also include the cost of poultry that would be  
allowable as a deduction in a later tax year if the corporation  
were to (a) capitalize the cost of poultry bought for use in its farm  
business and deduct it ratably over the lesser of 12 months or  
the useful life of the poultry, and (b) deduct the cost of poultry  
bought for resale in the year it sells or otherwise disposes of it.  
Reduce each item of passive investment income passed  
through to shareholders by its portion of any excess net passive  
income tax reported on line 23a. See section 1366(f)(3).  
If the limit applies, the corporation can deduct prepaid farm  
supplies that don't exceed 50% of its other deductible farm  
expenses in the year of payment. The excess is deductible only  
in the year the corporation uses or consumes the supplies (other  
than poultry, which is deductible, as explained above). For  
exceptions and more details on these rules, see Pub. 225.  
Reforestation expenditures. If the corporation made an  
election to deduct a portion of its reforestation expenditures on  
line 12d of Schedule K, it must amortize over an 84-month  
period the portion of these expenditures in excess of the amount  
deducted on Schedule K (see section 194). Deduct on line 20  
only the amortization of these excess reforestation expenditures.  
LIFO recapture tax. The corporation may be liable for the  
additional tax due to LIFO recapture under Regulations section  
1.1363-2 if:  
The corporation used the LIFO inventory pricing method for its  
last tax year as a C corporation, or  
A C corporation transferred LIFO inventory to the corporation  
in a nonrecognition transaction in which those assets were  
transferred basis property.  
The additional tax due to LIFO recapture is figured for the  
corporation's last tax year as a C corporation or for the tax year  
of the transfer, whichever applies. See the Instructions for Form  
1120 to figure the tax.  
The tax is paid in four equal installments. The C corporation  
must pay the first installment by the due date (not including  
extensions) of Form 1120 for the corporation's last tax year as a  
C corporation or for the tax year of the transfer, whichever  
applies. The S corporation must pay each of the remaining  
installments by the due date (not including extensions) of Form  
1120-S for the 3 succeeding tax years. Include this year's  
Line 22. Ordinary Business Income (Loss)  
Enter this income or loss on line 1 of Schedule K. Line 22  
income is not used in figuring the excess net passive income or  
built-in gains taxes. See the instructions for line 23a for figuring  
taxable income for purposes of these taxes.  
Keep for Your Records  
Excess Net Passive Income Tax Worksheet for Line 23a  
1. Enter gross receipts for the tax year (see section  
1362(d)(3)(B) for gross receipts from the sale of  
capital assets)* . . . . . . . . . . . . . . . . . . . . . . . . . .  
6. Net passive income—Subtract line 5 from  
line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
7. Divide amount on line 4 by amount on line 2 . . . . . .  
%
2. Enter passive investment income as defined in  
8. Excess net passive income—Multiply line 6 by  
section 1362(d)(3)(C)* . . . . . . . . . . . . . . . . . . . . .  
line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
3. Multiply line 1 by 25% (0.25). (If line 2 is less than  
9. Enter taxable income (see instructions for taxable  
line 3, stop here. You aren't liable for this tax.) . . . . .  
income below) . . . . . . . . . . . . . . . . . . . . . . . . . .  
4. Excess passive investment income—Subtract line 3  
10. Enter smaller of line 8 or line 9 . . . . . . . . . . . . . . . .  
from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
5. Enter deductions directly connected with the  
production of the income listed on line 2 (see section  
1375(b)(2))* . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
11. Excess net passive income tax—Multiply line 10 by  
21% (0.21). Enter here and on Form 1120-S,  
line 23a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  
*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form  
1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.  
Line 9 of Worksheet—Taxable Income  
Taxable income, for this purpose, is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form 1120, U.S.  
Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form 1120-S. You don't have to attach the  
schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120 schedules, such as Schedule D (Form 1120), if you have  
capital gains or losses.  
21  
Instructions for Form 1120-S (2023)  
     
installment in the total amount to be entered on line 23a. To the  
left of the total on line 23a, enter the installment amount and  
“LIFO tax.”  
months and making all required deposits and timely filing tax  
returns during the length of the agreement.  
If the installment agreement is accepted, the corporation will  
be charged a fee and it will be subject to penalties and interest  
on the amount of tax not paid by the due date of the return.  
Line 23b. Tax From Schedule D (Form 1120-S)  
Enter the built-in gains tax from line 23 of Part III of Schedule D.  
See the instructions for Part III of Schedule D to determine if the  
corporation is liable for the tax.  
Line 28  
Direct deposit of refund. If the corporation wants its refund  
directly deposited into its checking or savings account at any  
U.S. bank or other financial institution instead of having a check  
sent to the corporation, complete Form 8050 and attach it to the  
corporation's return.  
Line 23c  
Include the following in the total for line 23c.  
Investment credit recapture tax. The corporation is liable for  
any required investment credit recapture attributable to credits  
allowed for tax years for which the corporation wasn't an S  
corporation. The corporation is also liable for any required  
qualifying therapeutic discovery project grant recapture. Figure  
the corporation's investment credit recapture tax and qualifying  
therapeutic discovery project grant recapture tax by completing  
Form 4255, Recapture of Investment Credit. See the Instructions  
for Form 4255.  
Schedule B. Other Information  
Complete all items that apply to the corporation.  
Item 2  
See Principal Business Activity Codes at the end of these  
instructions and enter the business activity and product or  
service. For nonstore retailers, select the PBA code by the  
primary product that your establishment sells. For example,  
establishments primarily selling prescription and  
non-prescription drugs, select PBA code 456110 Pharmacies &  
Drug Retailers.  
To the left of the line 23c total, enter the amount of recapture  
tax and “Tax From Form 4255.” Attach Form 4255 to Form  
1120-S.  
Interest due under the look-back method—Completed  
long-term contracts. If the corporation owes this interest,  
attach Form 8697, Interest Computation Under the Look-Back  
Method for Completed Long-Term Contracts. To the left of the  
total on line 23c, enter the amount owed and “From Form 8697.”  
Question 4. Constructive Ownership of Other  
Entities  
For purposes of determining the corporation's constructive  
ownership of other entities, the constructive ownership rules of  
section 267(c) (excluding section 267(c)(3)) apply to ownership  
of interests in partnerships and trusts as well as corporate stock.  
Generally, if an entity (a corporation, partnership, or trust) is  
owned, directly or indirectly, by or for another entity (corporation,  
partnership, estate, or trust), the owned entity is considered to  
be owned proportionately by or for the owners (shareholders,  
partners, or beneficiaries) of the owning entity.  
Interest due under the look-back method—Property depre-  
ciated under the income forecast method. If the corporation  
owes this interest, attach Form 8866, Interest Computation  
Under the Look-Back Method for Property Depreciated Under  
the Income Forecast Method. To the left of the total on line 23c,  
enter the amount owed and “From Form 8866.”  
Line 24d. Elective Payment Election Amount  
From Form 3800  
Maximum percentage owned in partnership profit, loss, or  
capital. For the purposes of question 4b, the term “maximum  
percentage owned” means the highest percentage of interest in  
a partnership's profit, loss, or capital as of the end of the  
partnership's tax year, as determined under the partnership  
agreement, when taking into account the constructive ownership  
rules discussed earlier. If the partnership agreement doesn't  
express the partner's share of profit, loss, and capital as fixed  
percentages, use a reasonable method in arriving at the  
percentage items for the purposes of completing question 4b.  
Such method must be consistent with the partnership  
Enter the total gross elective payment election amount from  
Form 3800, Part III, line 6, column (h). See the Instructions for  
Form 3800 for more information.  
Line 24z  
If the corporation is the beneficiary of a trust, and the trust makes  
a section 643(g) election to credit its estimated tax payments to  
its beneficiaries, include the corporation's share of the payment  
in the total for line 24z. Enter “T” and the amount of the payment  
on the dotted line to the left of the entry space.  
agreement. The method used to figure a percentage share of  
profit, loss, and capital must be applied consistently from year to  
year. Maintain records to support the determination of the share  
of profits, losses, and share of capital.  
Line 25. Estimated Tax Penalty  
If Form 2220 is attached, check the box on line 25 and enter the  
amount of any penalty on this line.  
Question 6  
Line 26. Amount Owed  
Answer “Yes” if the corporation filed, or is required to file, Form  
8918, Material Advisor Disclosure Statement. For details, see  
the Instructions for Form 8918.  
If the corporation can't pay the full amount of tax owed, it can  
apply for an installment agreement online. The corporation can  
apply for an installment agreement online if:  
It can't pay the full amount shown on line 26,  
The total amount owed is $25,000 or less, and  
The corporation can pay the liability in full in 24 months.  
Item 8  
Complete item 8 if the corporation (a) was a C corporation before  
it elected to be an S corporation or the corporation acquired an  
asset with a basis determined by reference to its basis (or the  
basis of any other property) in the hands of a C corporation, and  
(b) has net unrealized built-in gain (defined below) in excess of  
the net recognized built-in gain from prior years.  
To apply using the Online Payment Agreement Application,  
go to IRS.gov/OPA.  
Under an installment agreement, the corporation can pay  
what it owes in monthly installments. There are certain  
conditions that must be met to enter into and maintain an  
installment agreement, such as paying the liability within 24  
22  
Instructions for Form 1120-S (2023)  
               
The corporation is liable for section 1374 tax if (a) and (b)  
above apply and it has a net recognized built-in gain (defined in  
section 1374(d)(2)) for its tax year.  
The corporation's net unrealized built-in gain is the amount, if  
any, by which the aggregate fair market value of the assets of the  
corporation at the beginning of its first S corporation year (or as  
of the date the assets were acquired, for any asset with a basis  
determined by reference to its basis (or the basis of any other  
property) in the hands of a C corporation) exceeds the aggregate  
adjusted basis of such assets at that time.  
Gross receipts test. A taxpayer meets the gross receipts test if  
the taxpayer has average annual gross receipts of $29 million or  
less for the 3 prior tax years. A taxpayer's average annual gross  
receipts for the 3 prior tax years is determined by adding the  
gross receipts for the 3 prior tax years and dividing the total by 3.  
Gross receipts include the aggregate gross receipts from all  
persons treated as a single employer, such as a controlled group  
of corporations, commonly controlled partnerships, or  
proprietorships, and affiliated service groups. See section 448(c)  
and the Instructions for Form 8990 for additional information.  
Enter the corporation's net unrealized built-in gain reduced by  
the net recognized built-in gain from prior years. See sections  
1374(c)(2) and (d)(1).  
If the corporation has more than one pool of assets (as  
defined in Regulations section 1.1374-3(b)(4)), attach a  
statement showing for each pool of assets the amount of the  
corporation's net unrealized built-in gain reduced by the net  
recognized built-in gain from prior years.  
Question 11  
Total receipts is the sum of the following amounts.  
Gross receipts or sales (page 1, line 1a).  
All other income (page 1, lines 4 and 5).  
Income reported on Schedule K, lines 3a, 4, 5a, and 6.  
Income or net gain reported on Schedule K, lines 7, 8a, 9, and  
10.  
Income or net gain reported on Form 8825, lines 2, 19, and  
20a.  
Question 9. Business Interest Expense Election  
Question 12  
The limitation on business interest expense under section 163(j)  
applies to every taxpayer with a trade or business, unless the  
taxpayer meets certain specified exceptions. A taxpayer may  
elect out of the limitation for certain businesses otherwise  
subject to the business interest expense limitation. This is an  
irrevocable election.  
Amounts related to the forgiveness of PPP loans are disregarded  
for purposes of this question.  
Question 13  
Answer “Yes” if, during the tax year, the corporation revoked a  
qualified subchapter S subsidiary (QSub) election or a QSub  
election of the corporation was terminated. If “Yes,see  
Regulations section 1.1361-5 for additional information.  
Certain real property trades or businesses and farming  
businesses qualify to make an election not to limit business  
interest expense. This is an irrevocable election. If you make this  
election, you are required to use the alternative depreciation  
system to depreciate certain property. Also, you aren’t entitled to  
the special depreciation allowance for that property. For a  
taxpayer with more than one qualifying business, the election is  
made with respect to each business.  
Check “Yes” if the taxpayer has an election in effect to  
exclude a real property trade or business or a farming business  
from section 163(j). For more information, see the Instructions for  
Form 8990.  
Questions 14a and 14b  
If the corporation made any payment in 2023 that would require it  
to file any Form(s) 1099, check the “Yes” box for question 14a  
and answer question 14b. Otherwise, check the “No” box for  
question 14a and skip question 14b. See Am I Required to File a  
Question 15  
To be certified as a qualified opportunity fund, the S corporation  
must file Form 1120-S and attach Form 8996, even if the  
corporation had no income or expenses to report. If the S  
corporation is attaching Form 8996, check the “Yes” box and  
enter the amount from Form 8996, line 15, in the entry space.  
The penalty reported on this line from Form 8996, line 15, is  
not due with the filing of this form. The IRS will separately send  
you a notice setting forth the due date for the penalty payment  
and where that payment should be sent.  
Question 10. Conditions for Filing Form 8990  
A taxpayer that isn’t a small business taxpayer (defined below)  
must generally file Form 8990. In addition, any taxpayer that  
owns an interest in a partnership with current year, or prior year  
carryover, excess business interest expense allocated from the  
partnership must file Form 8990.  
A taxpayer who is a U.S. shareholder of an applicable CFC  
that has business interest expense, disallowed business interest  
expense carryforward, or is part of a CFC group must generally  
apply section 163(j) to each applicable CFC and attach a Form  
8990 with each Form 5471.  
Question 16  
Digital assets are any digital representations of value that are  
recorded on a cryptographically secured distributed ledger or  
any similar technology. For example, digital assets include  
non-fungible tokens (NFTs) and virtual currencies, such as  
cryptocurrencies and stablecoins. If a particular asset has the  
characteristics of a digital asset, it will be treated as a digital  
asset for federal income tax purposes.  
Check the “Yes” box if at any time during the tax year, the S  
corporation (a) received (as a reward, award, or payment for  
property or services); or (b) sold, exchanged, or otherwise  
disposed of a digital asset (or any financial interest in any digital  
asset).  
Exclusions from filing. A taxpayer isn’t required to file Form  
8990 if the taxpayer is a small business taxpayer and doesn’t  
have excess business interest expense from a partnership. A  
taxpayer is also not required to file Form 8990 if the taxpayer  
only has business interest expense from these excepted trades  
or businesses:  
The trade or business of providing services as an employee,  
An electing real property trade or business,  
An electing farming business, or  
Certain regulated utility businesses.  
Small business taxpayer. A small business taxpayer isn’t  
subject to the business interest expense limitation and isn’t  
required to file Form 8990. A small business taxpayer is a  
taxpayer that (a) isn’t a tax shelter (as defined in section 448(d)  
(3)), and (b) meets the gross receipts test of section 448(c),  
discussed next.  
For example, check “Yes” if at any time during the tax year,  
the S corporation:  
Received digital assets as payment for property or services  
provided;  
23  
Instructions for Form 1120-S (2023)  
         
Received digital assets as a result of a reward or award;  
boxes must use the same numbers and titles and must be in the  
same order and format as on the comparable IRS Schedule K-1.  
The substitute schedule must include the OMB number. The  
corporation must provide each shareholder with the  
Shareholder's Instructions for Schedule K-1 (Form 1120-S) or  
instructions that apply to the specific items reported on the  
shareholder's Schedule K-1.  
Received new digital assets as a result of mining, staking, and  
similar activities;  
Received digital assets as a result of a hard fork;  
Disposed of digital assets in exchange for property or  
services;  
Disposed of a digital asset in exchange or trade for another  
digital asset;  
The corporation must ask for IRS approval to use other  
substitute Schedules K-1.  
Sold a digital asset; or  
Otherwise disposed of any other financial interest in a digital  
asset.  
Each shareholder's information must be on a separate sheet  
of paper. Therefore, separate all continuously printed substitutes  
before you file them with the IRS.  
The S corporation has a financial interest in a digital asset if it  
is the owner of record of a digital asset, or has an ownership  
stake in an account that holds one or more digital assets,  
including the rights and obligations to acquire a financial interest,  
or owns a wallet that holds digital assets.  
The corporation may be subject to a penalty if it files a  
substitute Schedule K-1 that doesn't conform to the  
specifications discussed in Pub. 1167, General Rules and  
Specifications for Substitute Forms and Schedules.  
The following actions or transactions in the tax year, alone,  
generally do not require the S corporation to check “Yes.”  
For more information, see Pub. 1167.  
Holding a digital asset in a wallet or account;  
Transferring a digital asset from one wallet or account the S  
Shareholder's Pro Rata Share Items  
General Rule  
corporation owns or controls to another wallet or account that it  
owns or controls; or  
Purchasing digital assets using U.S. or other real currency,  
including through the use of electronic platforms such as PayPal  
and Venmo.  
Items of income, gain, loss, deduction, or credit are allocated to  
a shareholder on a daily basis, according to the number of  
shares of stock held by the shareholder on each day of the  
corporation's tax year. See the detailed instructions for item G in  
Do not leave the question unanswered. The S corporation  
must answer “Yes” or “No” by checking the appropriate box. For  
more information, go to IRS.gov/virtualcurrencyfaqs.  
If the S corporation disposed of any digital asset that was  
held as a capital asset, through a sale, trade, exchange,  
payment, or other transfer, use Form 8949 to calculate the  
capital gain or loss and report that gain or loss on Schedule D  
(Form 1120-S). If the S corporation received any digital asset as  
compensation for services or disposed of any digital asset that  
was held for sale to customers in a trade or business, it must  
report the income as it would report other income of the same  
type.  
Shareholders who dispose of stock are treated as  
shareholders for the day of their disposition. Shareholders who  
die are treated as shareholders for the day of their death.  
Special Rules  
Termination of shareholder's interest. If a shareholder  
terminates shareholder’s interest in a corporation during the tax  
year, the corporation, with the consent of all affected  
shareholders (including those whose interest is terminated), may  
elect to allocate income and expenses, etc., as if the  
Schedules K and K-1 (General  
Instructions)  
corporation's tax year consisted of 2 separate tax years, the first  
of which ends on the date of the shareholder's termination.  
To make the election, the corporation must attach a statement  
to a timely filed original or amended Form 1120-S for the tax year  
for which the election is made. In the statement, the corporation  
must state that it is electing under section 1377(a)(2) and  
Regulations section 1.1377-1(b) to treat the tax year as if it  
consisted of 2 separate tax years. The statement must also  
explain how the shareholder's entire interest was terminated (for  
example, sale or gift), and state that the corporation and each  
affected shareholder consent to the corporation making the  
election. A single statement may be filed for all terminating  
elections made for the tax year. If the election is made, enter  
“Section 1377(a)(2) Election Made” at the top of each affected  
shareholder's Schedule K-1.  
Purpose of Schedules  
The corporation is liable for taxes on lines 23a, 23b, and 23c on  
page 1 of Form 1120-S. Shareholders are liable for tax on their  
shares of the corporation's income (reduced by any taxes paid  
by the corporation on income). Shareholders must include their  
share of the income on their tax return whether or not it is  
distributed to them. Unlike most partnership income, S  
corporation income isn't self-employment income and isn't  
subject to self-employment tax.  
Schedule K. Schedule K is a summary schedule of all  
shareholders' shares of the corporation's income, deductions,  
credits, etc. All corporations must complete Schedule K.  
For more details, see Regulations section 1.1377-1(b).  
Schedule K-1. Schedule K-1 shows each shareholder's  
separate share. Attach a copy of each Schedule K-1 to the Form  
1120-S filed with the IRS. Keep a copy for the corporation's  
records and give each shareholder a copy.  
Give each shareholder a copy of the Shareholder's  
Instructions for Schedule K-1 (Form 1120-S) or specific  
instructions for each item reported on the shareholder's  
Schedule K-1.  
Qualifying dispositions. If a qualifying disposition takes place  
during the tax year, the corporation may make an irrevocable  
election to allocate income and expenses, etc., as if the  
corporation's tax year consisted of 2 tax years, the first of which  
ends on the close of the day the qualifying disposition occurs.  
A qualifying disposition is:  
1. A disposition by a shareholder of at least 20% of the  
corporation's outstanding stock in one or more transactions in  
any 30-day period during the tax year,  
Substitute Forms  
The corporation doesn't need IRS approval to use a substitute  
Schedule K-1 if it is an exact copy of the IRS schedule. The  
2. A redemption treated as an exchange under section  
302(a) or 303(a) of at least 20% of the corporation's outstanding  
24  
Instructions for Form 1120-S (2023)  
     
stock in one or more transactions in any 30-day period during the  
tax year, or  
3. An issuance of stock that equals at least 25% of the  
previously outstanding stock to one or more new shareholders in  
any 30-day period during the tax year.  
amount. For example: “Box 13, code J—Work opportunity  
credit—$1,000.This can be followed with any additional  
information that the shareholder needs to determine the proper  
tax treatment of the item.  
For electronically filed returns, the corporation must  
follow the instructions for attached statements as  
!
To make the election, the corporation must attach a statement  
to a timely filed original or amended Form 1120-S for the tax year  
for which the election is made. In the statement, the corporation  
must state that it is electing under Regulations section  
1.1368-1(g)(2)(i) to treat the tax year as if it consisted of 2  
separate tax years, give the facts relating to the qualifying  
disposition (for example, sale, gift, stock issuance, or  
redemption), and state that each shareholder who held stock in  
the corporation during the tax year consents to the election. A  
single election statement may be filed for all qualifying  
disposition elections for the tax year.  
CAUTION  
described in Pub. 4164 when reporting the additional  
information that may be required for each respective box. See  
Pub. 4164, Modernized e-File (MeF) Guide for Software  
Developers and Transmitters, for more information.  
Special Reporting Requirements for At-Risk  
Activities  
If items of income, loss, or deduction from more than one at-risk  
activity are reported on Schedule K-1, the corporation must  
provide its shareholders with separate information for each  
At-Risk Limitations, earlier, for details.  
For more details, see Regulations section 1.1368-1(g)(2).  
Specific Instructions (Schedule K-1  
Only)  
General Information  
Special Reporting Requirements for Corporations  
With Multiple Activities  
Generally, the corporation is required to prepare and give a  
Schedule K-1 to each person who was a shareholder in the  
corporation at any time during the tax year. Schedule K-1 must  
be provided to each shareholder on or before the day on which  
the corporation's Form 1120-S is required to be filed.  
If items of income, loss, deduction, or credit from more than one  
activity (determined for purposes of the passive activity loss and  
credit limitations) are reported on Schedule K-1, the corporation  
must provide information separately for each activity to its  
earlier, for details on the reporting requirements.  
How To Complete Schedule K-1  
Part I. Information About the Corporation  
If the return is for a fiscal year or a short tax year, fill in the tax  
year space at the top of each Schedule K-1. On each  
On each Schedule K-1, enter the corporation's name, address,  
and identifying number.  
Schedule K-1, enter the information about the corporation and  
the shareholder in Parts I and II (items A through I). In Part III,  
enter the shareholder's pro rata share of each item of income,  
deduction, and credit and any other information the shareholder  
needs to prepare the shareholder's tax return, including  
information needed to prepare state and local tax returns. Use  
10-point Helvetica Light Standard font (if possible) for all entries  
if you are typing or using a computer to complete Schedule K-1.  
Item C  
If the corporation is filing its return electronically, enter “e-file.”  
Otherwise, enter the name of the IRS service center where the  
corporation will file its return. See Where To File, earlier.  
Item D  
Codes. In boxes 10, 12, 13, and boxes 15 through 17, identify  
each item by entering a code in the left column of the entry  
space. These codes are identified in these instructions and on  
the List of Codes in the Shareholder's Instructions for  
Schedule K-1 (Form 1120-S).  
Report the total number of shares issued and outstanding at the  
beginning and end of the S corporation’s tax year. An entity  
without stock, such as an LLC, should enter the number of units  
or other equivalent to S corporation stock. Round the number of  
shares to the nearest whole number (but not below zero). For  
example, round 0.6315 up to 1.  
Attached statements. When attaching statements to  
Schedule K-1 to report additional information to the shareholder,  
indicate there is a statement depending upon the following.  
Part II. Information About the Shareholder  
If an amount can be input on Schedule K-1 but additional  
information is required so the shareholder can determine the  
proper reporting, enter an asterisk (*) after the code in the left  
column of the entry space.  
On each Schedule K-1, enter the shareholder's name, address,  
identifying number, and percentage of stock ownership.  
Truncating recipient's identification number on Sched-  
ule K-1. The corporation can truncate a shareholder's  
identifying number on the Schedule K-1 the corporation sends to  
the shareholder. Truncation isn't allowed on the Schedule K-1  
the corporation files with the IRS. Also, the corporation can't  
truncate its own identification number on any form.  
To truncate, where allowed, replace the first five digits of the  
nine-digit number with asterisks (*) or Xs (for example, an SSN  
xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For  
more information, see Regulations section 301.6109-4.  
For items that can't be reported as a single dollar amount,  
enter the code and asterisk (*) in the left column and enter  
“STMT” in the right column to indicate that the information is  
provided on an attached statement.  
If the corporation has more coded items than the number of  
entry boxes (for example, boxes 10, 12, 13, or boxes 15 through  
17), don't enter a code or dollar amount in the last box. Instead,  
enter an asterisk (*) in the left column and enter “STMT” in the  
entry space to the right.  
More than one attached statement can be placed on the  
same sheet of paper. The information included in the statement  
should be identified in alphanumeric order by box number  
followed by the letter code (if any), description, and dollar  
25  
Instructions for Form 1120-S (2023)  
       
disposition took place, the corporation may elect to allocate  
income and expenses, etc., as if the tax year consisted of 2 tax  
years, the first of which ends on the day of the termination or  
qualifying disposition. See Special Rules, earlier, for more  
details.  
Items E and F  
For an individual shareholder, enter the shareholder's social  
security number (SSN) or individual taxpayer identification  
number (ITIN) in item E. For all other shareholders, enter the  
shareholder's EIN.  
Item H  
If stock of the corporation is held by a nominee, guardian,  
custodian, or an agent, enter the name, address, and identifying  
number of the person for whom the stock is held.  
Report the number of shares for purposes of allocating items of  
income, loss, or deduction at the beginning and end of the S  
corporation’s tax year. An entity without stock, such as an LLC,  
should enter the number of units or other equivalent to S  
corporation stock (including ownership percentages). Round the  
number of shares to the nearest whole number (but not below  
zero). For example, round 0.6315 up to 1.  
If S corporation stock is part of a decedent's estate, the  
executor of the estate should notify the S corporation of the  
name and taxpayer identification number of the decedent's  
estate. See Pub. 559 for details.  
Example. If shareholders X and Y each owned 50 shares for  
the entire tax year, enter 50 in item H for both the beginning and  
ending amounts for each shareholder. However, if A and B each  
owned 50 shares of stock for the first half of the tax year and C  
purchased 10 shares of A’s and B’s stock during the year, A’s  
and B’s beginning of tax year number of shares is 50, while C’s is  
0, and the end of tax year number of shares for A and B is 40,  
while C’s is 20.  
If a single-member limited liability company (LLC) owns stock  
in the corporation, and the LLC is treated as a disregarded entity  
for federal income tax purposes, enter the LLC owner's  
identifying number in item E and the LLC owner's name and  
address in item F. The LLC’s owner must be eligible to be an S  
corporation shareholder. An LLC that elects to be treated as a  
corporation for federal income tax purposes isn't eligible to be an  
S corporation shareholder.  
Item I  
Item G  
Each shareholder's pro rata share items are figured separately  
for each period on a daily basis, based on the percentage of  
stock held by the shareholder on each day.  
Report the amount of debt owed by the S corporation directly to  
the shareholder as of the beginning and end of the S  
corporation’s tax year. Generally, the amount reported on  
Schedule L, line 19, Loans from shareholder, should reconcile to  
the sum of all amounts reported on Schedules K-1. Do not  
include amounts for which the shareholder is a co-borrower or  
guarantor of corporate level debt. Also do not include any  
intercompany debt.  
If there was no change in shareholders or in the relative  
interest in stock the shareholders owned during the tax year,  
enter the percentage of total stock owned by each shareholder  
during the tax year (current year allocation percentage). For  
example, if shareholders X and Y each owned 50% for the entire  
tax year, enter 50% in item G for each shareholder. Each  
shareholder's pro rata share items (boxes 1 through 17 of  
Schedule K-1) are figured by multiplying the corresponding  
Schedule K amount by the percentage in item G.  
Specific Instructions (Schedules K  
and K-1, Part III)  
Income (Loss)  
If there was a change in shareholders or in the relative  
interest in stock the shareholders owned during the tax year,  
figure the percentage as follows.  
Reminder. Before entering income items on Schedule K or K-1,  
reduce each item of passive investment income (within the  
meaning of section 1362(d)(3)(C)) by its proportionate share of  
the net passive income tax (Form 1120-S, page 1, line 23a).  
Each shareholder's percentage of ownership is weighted for  
the number of days in the tax year that stock was owned. For  
example, A and B each held 50% for half the tax year and A, B,  
and C held 40%, 40%, and 20%, respectively, for the remaining  
half of the tax year. The percentage of ownership for the year for  
A, B, and C is figured as presented in the illustration and is then  
entered in item G.  
Line 1. Ordinary Business Income (Loss)  
Enter the amount from Form 1120-S, page 1, line 22. Enter the  
income (loss) without reference to the shareholder's:  
Basis in the stock of the corporation and in any indebtedness  
a
b
c (a × b)  
of the corporation to the shareholders (section 1366(d)),  
At-risk limitations, and  
% of total stock  
owned  
% of tax year held % of ownership for  
the year  
Passive activity limitations.  
A
B
50  
40  
50  
50  
25  
+20  
These limitations, if applicable, are determined at the  
45  
shareholder level.  
50  
40  
50  
50  
25  
+20  
45  
10  
Line 1 shouldn't include rental activity income (loss) or  
portfolio income (loss).  
C
20  
50  
10  
Schedule K-1. Enter each shareholder's pro rata share of  
ordinary business income (loss) in box 1 of Schedule K-1.  
Identify on statements attached to Schedule K-1 any additional  
information the shareholder needs to correctly apply the passive  
activity limitations. For example, if the corporation has more than  
one trade or business activity, identify the amount from each  
activity. See Passive Activity Reporting Requirements, earlier.  
Total  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
100%  
Each shareholder's pro rata share items are generally figured  
by multiplying the Schedule K amount by the percentage in item  
G. However, if a shareholder terminated the shareholder’s entire  
interest in the corporation during the year or a qualifying  
26  
Instructions for Form 1120-S (2023)  
   
(within the meaning of section 958(a)) stock in a foreign  
corporation may have income inclusions (for example, subpart F  
income and GILTI inclusions) with respect to the foreign  
corporation and, as a result, previously taxed earnings and  
profits (PTEP) in annual PTEP accounts with respect to the  
foreign corporation. Do not include ordinary dividends or  
qualified dividends received from a foreign corporation to the  
extent that they are attributable to PTEP in annual PTEP  
accounts of the S corporation with respect to the foreign  
corporation. See Notice 2019-01. The amount by which ordinary  
dividends and qualified dividends are attributable to PTEP in  
annual PTEP accounts of a person other than the S corporation  
(for example, a shareholder) is not relevant for purposes of  
determining the ordinary dividends to be entered on line 5a.  
Line 2. Net Rental Real Estate Income (Loss)  
Enter the net income (loss) from rental real estate activities of the  
corporation from Form 8825. Attach the form to Form 1120-S.  
Schedule K-1. Enter each shareholder's pro rata share of net  
rental real estate income (loss) in box 2 of Schedule K-1. Identify  
on statements attached to Schedule K-1 any additional  
information the shareholder needs to correctly apply the passive  
activity limitations. For example, if the corporation has more than  
one rental real estate activity, identify the amount from each  
activity. Also, for example, identify certain items from any rental  
real estate activities that may be subject to the recharacterization  
Note. An annual PTEP account of the S corporation is different  
than the shareholders’ undistributed taxable income previously  
taxed account, as discussed in the instructions to Schedule M-2,  
column (b).  
Line 3. Other Net Rental Income (Loss)  
Enter on line 3a gross income from rental activities other than  
those reported on Form 8825. Include on line 3a gain (loss) from  
line 17 of Form 4797 that is attributable to the sale, exchange, or  
involuntary conversion of an asset used in a rental activity other  
than a rental real estate activity.  
Schedule K-1. Enter each shareholder's pro rata share of  
ordinary dividends in box 5a of Schedule K-1.  
Line 5b. Qualified Dividends  
Enter on line 3b the deductible expenses of the activity.  
Attach a statement of these expenses to Form 1120-S.  
Enter qualified dividends on line 5b. Except as provided below,  
qualified dividends are dividends received from domestic  
corporations and qualified foreign corporations. Do not include  
qualified dividends to the extent that they are attributable to  
PTEP in annual PTEP accounts of the S corporation. See Notice  
2019-01. The amount by which qualified dividends are  
attributable to PTEP in annual PTEP accounts of a person other  
than the S corporation (for example, a shareholder) is not  
relevant for purposes of determining the qualified dividends to be  
entered on line 5b.  
Enter on line 3c the net income (loss).  
See Rental Activities, earlier, and Pub. 925, for more  
information on rental activities.  
Schedule K-1. Enter in box 3 of Schedule K-1 each  
shareholder's pro rata share of other net rental income (loss)  
reported on line 3c of Schedule K. Identify on statements  
attached to Schedule K-1 any additional information the  
shareholder needs to correctly apply the passive activity  
limitations. For example, if the corporation has more than one  
rental activity reported in box 3, identify the amount from each  
activity. See Passive Activity Reporting Requirements, earlier.  
Note. An annual PTEP account of the S corporation is different  
than the shareholders’ undistributed taxable income previously  
taxed account, as discussed in the instructions to Schedule M-2,  
column (b).  
Portfolio Income  
Exceptions. The following dividends aren't qualified dividends.  
Dividends the corporation received on any share of stock held  
See Portfolio Income, earlier, for a definition of portfolio income.  
for less than 61 days during the 121-day period that began 60  
days before the ex-dividend date. When determining the number  
of days the corporation held the stock, don't count certain days  
during which the corporation's risk of loss was diminished. The  
ex-dividend date is the first date following the declaration of a  
dividend on which the purchaser of a stock isn't entitled to  
receive the next dividend payment. When counting the number  
of days the corporation held the stock, include the day the  
corporation disposed of the stock but not the day the corporation  
acquired it.  
Don't reduce portfolio income by deductions allocated to it.  
Report such deductions (other than interest expense) on  
line 12d of Schedule K. Report each shareholder's pro rata  
share of deductions in box 12 of Schedule K-1 using codes I or  
L.  
Interest expense allocable to portfolio income is generally  
investment interest expense reported on line 12b of Schedule K.  
Report each shareholder's pro rata share of interest expense  
allocable to portfolio income in box 12 of Schedule K-1 using  
code H.  
Dividends attributable to periods totaling more than 366 days  
that the corporation received on any share of preferred stock  
held for less than 91 days during the 181-day period that began  
90 days before the ex-dividend date. When determining the  
number of days the corporation held the stock, don't count  
certain days during which the corporation's risk of loss was  
diminished. Preferred dividends attributable to periods totaling  
less than 367 days are subject to the 61-day holding period rule  
above.  
Line 4. Interest Income  
Enter only taxable portfolio interest on this line. Taxable interest  
is interest from all sources except interest exempt from tax and  
interest on tax-free covenant bonds.  
Dividends that relate to payments that the corporation is  
Schedule K-1. Enter each shareholder's pro rata share of  
obligated to make with respect to short sales or positions in  
substantially similar or related property.  
interest income in box 4 of Schedule K-1.  
Dividends paid by a regulated investment company that aren't  
Line 5a. Ordinary Dividends  
treated as qualified dividend income under section 854.  
Dividends paid by a real estate investment trust that aren't  
treated as qualified dividend income under section 857(c).  
Enter only taxable ordinary dividends on line 5a, including any  
qualified dividends reported on line 5b. An S corporation that  
directly or indirectly (through pass-through entities only) owns  
27  
Instructions for Form 1120-S (2023)  
   
See Pub. 550, Investment Income and Expenses, for more  
details.  
Collectibles include works of art, rugs, antiques, metal (such  
as gold, silver, or platinum bullion), gems, stamps, coins,  
alcoholic beverages, and certain other tangible property.  
Qualified foreign corporation. A foreign corporation is a  
qualified foreign corporation if it is:  
Also include gain (but not loss) from the sale or exchange of  
an interest in a partnership or trust held for more than 1 year and  
attributable to unrealized appreciation of collectibles. For details,  
see Regulations section 1.1(h)-1. Also attach the statement  
required under Regulations section 1.1(h)-1(e).  
1. Incorporated in a territory of the United States, or  
2. Eligible for benefits of a comprehensive income tax treaty  
with the United States that the Secretary determines is  
satisfactory for this purpose and that includes an exchange of  
information program. See Notice 2011-64, 2011-37 I.R.B. 231,  
for details.  
Schedule K-1. Report each shareholder's pro rata share of the  
collectibles (28%) gain (loss) in box 8b of Schedule K-1.  
If the foreign corporation doesn't meet either (1) or (2), then it  
may be treated as a qualified foreign corporation for any dividend  
paid by the corporation if the stock associated with the dividend  
paid is readily tradable on an established securities market in the  
United States.  
However, qualified dividends don't include dividends paid by  
an entity that was a passive foreign investment company  
(defined in section 1297) in either the tax year of the distribution  
or the preceding tax year.  
Line 8c. Unrecaptured Section 1250 Gain  
The three types of unrecaptured section 1250 gain must be  
reported separately on an attached statement to Form 1120-S.  
From the sale or exchange of the corporation's business  
assets. Figure this amount in Part III of Form 4797 for each  
section 1250 property (except property for which gain is reported  
using the installment method on Form 6252) for which you had  
an entry in Part I of Form 4797. Subtract line 26g of Form 4797  
from the smaller of line 22 or line 24. Figure the total of these  
amounts for all section 1250 properties. Generally, the result is  
the corporation's unrecaptured section 1250 gain. However, if  
the corporation is reporting gain on the installment method for a  
section 1250 property held more than 1 year, see the next  
paragraph.  
The total unrecaptured section 1250 gain for an installment  
sale of section 1250 property held more than 1 year is figured in  
a manner similar to that used in the preceding paragraph.  
However, the total unrecaptured section 1250 gain must be  
allocated to the installment payments received from the sale. To  
do so, the corporation must generally treat the gain allocable to  
each installment payment as unrecaptured section 1250 gain  
until all such gain has been used in full. Figure the unrecaptured  
section 1250 gain for installment payments received during the  
tax year as the smaller of (a) the amount from line 26 or line 37 of  
Form 6252 (whichever applies), or (b) the total unrecaptured  
section 1250 gain for the sale reduced by all gain reported in  
prior years (excluding section 1250 ordinary income recapture).  
See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3,  
2006-3 I.R.B. 306, for more details.  
Schedule K-1. Enter each shareholder's pro rata share of  
qualified dividends in box 5b of Schedule K-1.  
If any amounts from line 5b are from foreign sources, see  
the instructions for Schedule K-2 (Form 1120-S) and  
!
CAUTION  
Schedule K-3 (Form 1120-S).  
Line 6. Royalties  
Enter the royalties received by the corporation.  
Schedule K-1. Enter each shareholder's pro rata share of  
royalties in box 6 of Schedule K-1.  
Line 7. Net Short-Term Capital Gain (Loss)  
Enter the gain (loss) that is portfolio income (loss) from  
Schedule D (Form 1120-S), line 7.  
If the corporation chose not to treat all of the gain from  
Schedule K-1. Enter each shareholder's pro rata share of net  
payments received after May 6, 1997, and before August  
short-term capital gain (loss) in box 7 of Schedule K-1.  
!
CAUTION  
24, 1999, as unrecaptured section 1250 gain, use only  
the amount the corporation chose to treat as unrecaptured  
section 1250 gain for those payments to reduce the total  
unrecaptured section 1250 gain remaining to be reported for the  
sale. See Regulations section 1.453-12.  
Line 8a. Net Long-Term Capital Gain (Loss)  
Enter the gain or loss that is portfolio income (loss) from  
Schedule D (Form 1120-S), line 15.  
From the sale or exchange of an interest in a partnership.  
Also report as a separate amount any gain from the sale or  
exchange of an interest in a partnership attributable to  
unrecaptured section 1250 gain. See Regulations section  
1.1(h)-1 and attach the statement required under Regulations  
section 1.1(h)-1(e).  
Schedule K-1. Enter each shareholder's pro rata share of net  
long-term capital gain (loss) in box 8a of Schedule K-1.  
If any gain or loss from line 7 or 15 of Schedule D is from  
the disposition of nondepreciable personal property  
!
CAUTION  
used in a trade or business, it may not be treated as  
portfolio income. Instead, report it on line 10 of Schedule K and  
report each shareholder's pro rata share in box 10 of  
Schedule K-1 using code ZZ.  
From an estate, trust, REIT, or RIC. If the corporation received  
a Schedule K-1 or Form 1099-DIV from an estate, a trust, a real  
estate investment trust (REIT), or a regulated investment  
company (RIC) reporting “unrecaptured section 1250 gain,don't  
add it to the corporation's own unrecaptured section 1250 gain.  
Instead, report it as a separate amount. For example, if the  
corporation received a Form 1099-DIV from a REIT with  
unrecaptured section 1250 gain, report it as “Unrecaptured  
section 1250 gain from a REIT.”  
Line 8b. Collectibles (28%) Gain (Loss)  
Figure the amount attributable to collectibles from the amount  
reported on Schedule D (Form 1120-S), line 15. A collectibles  
gain (loss) is any long-term gain or deductible long-term loss  
from the sale or exchange of a collectible that is a capital asset.  
Schedule K-1. Report each shareholder's pro rata share of  
unrecaptured section 1250 gain from the sale or exchange of the  
corporation's business assets in box 8c of Schedule K-1. If the  
corporation is reporting unrecaptured section 1250 gain from an  
28  
Instructions for Form 1120-S (2023)  
estate, trust, REIT, or RIC, or from the corporation's sale or  
exchange of an interest in a partnership (as explained above),  
enter “STMT” in box 8c and an asterisk (*) in the left column of  
the box and attach a statement that separately identifies the  
amount of unrecaptured section 1250 gain from:  
If there was a gain (loss) from a casualty or theft to property  
not used in a trade or business or for income-producing  
purposes, notify the shareholder. The corporation shouldn't  
complete Form 4684 for this type of casualty or theft. Instead,  
each shareholder will complete the shareholder's own Form  
4684.  
The sale or exchange of the corporation's business assets;  
The sale or exchange of an interest in a partnership; and  
An estate, trust, REIT, or RIC.  
Section 1256 contracts and straddles (code C). Report any  
net gain or loss from section 1256 contracts from Form 6781,  
Gains and Losses From Section 1256 Contracts and Straddles.  
If any amounts from line 8c are from foreign sources, see  
the instructions for Schedule K-2 (Form 1120-S) and  
!
Mining exploration costs recapture (code D). Provide the  
information shareholders need to recapture certain mining  
exploration expenditures. See Regulations section 1.617-3.  
CAUTION  
Schedule K-3 (Form 1120-S).  
Line 9. Net Section 1231 Gain (Loss)  
Section 951A(a) income inclusions (code E). If the S  
corporation elected to be treated as owning stock of a CFC  
within the meaning of section 958(a) under Proposed  
Regulations section 1.958-1(e)(2), and the S corporation is a  
U.S. shareholder of a CFC, then the S corporation determines its  
section 951A inclusion amount. Report the corporation's section  
951A inclusion and its shareholders' pro rata shares of the  
section 951A inclusions using code E. See Form 8992, Part II,  
line 5.  
Enter the net section 1231 gain (loss) from Form 4797, line 7.  
Don't include net gain or loss from involuntary conversions  
due to casualty or theft. Report net loss from involuntary  
conversions due to casualty or theft on line 10 of Schedule K  
(box 10, code B, of Schedule K-1). See the instructions for  
line 10 on how to report net gain from involuntary conversions.  
Provide information on line 10 using code E only if the  
Schedule K-1. Report each shareholder's pro rata share of net  
section 1231 gain (loss) in box 9 of Schedule K-1. If the  
corporation has more than one rental, trade, or business activity,  
identify on an attachment to Schedule K-1 the amount of section  
1231 gain (loss) from each separate activity. See Passive Activity  
corporation (and its shareholders, if applicable) has  
!
CAUTION  
elected to be treated as owning stock of a foreign  
corporation within the meaning of section 958(a) under  
Proposed Regulations section 1.958-1(e)(2). If no election has  
been made, see instructions for Part V of the Schedule K-2  
(Form 1120-S).  
If any amounts from line 9 are from foreign sources, see  
the instructions for Schedule K-2 (Form 1120-S) and  
Inclusions of subpart F income (code F). The S corporation  
should report its subpart F income inclusions and its  
!
CAUTION  
Schedule K-3 (Form 1120-S).  
shareholders’ pro rata shares of its subpart F income inclusions.  
An S corporation does not have subpart F income inclusions with  
respect to a foreign corporation for tax years of the foreign  
corporation beginning on or after January 25, 2022, under  
Regulations section 1.958-1(d)(1) if the S corporation did not  
make an election to be treated as owning stock of the foreign  
corporation within the meaning of section 958(a) under  
Proposed Regulations section 1.958-1(e)(2). An S corporation  
does not have subpart F income inclusions with respect to a  
foreign corporation for tax years of the foreign corporation  
beginning before January 25, 2022, if the S corporation did not  
make an election to be treated as owning stock of a foreign  
corporation within the meaning of section 958(a) under  
Proposed Regulations section 1.958-1(e)(2) and, pursuant to  
Regulations section 1.958-1(d)(4)(i), applies Regulations section  
1.958-1(d)(1) through (3) to such tax years.  
Line 10. Other Income (Loss)  
Enter any other item of income or loss not included on lines 1  
through 9. On the line to the left of the entry space for line 10,  
identify the type of income. If there is more than one type of  
income, attach a statement to Form 1120-S that separately  
identifies each type and amount of income for each of the  
following categories. The codes needed for Schedule K-1  
reporting are provided for each category.  
Other portfolio income (loss) (code A). Portfolio income not  
reported on lines 4 through 8.  
Report and identify other portfolio income or loss on an  
attachment for line 10.  
If the corporation holds a residual interest in a Real Estate  
Mortgage Investment Conduit (REMIC), report on an attachment  
the shareholder's share of the following.  
Section 951(a)(1)(B) inclusions (code G). The S corporation  
should report its section 951(a)(1)(B) inclusions and its  
shareholders’ pro rata shares of its section 951(a)(1)(B)  
inclusions. An S corporation does not have section 951(a)(1)(B)  
inclusions with respect to a foreign corporation for tax years of  
the foreign corporation beginning on or after January 25, 2022,  
under Regulations section 1.958-1(d)(1) if the S corporation did  
not make an election to be treated as owning stock of the foreign  
corporation within the meaning of section 958(a) under  
Proposed Regulations section 1.958-1(e)(2). An S corporation  
does not have section 951(a)(1)(B) inclusions with respect to a  
foreign corporation for tax years of the foreign corporation  
beginning before January 25, 2022, if the S corporation did not  
make an election to be treated as owning stock of a foreign  
corporation within the meaning of section 958(a) under  
Proposed Regulations section 1.958-1(e)(2) and, pursuant to  
Regulations section 1.958-1(d)(4)(i), applies Regulations section  
1.958-1(d)(1) through (3) to such tax years.  
Taxable income (net loss) from the REMIC (line 1b of  
Schedules Q (Form 1066)).  
Excess inclusion (line 2c of Schedules Q (Form 1066)).  
Section 212 expenses (line 3b of Schedules Q (Form 1066)).  
Because Schedule Q (Form 1066) is a quarterly statement,  
the corporation must follow the Schedule Q instructions to figure  
the amounts to report to shareholders for the corporation's tax  
year.  
Involuntary conversions (code B). Report net loss from  
involuntary conversions due to casualty or theft. The amount for  
this item is shown on Form 4684, Casualties and Thefts, line 38a  
or 38b.  
Each shareholder's pro rata share must be entered on  
Schedule K-1.  
Enter the net gain from involuntary conversions of property  
used in a trade or business (line 39 of Form 4684) on line 3 of  
Form 4797.  
29  
Instructions for Form 1120-S (2023)  
 
If the corporation does not have subpart F income  
inclusions or section 951(a)(1)(B) inclusions with respect  
to a foreign corporation, stock of which it owns within the  
the shareholder level. Report each shareholder's share of  
section 1202 gain on Schedule K-1. Each shareholder will  
determine if they qualify for the exclusion. Report on an  
attachment to Schedule K-1 for each sale or exchange (a) the  
name of the corporation that issued the QSB stock, (b) the  
shareholder's pro rata share of the corporation's adjusted basis  
and sales price of the QSB stock, and (c) the dates the QSB  
stock was bought and sold.  
!
CAUTION  
meaning of section 958(a) and without regard to Regulations  
section 1.958-1(d), see instructions for Part V of the  
Schedule K-2 (Form 1120-S) for reporting of information related  
to subpart F income inclusions and section 951(a)(1)(B)  
inclusions of shareholders with respect to the foreign  
corporation.  
Codes P through R. Reserved for future use.  
Code H. Reserved for future use.  
Non-portfolio capital gain (loss) (code S). Any gain or loss  
from line 7 or 15 of Schedule D that isn't portfolio income (for  
example, gain or loss from the disposition of nondepreciable  
personal property used in a trade or business).  
Gain (loss) from disposition of oil, gas, geothermal, or oth-  
er mineral properties (code I). Report the following  
information on a statement attached to Schedule K-1: (a) a  
description of the property; (b) the shareholder's share of the  
amount realized on the sale, exchange, or involuntary conversion  
of each property (fair market value of the property for any other  
disposition, such as a distribution); (c) the shareholder's share of  
the corporation's adjusted basis in the property (except for oil or  
gas properties); and (d) total intangible drilling costs,  
Codes T through X. Reserved for future use.  
Other income (loss) (code ZZ). Include any other type of  
income (loss) not reported using codes A through S.  
Schedule K-1. Enter each shareholder's pro rata share of the  
other income categories listed above in box 10 of Schedule K-1.  
Enter the applicable code A through ZZ (as shown earlier).  
development costs, and mining exploration costs (section 59(e)  
expenditures) passed through to the shareholder for the  
property. See Regulations section 1.1254-4 for more information.  
If you are reporting each shareholder's pro rata share of only  
one type of income under code ZZ, enter the code with an  
asterisk (ZZ*) and the dollar amount in the entry space in box 10  
and attach a statement that shows “Box 10, code ZZ,and the  
type of income. If you are reporting multiple types of income  
under code ZZ, enter the code with an asterisk (ZZ*) and enter  
“STMT” in the entry space in box 10 and attach a statement that  
shows “Box 10, code ZZ,and the dollar amount of each type of  
income.  
If the corporation has more than one trade or business or  
rental activity (for codes B through ZZ), identify on an attachment  
to Schedule K-1 the amount from each separate activity. See  
Recoveries of tax benefit items (code J). Recoveries of tax  
benefit items (section 111).  
Gambling gains and losses (code K). Gambling gains and  
losses subject to the limitations in section 165(d). Indicate on an  
attached statement whether or not the corporation is in the trade  
or business of gambling.  
Code L. Reserved for future use.  
Gain eligible for section 1045 rollover (replacement stock  
purchased by the corporation) (code M). Include only gain  
from the sale or exchange of QSB stock (as defined in the  
Instructions for Schedule D) that was deferred by the corporation  
under section 1045 and reported on Schedule D. See the  
Instructions for Schedule D for more details. Additional  
Deductions  
limitations apply at the shareholder level. Report each  
Line 11. Section 179 Deduction  
shareholder's share of the gain eligible for section 1045 rollover  
on Schedule K-1. Each shareholder will determine if they qualify  
for the rollover. Report on an attachment to Schedule K-1 for  
each sale or exchange (a) the name of the corporation that  
issued the QSB stock, (b) the shareholder's pro rata share of the  
corporation's adjusted basis and sales price of the QSB stock,  
and (c) the dates the QSB stock was bought and sold.  
A corporation can elect to expense part or all of the cost of  
certain property the corporation purchased during the tax year  
for use in its trade or business or certain rental activities. See  
Pub. 946 for a definition of what kind of property qualifies for the  
section 179 expense deduction and the Instructions for Form  
4562 for limitations on the amount of the section 179 expense  
deduction.  
Gain eligible for section 1045 rollover (replacement stock  
not purchased by the corporation) (code N). Include only  
gain from the sale or exchange of QSB stock (as defined in the  
Instructions for Schedule D) the corporation held for more than 6  
months but that wasn't deferred by the corporation under section  
1045. See the Instructions for Schedule D for more details. A  
shareholder may be eligible to defer the shareholder’s pro rata  
share of this gain under section 1045 if the shareholder  
purchases other QSB stock during the 60-day period that began  
on the date the QSB stock was sold by the corporation.  
Additional limitations apply at the shareholder level. Report on  
an attachment to Schedule K-1 for each sale or exchange (a) the  
name of the corporation that issued the QSB stock, (b) the  
shareholder's pro rata share of the corporation's adjusted basis  
and sales price of the QSB stock, and (c) the dates the QSB  
stock was bought and sold.  
Complete Part I of Form 4562 to figure the corporation's  
section 179 expense deduction. The corporation doesn't take  
the deduction itself, but instead passes it through to the  
shareholders. Attach Form 4562 to Form 1120-S and show the  
total section 179 expense deduction on Schedule K, line 11.  
Although the corporation can't take the section 179  
deduction, it must generally still reduce the basis of the asset by  
the amount of the section 179 deduction it elected, regardless of  
whether any shareholder can use the deduction. However, the  
corporation doesn't reduce the basis for any section 179  
deduction allocable to a trust or estate because they aren't  
eligible to take the section 179 deduction. See Regulations  
section 1.179-1(f).  
Sale or exchange of QSB stock with section 1202 exclusion  
(code O). Gain from the sale or exchange of qualified small  
business (QSB) stock (as defined in the Instructions for  
See the instructions for line 17d of Schedule K for sales or  
other dispositions of property for which a section 179 deduction  
has passed through to shareholders and for the recapture rules if  
the business use of the property dropped to 50% or less.  
Schedule D) that is eligible for the section 1202 exclusion. The  
section 1202 exclusion applies only to QSB stock held by the  
corporation for more than 5 years. Additional limitations apply at  
Schedule K-1. Report each shareholder's pro rata share of the  
section 179 expense deduction in box 11 of Schedule K-1.  
30  
Instructions for Form 1120-S (2023)  
   
If the corporation has more than one rental, trade, or business  
activity, identify on an attachment to Schedule K-1 the amount of  
section 179 deduction from each separate activity. See Passive  
Don't complete box 11 of Schedule K-1 for any shareholder  
that is an estate or trust; estates and trusts aren't eligible for the  
section 179 expense deduction.  
Qualified conservation contributions. The AGI limit for  
qualified conservation contributions under section 170(h) is  
generally 50%. However, if the corporation is a qualified farmer  
or rancher (farm income is more than 50% of gross income), the  
AGI limit for qualified conservation contributions of property used  
in agriculture or livestock production (or available for such  
production) is 100%. The carryover period is 15 tax years. See  
section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for  
details. Report qualified conservation contributions with a 50%  
AGI limitation on Schedule K-1 in box 12 using code C. Report  
qualified conservation contributions with a 100% AGI limitation  
on a statement attached to Schedule K-1 using code G. See  
Contributions of property, later, for special rules applicable to  
qualified conservation contributions.  
Line 12a. Charitable Contributions  
Cash contributions must be supported by a dated bank record or  
receipt.  
Generally, no deduction is allowed for any contribution of  
$250 or more unless the corporation obtains a written  
Noncash contributions (30%) (code D). Enter noncash  
contributions subject to the 30% AGI limitation.  
acknowledgment from the charitable organization that shows the  
amount of cash contributed, describes any property contributed,  
and gives an estimate of the value of any goods or services  
provided in return for the contribution or states that no goods or  
services were provided. The acknowledgment must be obtained  
by the due date (including extensions) of the corporation's  
return, or, if earlier, the date the return is filed. Don't attach the  
acknowledgment to the tax return, but keep it with the  
Capital gain property to a 50% limit organization (30%)  
(code E). Enter capital gain property contributions subject to  
the 30% AGI limitation.  
Capital gain property (20%) (code F). Enter capital gain  
property contributions subject to the 20% AGI limitation.  
Contributions of property. See Contributions of Property in  
Pub. 526 and Pub. 561, Determining the Value of Donated  
Property, for information on noncash contributions and  
contributions of capital gain property. If the deduction claimed for  
noncash contributions exceeds $500, complete Form 8283 and  
attach it to Form 1120-S.  
Shareholders may deduct their pro rata share of the FMV of  
property contributions, but will only need to adjust their stock  
basis by their pro rata share of the property's adjusted basis.  
Give each shareholder a statement identifying their pro rata  
share of both the FMV and adjusted basis of the property.  
corporation's records. These rules apply in addition to the filing  
requirements for Form 8283, Noncash Charitable Contributions,  
described under Contributions of property, later.  
Enter charitable contributions made during the tax year.  
Attach a statement to Form 1120-S that separately identifies the  
corporation's contributions for each of the following categories.  
See Limits on Deductions in Pub. 526, Charitable Contributions,  
for information on adjusted gross income (AGI) limitations on  
deductions for charitable contributions.  
If the corporation made a qualified conservation contribution  
under section 170(h), also include the FMV of the underlying  
property before and after the donation, as well as the type of  
legal interest contributed, and describe the conservation  
purpose furthered by the donation. Give a copy of this  
information to each shareholder.  
If the corporation made a qualified conservation contribution  
for the preservation of an historic building, there are additional  
requirements that may apply to obtain a charitable deduction.  
This charitable deduction may be reduced if rehabilitation credits  
were claimed for the historic building. This charitable deduction  
may be denied if the corporation does not comply with section  
170(f)(19). A $500 filing fee may apply to certain deductions over  
$10,000. See the Instructions for Form 8283 and Pub. 526 for  
details.  
The codes needed for Schedule K-1 reporting are provided  
for each category.  
Cash contributions (60%) (code A). Enter cash contributions  
subject to the 60% AGI limitation.  
Cash contributions (30%) (code B). Enter cash contributions  
subject to the 30% AGI limitation.  
Noncash contributions (50%) (code C). Enter noncash  
contributions subject to the 50% AGI limitation. Don't include  
food inventory contributions reported separately on an attached  
statement.  
Food inventory contributions. Provide the following  
information on a statement attached to Schedule K-1.  
The shareholder's pro rata share of the amount of the  
charitable contributions under section 170(e)(3) for qualified  
food inventory that was donated to charitable organizations for  
the care of the ill, needy, and infants. The food must meet all the  
quality and labeling standards imposed by federal, state, and  
local laws and regulations. The charitable contribution for  
donated food inventory is the lesser of (a) the basis of the  
donated food plus half of the appreciation (gain if the donated  
food were sold at fair market value (FMV) on the date of the gift),  
or (b) twice the basis of the donated food. The aggregate  
amount of such contributions shall not exceed 15% of the  
taxpayer's aggregate net income from all trades or businesses  
from which such contributions were made. A corporation that  
doesn’t account for inventories and isn’t required to capitalize  
indirect costs under section 263A may elect to treat the basis of  
the donated food as equal to 25% of the FMV of the food. See  
section 170(e)(3)(C) for more details.  
A corporation's charitable conservation contribution (or a  
corporation's distributive share of a charitable conservation  
contribution from a lower-tier partnership) is not treated as a  
qualified conservation contribution if the amount of such  
contribution (or such distributive share) exceeds 2.5 times the  
sum of each shareholder's relevant basis in the corporation. In  
an attachment to each Schedule K-1 issued to a shareholder,  
report the shareholder's relevant basis allocable to the portion of  
the real property or historic building on which the qualified  
conservation contribution was made. The corporation should  
coordinate with each shareholder in calculating relevant basis.  
See Qualified Conservation Contribution in Pub. 526 and  
Disallowance of Conservation Contribution deductions by certain  
pass-through entities in the Instructions for Form 8283.  
Nondeductible contributions. Certain contributions made to  
an organization conducting lobbying activities aren't deductible.  
See section 170(f)(9) for more details. Also see Contributions  
You Can’t Deduct in Pub. 526 for more examples of  
nondeductible contributions.  
The shareholder's pro rata share of the net income for the tax  
year from the corporation's trades or businesses that made the  
contributions of food inventory.  
31  
Instructions for Form 1120-S (2023)  
     
An accrual basis S corporation can't elect to treat a  
contribution as having been paid in the tax year the  
board of directors authorizes the payment if the  
If a shareholder makes the election, these items aren't treated  
as alternative minimum tax (AMT) tax preference items.  
!
CAUTION  
Because the shareholders make this election, the corporation  
can't deduct these amounts or include them as AMT items on  
Schedule K-1. Instead, the corporation passes through the  
information the shareholders need to figure their separate  
deductions.  
contribution isn't actually paid until the next tax year.  
Contributions (100%) (code G). If the corporation is a  
qualified farmer or rancher (farm income is more than 50% of  
gross income), attach a statement to Schedule K-1 that shows  
the shareholder's pro rata share of qualified conservation  
contributions of property used in agriculture or livestock  
production (or available for such production). Don’t include these  
contributions in the amounts reported in box 12 of Schedule K-1  
because shareholders must separately determine if they qualify  
for the 50% or 100% AGI limitation for these contributions. The  
contribution must be subject to a restriction that the property  
remain available for such production. See section 170(b) for  
details.  
On the dotted line to the left of the entry space for line 12c,  
enter the type of expenditures claimed on line 12c. Enter on  
line 12c the qualified expenditures paid or incurred during the tax  
year for which a shareholder may make an election under  
section 59(e). Enter this amount for all shareholders whether or  
not any shareholder makes an election under section 59(e).  
On an attached statement, identify the property for which the  
expenditures were paid or incurred. If the expenditures were for  
intangible drilling or development costs for oil and gas  
properties, identify the month(s) in which the expenditures were  
paid or incurred. If there is more than one type of expenditure or  
more than one property, provide the amounts (and the months  
paid or incurred, if required) for each type of expenditure  
separately for each property.  
Schedule K-1. Report each shareholder's pro rata share of  
charitable contributions in box 12 of Schedule K-1 using codes A  
through G for each of the contribution categories shown earlier.  
See Contributions of property, earlier, for information on  
statements you may be required to attach to Schedule K-1. The  
corporation must attach a copy of its Form 8283 to the  
Schedule K-1 of each shareholder receiving an allocation of the  
contribution deduction shown in Section A or Section B of its  
Form 8283.  
Schedule K-1. Report each shareholder's pro rata share of  
section 59(e) expenditures in box 12 of Schedule K-1 using  
code J. Identify the following information on an attached  
statement.  
Line 12b. Investment Interest Expense  
The type of expenditure.  
The property for which the expenditures are paid or incurred.  
For oil and gas properties only, the month in which intangible  
Include on this line the interest properly allocable to debt on  
property held for investment purposes. Property held for  
investment includes property that produces income (unless  
derived in the ordinary course of a trade or business) from  
interest, dividends, annuities, or royalties; and gains from the  
disposition of property that produces those types of income or is  
held for investment.  
drilling costs and development costs were paid or incurred.  
If there is more than one type of expenditure or the  
expenditures are for more than one property, provide each  
shareholder's pro rata share of the amounts (and the months  
paid or incurred for oil and gas properties) for each type of  
expenditure separately for each property.  
Investment interest expense doesn't include interest expense  
allocable to a passive activity.  
Line 12d. Other Deductions  
Enter deductions not included on line 11, 12a, 12b, 12c, or 16f.  
On the line to the left of the entry space for line 12d, identify the  
type of deduction. If there is more than one type of deduction,  
attach a statement to Form 1120-S that separately identifies the  
type and amount of each deduction for the following categories.  
The codes needed for Schedule K-1 reporting are provided for  
each category.  
Investment income and investment expenses other than  
interest are reported on lines 17a and 17b, respectively. This  
information is needed by shareholders to determine the  
investment interest expense limitation (see Form 4952 for  
details).  
Schedule K-1. Report each shareholder's pro rata share of  
investment interest expense in box 12 of Schedule K-1 using  
code H.  
Deductions—Royalty income (code I). Enter deductions  
related to royalty income.  
Code K. Reserved for future use.  
Line 12c. Section 59(e)(2) Expenditures  
Deductions—Portfolio income (other) (code L). Enter any  
other deductions related to portfolio income.  
Generally, section 59(e) allows each shareholder to make an  
election to deduct their pro rata share of the corporation's  
otherwise deductible qualified expenditures ratably over 10  
years (3 years for circulation expenditures). The deduction is  
taken beginning with the tax year in which the expenditures were  
made (or for intangible drilling and development costs, over the  
60-month period beginning with the month in which such costs  
were paid or incurred).  
No deduction is allowed under section 212 for expenses  
allocable to a convention, seminar, or similar meeting. Because  
these expenses aren't deductible by shareholders, the  
corporation doesn't report these expenses on line 12d of  
Schedule K. The expenses are nondeductible and are reported  
as such on line 16c of Schedule K and in box 16 of Schedule K-1  
using code C.  
Preproductive period expenses (code M). If the corporation  
is required to use an accrual method of accounting under section  
448(a)(3), it must capitalize these expenses. If the corporation is  
permitted to use the cash method, enter the amount of  
preproductive period expenses that qualify under section  
263A(d). An election not to capitalize these expenses must be  
made at the shareholder level. See Uniform Capitalization Rules  
in Pub. 225.  
The term “qualified expenditures” includes only the following  
types of expenditures paid or incurred during the tax year.  
Circulation expenditures.  
Research and experimental expenditures.  
Intangible drilling and development costs.  
Mining exploration and development costs.  
32  
Instructions for Form 1120-S (2023)  
   
Code N. Reserved for future use.  
Codes AD through AJ. Reserved for future use.  
Reforestation expense deduction (code O). The corporation  
can elect to deduct a limited amount of its reforestation  
Other deductions (code ZZ). Include any other deductions not  
reported using codes A through AC.  
expenditures paid or incurred during the tax year. The amount  
the corporation can elect to deduct is limited to $10,000 for each  
qualified timber property. See section 194(c) for a definition of  
reforestation expenditures and qualified timber property. See  
Notice 2006-47, 2006-20 I.R.B. 892, for details on making the  
election. The corporation must amortize over 84 months any  
amount not deducted. See Reforestation expenditures, earlier.  
Schedule K-1. Enter the shareholder's pro rata share of  
allowable reforestation expense in box 12 of Schedule K-1 using  
code O and attach a statement that provides a description of the  
qualified timber property. If the corporation is electing to deduct  
amounts from more than one qualified timber property, provide a  
description and the amount for each property.  
Schedule K-1. Enter each shareholder's pro rata share of the  
deduction categories listed above in box 12 of Schedule K-1 or  
provide the required information on an attached statement. Enter  
the applicable code shown above.  
If you are reporting only one type of deduction under code  
ZZ, enter code ZZ with an asterisk (ZZ*) and the dollar amount in  
the entry space in box 12 and attach a statement that shows the  
box number, code, and type of deduction. If you are reporting  
multiple types of deductions under code ZZ, enter the code with  
an asterisk (ZZ*), enter “STMT” in the dollar amount entry space  
in box 12, and attach a statement that shows the box number,  
code, and dollar amount of each type of deduction.  
If the corporation has more than one trade or business  
activity, identify on an attachment to Schedule K-1 the amount  
for each separate activity. See Passive Activity Reporting  
Requirements, earlier.  
Codes P through V. Reserved for future use.  
Soil and water conservation (code W). Enter amounts for soil  
and water conservation expenditures, and endangered species  
recovery expenditures. See Pub. 225.  
Credits  
Low-Income Housing Credit  
Film, television, and theatrical production expenditures  
(code X). Film, television, and live theatrical production  
expenses. The corporation can elect to deduct certain costs of a  
qualified film, television, or live theatrical production  
Section 42 provides a credit that can be claimed by owners of  
low-income residential rental buildings. To qualify for the credit,  
the corporation must file Form 8609, Low-Income Housing Credit  
Allocation and Certification, separately with the IRS. Don't attach  
Form 8609 to Form 1120-S. Complete and attach Form 8586,  
Low-Income Housing Credit, and Form 8609-A, Annual  
commencing before January 1, 2026 (after December 31, 2015,  
and before January 1, 2026, for a live theatrical production),  
limited to $15 million of the aggregate production cost of the  
production. There is a higher dollar limitation for productions in  
certain areas. A live theatrical performance commences on the  
date of its first public performance for a paying audience. Provide  
a description of the film, television, or live theatrical production  
on an attached statement. If the corporation makes the election  
for more than one production, attach a statement to  
Statement for Low-Income Housing Credit, to Form 1120-S.  
Line 13a. Low-Income Housing Credit (Section  
42(j)(5))  
Schedule K-1 that shows each shareholder's pro rata share of  
the qualified expenditures separately for each production. The  
deduction is subject to recapture under section 1245 if the  
election is voluntarily revoked or the production fails to meet the  
requirements for the deduction. See section 181 and the related  
regulations.  
If the corporation invested in a partnership to which the  
provisions of section 42(j)(5) apply, report on line 13a the credit  
reported to the corporation in box 15 of Schedule K-1 (Form  
1065) using code C.  
Schedule K-1. Report in box 13 of Schedule K-1 each  
shareholder's pro rata share of the low-income housing credit  
reported on line 13a of Schedule K. Use code C to report the  
portion of the credit attributable to buildings placed in service  
after 2007. If the corporation has credits from more than one  
activity, identify on an attachment to Schedule K-1 the amount  
for each separate activity. See Passive Activity Reporting  
Requirements, earlier.  
Expenditures for removal of barriers (code Y). Enter  
expenditures paid or incurred for the removal of architectural and  
transportation barriers to the elderly and disabled that the  
corporation has elected to treat as a current expense. See  
section 190.  
Itemized deductions (code Z). Enter amounts paid by the  
corporation that would be allowed as itemized deductions on any  
of the shareholders' income tax returns if they were paid directly  
by a shareholder for the same purpose. These amounts include,  
but aren't limited to, expenses under section 212 for the  
production of income other than from the corporation's trade or  
business. However, don't enter expenses related to portfolio  
income or investment interest expense reported on line 12b of  
Schedule K on this line.  
Line 13b. Low-Income Housing Credit (Other)  
Report on line 13b any low-income housing credit not reported  
on line 13a. This includes any credit reported to the corporation  
in box 15 of Schedule K-1 (Form 1065) using code D.  
Schedule K-1. Report in box 13 of Schedule K-1 each  
shareholder's pro rata share of the low-income housing credit  
reported on line 13b of Schedule K. Use code D to report the  
portion of the credit attributable to buildings placed in service  
after 2007. If the corporation has credits from more than one  
rental activity, identify on an attachment to Schedule K-1 the  
amount for each separate activity. See Passive Activity Reporting  
Requirements, earlier.  
Contributions to a capital construction fund (CCF) (code  
AA). Enter amount of contributions made to a capital  
construction fund. See Pub. 595, Capital Construction Fund for  
Commercial Fishermen.  
Penalty on early withdrawal of savings (code AB). Enter  
any penalty on early withdrawal of savings because the  
corporation withdrew funds from its time savings deposit before  
its maturity.  
Interest expense allocated to debt financed distributions  
(code AC). Enter interest expense allocated to debt-financed  
distributions. See Notice 89-35, 1989-1 C.B. 675 for more  
information.  
33  
Instructions for Form 1120-S (2023)  
   
shows “Box 13, code G” and the dollar amount of each type of  
credit. If the corporation has credits from more than one rental  
activity, identify on the attached statement the amount of each  
type of credit for each separate activity. See Passive Activity  
Line 13c. Qualified Rehabilitation Expenditures  
(Rental Real Estate)  
Enter on line 13c the total qualified rehabilitation expenditures  
related to rental real estate activities of the corporation. See the  
Instructions for Form 3468 for details on qualified rehabilitation  
expenditures.  
Line 13f. Biofuel Producer Credit  
Schedule K-1. Report each shareholder's pro rata share of  
qualified rehabilitation expenditures related to rental real estate  
activities in box 13 of Schedule K-1 using code E. Attach a  
statement to Schedule K-1 that provides the information and the  
shareholder's pro rata share of the basis and expenditure  
amounts the shareholder will need to figure the amounts to  
report in Part VII of Form 3468, Investment Credit. See the  
Instructions for Form 3468 for details. If the corporation has  
expenditures from more than one rental real estate activity,  
identify on an attachment to Schedule K-1 the information and  
amounts for each separate activity. See Passive Activity  
Enter on line 13f any biofuel producer credit attributable to trade  
or business activities. If the credit is attributable to rental  
activities, enter the amount on line 13d or 13e.  
Figure this credit on Form 6478, if applicable. Attach it to  
Form 1120-S. Include any amount shown on line 2 of Form 6478  
in the corporation's income on line 5 of Form 1120-S.  
See section 40(f) for an election the corporation can make to  
have the credit not apply.  
Schedule K-1. Report in box 13 of Schedule K-1 each  
shareholder's pro rata share of the biofuel producer credit  
reported on line 13f using code I. If the corporation has credits  
from more than one activity, identify on an attachment to  
Schedule K-1 the amount for each separate activity. See Passive  
Qualified rehabilitation expenditures for property not  
related to rental real estate activities must be reported in  
!
CAUTION  
box 17 using code C.  
Line 13d. Other Rental Real Estate Credits  
Line 13g. Other Credits  
Enter on line 13d any other credit (other than credits reported on  
lines 13a through 13c) related to rental real estate activities. On  
the dotted line to the left of the entry space for line 13d, identify  
the type of credit. If there is more than one type of credit, attach  
a statement to Form 1120-S that identifies the type and amount  
for each credit. These credits may include any type of credit  
listed in the instructions for line 13g.  
Enter on line 13g any other credit, except credits or expenditures  
shown or listed for lines 13a through 13f or the credit for federal  
tax paid on fuels (which is reported on line 24c of page 1). On  
the line to the left of the entry space for line 13g, identify the type  
of credit. If there is more than one type of credit, attach a  
statement to Form 1120-S that separately identifies each type  
and amount of credit for the following categories. The codes  
needed for box 13 of Schedule K-1 are provided in the heading  
of each category.  
Schedule K-1. Report in box 13 of Schedule K-1 each  
shareholder's pro rata share of other rental real estate credits  
using code F. If you are reporting each shareholder's pro rata  
share of only one type of rental real estate credit under code F,  
enter the code with an asterisk (F*) and the dollar amount in the  
entry space in box 13 and attach a statement that shows “Box  
13, code F” and the type of credit. If you are reporting multiple  
types of rental real estate credit under code F, enter the code  
with an asterisk (F*) and enter “STMT” in the entry space in  
box 13 and attach a statement that shows “Box 13, code F” and  
the dollar amount of each type of credit. If the corporation has  
credits from more than one rental real estate activity, identify on  
the attached statement the amount of each type of credit for  
each separate activity. See Passive Activity Reporting  
Requirements, earlier.  
Zero-emission nuclear power production credit (code A).  
Complete Form 7213, Nuclear Power Production Credit, Part II,  
to figure the credit. Attach it to Form 1120-S.  
Production from advanced nuclear power facilities credit  
(code B). Complete Form 7213, Part I, to figure the credit.  
Attach it to Form 1120-S.  
Undistributed capital gains credit (code H). This credit  
represents taxes paid on undistributed capital gains by a  
regulated investment company (RIC) or a real estate investment  
trust (REIT). As a shareholder of a RIC or REIT, the corporation  
will receive notice of the amount of tax paid on undistributed  
capital gains on Form 2439, Notice to Shareholder of  
Undistributed Long-Term Capital Gains.  
Line 13e. Other Rental Credits  
Work opportunity credit (code J). Complete Form 5884 to  
figure the credit. Attach it to Form 1120-S.  
Enter on line 13e any other credit (other than credits reported on  
lines 13a through 13d) related to rental activities. On the dotted  
line to the left of the entry space for line 13e, identify the type of  
credit. If there is more than one type of credit, attach a statement  
to Form 1120-S that identifies the type and amount for each  
credit. These credits may include any type of credit listed in the  
instructions for line 13g.  
Disabled access credit (code K). Complete Form 8826 to  
figure the credit. Attach it to Form 1120-S.  
Empowerment zone employment credit (code L). Complete  
Form 8844 to figure the credit. Attach it to Form 1120-S.  
Credit for increasing research activities (code M).  
Complete Form 6765 to figure the credit. Attach it to Form  
1120-S. For more information, see the Instructions for Form  
6765.  
Schedule K-1. Report in box 13 of Schedule K-1 each  
shareholder's pro rata share of other rental credits using code  
G. If you are reporting each shareholder's pro rata share of only  
one type of rental credit under code G, enter the code with an  
asterisk (G*) and the dollar amount in the entry space in box 13  
and attach a statement that shows “Box 13, code G” and the  
type of credit. If you are reporting multiple types of rental credit  
under code G, enter the code with an asterisk (G*) and enter  
“STMT” in the entry space in box 13 and attach a statement that  
34  
Instructions for Form 1120-S (2023)  
 
The corporation should provide the information  
New markets credit (code AD). Complete Form 8874, New  
necessary for the shareholder to determine whether the  
corporation is an eligible small business under section  
TIP  
Markets Credit.  
Credit for small employer pension plan startup costs (code  
AE). Complete Form 8881, Credit for Small Employer Pension  
Plan Startup Costs, Auto-Enrollment, and Military Spouse  
Participation, Part I.  
38(c)(5)(A). If the shareholder and the corporation meet the  
requirements of section 38(c)(5)(A), the research credit may be  
treated as a specified credit.  
Credit for employer social security and Medicare taxes  
paid on certain employee tips (code N). Complete Form  
8846 to figure the credit. Attach it to Form 1120-S.  
Credit for small employer auto-enrollment (code AF).  
Complete Form 8881, Part II.  
Credit for military spouse participation (code AG).  
Backup withholding (code O). This credit is for backup  
withholding on dividends, interest, and other types of income of  
the corporation.  
Complete Form 8881, Part III.  
Credit for employer-provided childcare facilities and serv-  
ices (code AH). Complete Form 8882, Credit for  
Unused investment credit from the qualifying advanced  
coal project credit or qualifying gasification project credit  
allocated from cooperatives (code P). See the Instructions  
for Form 3468.  
Employer-Provided Childcare Facilities and Services.  
Low sulfur diesel fuel production credit (code AI).  
Complete Form 8896, Low Sulfur Diesel Fuel Production Credit.  
Qualified railroad track maintenance credit (code AJ).  
Complete Form 8900, Qualified Railroad Track Maintenance  
Credit.  
Unused investment credit from the qualifying advanced en-  
ergy project credit allocated from cooperatives (code Q).  
See the Instructions for Form 3468.  
Credit for oil and gas production from marginal wells (code  
AK). Complete Form 8904, Credit for Oil and Gas Production  
From Marginal Wells, if applicable.  
Unused investment credit from the advanced manufactur-  
ing investment credit allocated from cooperatives (code  
R). See the Instructions for Form 3468.  
Distilled spirits credit (code AL). Complete Form 8906,  
Code S. Reserved for future use.  
Distilled Spirits Credit.  
Unused investment credit from the energy credit allocated  
from cooperatives (code T). See the Instructions for Form  
3468.  
Energy efficient home credit (code AM). Complete Form  
8908, Energy Efficient Home Credit.  
Alternative motor vehicle credit (code AN). Complete Form  
Unused investment credit from the rehabilitation credit al-  
located from cooperatives (code U). See the Instructions for  
Form 3468.  
8910, Alternative Motor Vehicle Credit, if applicable.  
Alternative fuel vehicle refueling property credit (code AO).  
Complete Form 8911, Alternative Fuel Vehicle Refueling  
Property Credit.  
Advanced manufacturing production credit (code V).  
Complete Form 7207, Advanced Manufacturing Production  
Credit, to figure the credit. Attach it to Form 1120-S.  
Clean renewable energy bond credit (code AP). The  
amount of this credit (excluding any credits from partnerships,  
estates, and trusts) is reported as interest income on line 4 of  
Schedule K. In addition, the amount of this credit is reported on  
line 16d of Schedule K. See the Instructions for Form 8912.  
Codes W and X. Reserved for future use.  
Clean hydrogen production credit (code Y). Complete Form  
7210, Clean Hydrogen Production Credit, to figure the credit.  
Attach it to Form 1120-S.  
New clean renewable energy bond credit (code AQ). The  
amount of this credit (excluding any credits from partnerships,  
estates, and trusts) is reported as interest income on line 4 of  
Schedule K. In addition, the amount of this credit is reported as a  
property distribution on line 16d of Schedule K. See the  
Instructions for Form 8912.  
Orphan drug credit (code Z). Complete Form 8820, Orphan  
Drug Credit, to figure the credit. Attach it to Form 1120-S.  
Enhanced oil recovery credit (code AA). Complete Form  
8830, Enhanced Oil Recovery Credit, to figure the credit. Attach  
it to Form 1120-S.  
Qualified energy conservation bond credit (code AR). The  
amount of this credit (excluding any credits from partnerships,  
estates, and trusts) is reported as interest income on line 4 of  
Schedule K. In addition, the amount of this credit is reported as a  
property distribution on line 16d of Schedule K. See the  
Instructions for Form 8912.  
Renewable electricity production credit (code AB).  
Complete Form 8835, Renewable Electricity Production Credit, if  
applicable. Attach a statement to Form 1120-S and  
Schedule K-1 showing the allocation of the credit for production  
during the 4-year period beginning on the date the facility was  
placed in service and for production after that period.  
Qualified zone academy bond credit (code AS). The amount  
of this credit (excluding any credits from partnerships, estates,  
and trusts) is reported as interest income on line 4 of  
Biodiesel, renewable diesel, or sustainable aviation fuels  
credit (code AC). Complete Form 8864, Biodiesel, Renewable  
Diesel, or Sustainable Aviation Fuels Credit. Include any amount  
from line 10 of Form 8864 in the corporation's income on line 5 of  
Form 1120-S. If this credit includes the small agri-biodiesel  
producer credit, identify on a statement attached to  
Schedule K. In addition, the amount of this credit is reported on  
line 16d of Schedule K. See the Instructions for Form 8912.  
Qualified school construction bond credit (code AT). The  
amount of this credit (excluding any credits from partnerships,  
estates, and trusts) is reported as interest income on line 4 of  
Schedule K. In addition, the amount of this credit is reported as a  
property distribution on line 16d of Schedule K. See the  
Instructions for Form 8912.  
Schedule K-1 (a) the small agri-biodiesel producer credit  
included in the total credit allocated to the shareholder, (b) the  
number of gallons for which the corporation claimed the small  
agri-biodiesel producer credit, and (c) the corporation's  
productive capacity for agri-biodiesel. Also report separately on  
an attached statement the amount of any sustainable aviation  
fuel credit.  
Build America bond credit (code AU). The amount of this  
credit (excluding any credits from partnerships, estates, and  
trusts) is reported as interest income on line 4 of Schedule K. In  
35  
Instructions for Form 1120-S (2023)  
addition, the amount of this credit is reported as a property  
distribution on line 16d of Schedule K. See the Instructions for  
Form 8912.  
If a shareholder’s pro rata share includes an allocation of  
eligible credits purchased by a lower tier pass-through entity and  
reported on Schedule K-1, you must provide the EIN of such  
transferee shareholder or S corporation and the source  
information that was provided to you by such entity.  
Credit for employer differential wage payments (code AV).  
Complete Form 8932, Credit for Employer Differential Wage  
Payments.  
See the Instructions for Form 3800 for additional details.  
Codes BD through BG. Reserved for future use.  
Carbon oxide sequestration credit (code AW). Complete  
Form 8933, Carbon Oxide Sequestration Credit, to figure the  
credit. Attach it to Form 1120-S.  
Other credits (code ZZ) Include any other type of credits not  
listed on lines 13a through 13f, or reported using codes A, B, H  
through BC.  
Carbon oxide sequestration credit recapture (code AX).  
Complete Form 8933 to figure the credit recapture. Attach it to  
Form 1120-S. Report the carbon oxide sequestration credit  
recapture amount from Form 8933, line 22.  
Schedule K-1. Enter in box 13 of Schedule K-1 each  
shareholder's pro rata share of the credits listed above. See  
additional Schedule K-1 reporting information provided in the  
instructions above. Enter the applicable code, A, B, H, J through  
BC, in the column to the left of the dollar amount entry space.  
New clean vehicle credit (code AY). Complete Form 8936,  
Clean Vehicle Credits, Part II.  
If you are reporting each shareholder's pro rata share of only  
one type of credit under code ZZ, enter the code with an asterisk  
(ZZ*) and the dollar amount in the entry space in box 13 and  
attach a statement that shows “Box 13, code ZZ” and the type of  
credit. If you are reporting multiple types of credit under code ZZ,  
enter the code with an asterisk (ZZ*) and enter “STMT” in the  
entry space in box 13 and attach a statement that shows “Box  
13, code ZZ” and the dollar amount of each type of credit. If the  
corporation has credits from more than one activity, identify on  
an attachment to Schedule K-1 the amount of each type of credit  
for each separate activity. See Passive Activity Reporting  
Requirements, earlier.  
Qualified commercial clean vehicle credit (code AZ).  
Complete Form 8936, Part V.  
Credit for small employer health insurance premiums  
(code BA). Complete Form 8941, Credit for Small Employer  
Health Insurance Premiums.  
Employer credit for paid family and medical leave (code  
BB). Complete Form 8994, Employer Credit for Paid Family and  
Medical Leave.  
Eligible credits from transferor(s) under section 6418  
(code BC). Enter the total amount of eligible credits received  
from transferor(s) included in Part III, line 6, column (g), of your  
Form 3800. Also, enter the total of the shareholder’s pro rata  
share of all eligible credits received from transferor(s) that were  
received from another pass-through entity. See required  
statement below.  
International Transactions  
Check the box on line 14 if you are reporting items of  
international tax relevance. See the Instructions for Schedule K-2  
(Form 1120-S) to determine if you need to attach Schedules K-2  
and K-3. If you satisfy the domestic filing exception to filing  
Schedule K-3, you must provide notification to the shareholder  
either through an attachment to the Schedule K-1, or a separate  
statement prior to filing the Form 1120-S. If you satisfy an  
exception to filing Schedule K-2 (Form 1120-S), you may also  
attach a statement to the Form 1120-S that states “Qualified for  
exception to filing Schedule K-2.”  
Partnership and S corporation pass-through entities that  
transferred eligible credits from an unrelated person for  
!
CAUTION  
cash under section 6418 must use Form 3800, Part III  
and Part V (if applicable), to report such credits. See the  
Instructions for Form 3800 for reporting and other requirements.  
Schedule K-1. Enter the shareholder’s pro rata share of all  
eligible credits transferred from one or more unrelated  
transferors pursuant to a transfer election under section 6418.  
This amount must include the shareholder’s pro rata share of all  
eligible credits from transferors that were received from another  
pass-through entity. Enter the code BC and an asterisk (*) (BC*)  
in the left column and enter “STMT” in the entry space to the  
right. Attach a statement that contains the following information  
for each purchased credit.  
Alternative Minimum Tax (AMT) Items  
Lines 15a through 15f must be completed for all shareholders.  
Enter items of income and deductions that are adjustments or  
tax preference items for the AMT. For more information, see  
Form 6251, Alternative Minimum Tax—Individuals, or Schedule I  
(Form 1041), Alternative Minimum Tax—Estates and Trusts.  
Attached statement. Attach a statement to Schedule K-1  
that provides the source credit information and the pro rata share  
of eligible credits received from transferor(s), including any share  
of eligible credits from transferor(s) that were received from  
another pass-through entity.  
The statement must identify the amount and information for  
each eligible credit so each shareholder can complete their Form  
3800. For each eligible credit, you must provide:  
Don't include as a tax preference item any qualified  
expenditures to which an election under section 59(e) may apply.  
Instead, report these expenditures on line 12c. Because these  
expenditures are subject to an election by each shareholder, the  
corporation can't figure the amount of any tax preference related  
to them. Instead, the corporation must pass through to each  
shareholder in box 12, code J, of Schedule K-1, the information  
needed to figure the deduction.  
The shareholder’s pro rata share of the eligible credits  
Schedule K-1. Report each shareholder's pro rata share of  
amounts reported on lines 15a through 15f in box 15 of  
Schedule K-1 using codes A through F, respectively.  
If the corporation is reporting items of income or deduction for  
oil, gas, and geothermal properties, you may be required to  
identify these items on a statement attached to Schedule K-1  
(see the instructions for lines 15d and 15e). Also see the  
requirement for an attached statement in the instructions for  
line 15f.  
received from transferor(s) reported on the applicable line,  
column (g) of your Part III or Part V (if applicable) of Form 3800.  
The name of the credit form in column (a) of the applicable  
line of Part III or Part V (if applicable).  
Source information for each eligible credit shown in Part III or  
Part V (if applicable), including:  
1. IRS-issued registration number for transfers in column (b)  
of Part III and Part V, and  
2. The transferor’s EIN in column (d) of Part III or column (c)  
of Part V.  
36  
Instructions for Form 1120-S (2023)  
 
For a net long-term capital gain (loss), also identify the  
Line 15a. Post-1986 Depreciation Adjustment  
amount of the adjustment that is collectibles (28%) gain (loss).  
Figure the adjustment for line 15a based only on tangible  
property placed in service after 1986 (and tangible property  
placed in service after July 31, 1986, and before 1987, for which  
the corporation elected to use the Modified Accelerated Cost  
Recovery System (MACRS)). Don't make an adjustment for  
motion picture films, videotapes, sound recordings, certain  
public utility property (see section 168(f)(2)), property  
depreciated under the unit-of-production method (or any other  
method not expressed in a term of years), qualified Indian  
reservation property, property eligible for a special depreciation  
allowance, qualified revitalization expenditures, or the section  
179 expense deduction.  
For a net section 1231 gain (loss), also identify the amount of  
adjustment that is unrecaptured section 1250 gain.  
Line 15c. Depletion (Other Than Oil and Gas)  
Don't include any depletion on oil and gas wells. The  
shareholders must figure their oil and gas depletion deductions  
and preference items separately under section 613A.  
Refigure the depletion deduction under section 611 for mines,  
wells (other than oil and gas wells), and other natural deposits  
for the AMT. Percentage depletion is limited to 50% of the  
taxable income from the property as figured under section  
613(a), using only income and deductions for the AMT. Also, the  
deduction is limited to the property's adjusted basis at the end of  
the year as figured for the AMT. Figure this limit separately for  
each property. When refiguring the property's adjusted basis,  
take into account any AMT adjustments made this year or in  
previous years that affect basis (other than the current year's  
depletion).  
For property placed in service before 1999, refigure  
depreciation for the AMT as follows (using the same convention  
used for the regular tax).  
For section 1250 property (generally, residential rental and  
nonresidential real property), use the straight line method over  
40 years.  
For tangible property (other than section 1250 property)  
depreciated using the straight line method for the regular tax,  
use the straight line method over the property's class life. Use 12  
years if the property has no class life.  
Enter the difference between the regular tax and AMT  
deduction. If the AMT deduction is greater, enter the difference  
as a negative amount.  
For any other tangible property, use the 150% declining  
balance method, switching to the straight line method the first tax  
year it gives a larger deduction, over the property's AMT class  
life. Use 12 years if the property has no class life.  
Oil, Gas, and Geothermal Properties—Gross  
Income and Deductions  
See Pub. 946 for a table of class lives.  
TIP  
Generally, the amounts to be entered on lines 15d and 15e are  
only the income and deductions for oil, gas, and geothermal  
properties that are used to figure the corporation's ordinary  
business income (loss) on line 22, page 1, Form 1120-S.  
For property placed in service after 1998, refigure  
depreciation for the AMT only for property depreciated for the  
regular tax using the 200% declining balance method. For the  
AMT, use the 150% declining balance method, switching to the  
straight line method the first tax year it gives a larger deduction,  
and the same convention and recovery period used for the  
regular tax.  
If there are any items of income or deductions for oil, gas, and  
geothermal properties included in the amounts that are required  
to be passed through separately to the shareholders on  
Schedule K-1 (items not reported in box 1 of Schedule K-1), give  
each shareholder a statement that shows, for the box in which  
the income or deduction is included, the amount of income or  
deductions included in the total amount for that box. Don't  
include any of these direct pass-through amounts on line 15d or  
15e. The shareholder is told in the Shareholder's Instructions for  
Schedule K-1 (Form 1120-S) to adjust the amounts in box 15,  
code D or E, for any other income or deductions from oil, gas, or  
geothermal properties included in boxes 2 through 12, 16, or 17  
of Schedule K-1 in order to determine the total income and  
deductions from oil, gas, and geothermal properties for the  
corporation.  
Figure the adjustment by subtracting the AMT deduction for  
depreciation from the regular tax deduction and enter the result  
on line 15a. If the AMT deduction is more than the regular tax  
deduction, enter the difference as a negative amount.  
Depreciation capitalized to inventory must also be refigured  
using the AMT rules. Include on this line the current year  
adjustment to income, if any, resulting from the difference.  
Line 15b. Adjusted Gain or Loss  
If the corporation disposed of any tangible property placed in  
service after 1986 (or after July 31, 1986, if an election was  
made to use the General Depreciation System), or if it disposed  
of a certified pollution control facility placed in service after 1986,  
refigure the gain or loss from the disposition using the adjusted  
basis for the AMT. The property's adjusted basis for the AMT is  
its cost or other basis minus all depreciation or amortization  
deductions allowed or allowable for the AMT during the current  
tax year and previous tax years. Enter on this line the difference  
between the regular tax gain (loss) and the AMT gain (loss). If  
the AMT gain is less than the regular tax gain, or the AMT loss is  
more than the regular tax loss, or there is an AMT loss and a  
regular tax gain, enter the difference as a negative amount.  
Figure the amounts for lines 15d and 15e separately for oil  
and gas properties that aren't geothermal deposits and for all  
properties that are geothermal deposits.  
Give each shareholder a statement that shows the separate  
amounts included in the computation of the amounts on lines  
15d and 15e of Schedule K.  
Line 15d. Oil, Gas, and Geothermal  
Properties—Gross Income  
If any part of the adjustment is allocable to net short-term  
capital gain (loss), net long-term capital gain (loss), or net  
section 1231 gain (loss), attach a statement that identifies the  
amount of the adjustment allocable to each type of gain or loss.  
Enter the total amount of gross income (within the meaning of  
section 613(a)) from all oil, gas, and geothermal properties  
received or accrued during the tax year and included on page 1,  
Form 1120-S.  
37  
Instructions for Form 1120-S (2023)  
   
a result of the S corporation making a transfer election to transfer  
its credits under section 6418. This amount also includes the  
shareholder’s pro rata share of allocations made to the transferor  
S corporation from a pass-through entity for which the S  
corporation was a partner related to the pass-through entity (or  
lower-tier pass-through entity) making a transfer election to  
transfer its credits.  
Line 15e. Oil, Gas, and Geothermal  
Properties—Deductions  
Enter any deductions allowed for the AMT that are allocable to  
oil, gas, and geothermal properties.  
Line 15f. Other AMT Items  
Tax-exempt income from elective payment election. Enter  
the amount from page 1, line 24d. This is the total amount of  
credits determined by the S corporation for which an elective  
payment election is being made.  
Attach a statement to Form 1120-S and Schedule K-1 that  
shows other items not shown on lines 15a through 15e that are  
adjustments or tax preference items or that the shareholder  
needs to complete Form 6251 or Schedule I (Form 1041). See  
these forms and their instructions to determine the amount to  
enter.  
Schedule K-1. The S corporation has claimed an amount on  
page 1, line 24d, which is treated as tax-exempt income for  
purposes of S corporation allocations. The amount listed on  
line 16 as code B includes the shareholder’s pro rata share of  
tax-exempt income as a result of the S corporation making an  
elective payment election under section 6417. This amount also  
includes the shareholder’s pro rata share of allocations to the S  
corporation from a pass-through entity (or lower-tier  
Other AMT items include the following.  
Accelerated depreciation of real property under pre-1987  
rules.  
Accelerated depreciation of leased personal property under  
pass-through entity) that made an elective payment election.  
pre-1987 rules.  
Long-term contracts entered into after February 28, 1986.  
Paycheck Protection Program (PPP) reporting. Report  
tax-exempt income resulting from the forgiveness of a PPP loan  
on this line. Attach a statement to the S corporation return for  
each tax year in which the S corporation is applying Rev. Proc.  
2021-48, sections 3.01(1), (2), or (3). The statement should also  
include the following information for each PPP loan.  
Except for certain home construction contracts, the taxable  
income from these contracts must be figured using the  
percentage of completion method of accounting for the AMT.  
Losses from tax shelter farm activities. No loss from any tax  
shelter farm activity is allowed for the AMT.  
Any amount from Form 6478 reported as other income on  
1. The S corporation’s name, address, and EIN;  
Form 1120-S, line 5.  
2. A statement that the S corporation is applying section  
Any amount from Form 8864 reported as other income on  
3.01(1), (2), or (3) of Rev. Proc. 2021-48, as applicable;  
Form 1120-S, line 5.  
3. The amount of tax-exempt income from forgiveness of the  
PPP loan that the S corporation is treating as received or  
accrued during the tax year; and  
Schedule K-1. If you are reporting each shareholder's pro rata  
share of only one type of AMT item under code F, enter the code  
with an asterisk (F*) and the dollar amount in the entry space in  
box 15 and attach a statement that shows the type of AMT item.  
If you are reporting multiple types of AMT items under code F,  
enter the code with an asterisk (F*) and enter “STMT” in the  
entry space in box 15 and attach a statement that shows the  
dollar amount of each type of AMT item.  
4. Whether forgiveness of the PPP loan has been granted as  
of the date the return is filed.  
An S corporation that didn’t report tax-exempt income from a  
PPP loan on its 2020 return may file an amended return to apply  
Rev. Proc. 2021-48 and should do so according to these  
instructions. An S corporation that reported tax-exempt income  
from a PPP loan on its 2020 return, the timing of which  
corresponds to one of the options presented in Rev. Proc.  
2021-48, need not file an amended return solely to attach the  
statement that is described in the instructions for Schedule K,  
line 16(b).  
As explained in section 3.03 of Rev. Proc. 2021-48, if an S  
corporation treats tax-exempt income resulting from a PPP loan  
as received or accrued prior to when forgiveness of the PPP loan  
is granted and the amount of forgiveness granted is less than the  
amount of tax-exempt income that was previously treated as  
received or accrued, the S corporation must make appropriate  
adjustments (if any) on an amended return for the tax year in  
which the S corporation treated the tax-exempt income as  
received or accrued. The S corporation should attach a  
statement to such amended return that includes the following  
information.  
Items Affecting Shareholder Basis  
Line 16a. Tax-Exempt Interest Income  
Enter on line 16a tax-exempt interest income, including any  
exempt-interest dividends received from a mutual fund or other  
regulated investment company. Individual shareholders must  
report this information on line 2a of Form 1040 or 1040-SR.  
Generally, under section 1367(a)(1)(A), the basis of the  
shareholder's stock is increased by the amount shown on this  
line.  
Line 16b. Other Tax-Exempt Income  
Enter on line 16b all income of the corporation exempt from tax  
other than tax-exempt interest (for example, life insurance  
proceeds, but see section 101(j) for limits and reporting  
requirements). Generally, under section 1367(a)(1)(A), the basis  
of the shareholder's stock is increased by the amount shown on  
this line.  
1. The S corporation’s name, address, and EIN;  
2. A statement that the S corporation is making adjustments  
in accordance with section 3.03 of Rev. Proc. 2021-48; and  
Tax-exempt income from transfer election. Enter the total  
consideration received by the transferor S corporation as a result  
of a transfer election under section 6418. If the S corporation is  
allocated tax-exempt income from a pass-through entity (or  
lower-tier pass-through entity) making a transfer election to  
transfer its credits, include those amounts in code B as well.  
Schedule K-1. This amount includes the shareholder’s pro  
rata share of tax-exempt income allocated by the transferor S  
corporation related to proceeds received by the S corporation as  
3. The tax year in which tax-exempt income was originally  
reported, the amount of tax-exempt income that was originally  
reported in such tax year, and the amount of tax-exempt income  
being adjusted on the amended return.  
38  
Instructions for Form 1120-S (2023)  
   
Investment income includes gross income from property held  
for investment, the excess of net gain attributable to the  
disposition of property held for investment over net capital gain  
from the disposition of property held for investment, any net  
capital gain from the disposition of property held for investment  
that each shareholder elects to include in investment income  
under section 163(d)(4)(B)(iii), and any qualified dividend  
income that the shareholder elects to include in investment  
income. Generally, investment income and investment expenses  
don't include any income or expenses from a passive activity.  
See Regulations section 1.469-2(f)(10) for exceptions.  
Line 16c. Nondeductible Expenses  
Enter on line 16c nondeductible expenses paid or incurred by  
the corporation.  
Payments made by transferee S corporations to eligible  
taxpayers for the purchase of eligible credits as a result of a  
transfer election under section 6418 are treated as  
nondeductible expenses and are reported on this line 16c.  
Don't include separately stated deductions shown elsewhere  
on Schedules K and K-1, capital expenditures, or items for which  
the deduction is deferred to a later tax year.  
Property subject to a net lease isn't treated as investment  
property because it is subject to the passive loss rules. Don't  
reduce investment income by losses from passive activities.  
Generally, under section 1367(a)(2)(D), the basis of the  
shareholder's stock is decreased by the amount shown on this  
line.  
Investment expenses are deductible expenses (other than  
interest) directly connected with the production of investment  
income. See the Instructions for Form 4952 for more information.  
Line 16d. Distributions  
Schedule K-1. Report each shareholder's pro rata share of  
amounts reported on lines 17a and 17b (investment income and  
expenses) in box 17 of Schedule K-1 using codes A and B,  
respectively.  
If there are other items of investment income or expense  
included in the amounts that are required to be passed through  
separately to the shareholders on Schedule K-1, such as net  
short-term capital gain or loss, net long-term capital gain or loss,  
and other portfolio gains or losses, give each shareholder a  
statement identifying these amounts.  
Enter the total distributions (including cash) made to each  
shareholder other than dividends reported on line 17c of  
Schedule K. Include the shareholder's pro rata share of any  
amounts included in interest income with respect to new clean  
renewable energy, qualified energy conservation, qualified zone  
academy (for bonds issued after October 3, 2008), qualified  
school construction, or build America bonds. Distributions of  
appreciated property are valued at fair market value. If property  
other than cash was distributed, attach a statement to provide  
the following information.  
The date the property was acquired.  
The date the property was distributed.  
The property's FMV on the date of distribution.  
The corporation's basis in the property.  
Line 17c. Dividend Distributions Paid From  
Accumulated Earnings and Profits (Schedule K  
Only)  
See Distributions, later, for the ordering rules.  
Enter total dividends paid to shareholders from accumulated  
earnings and profits. Report these dividends to shareholders on  
Form 1099-DIV. Don't report them on Schedule K-1.  
Line 16e. Repayment of Loans From Shareholders  
Enter any repayments made to shareholders during the current  
tax year.  
Line 17d. Other Items and Amounts  
Line 16f. Foreign Taxes Paid or Accrued  
Report the following information on a statement attached to Form  
1120-S. On Schedule K-1, enter the appropriate code in box 17  
for each information item followed by an asterisk in the left-hand  
column of the entry space (for example, C*). In the right-hand  
column, enter “STMT.” The codes are provided for each  
information category.  
Enter in U.S. dollars the total creditable foreign taxes (described  
in section 901 or section 903) that were paid or accrued  
according to the corporation's method of accounting for such  
taxes. Translate these amounts into U.S. dollars by using the  
applicable exchange rate. See Pub. 514, Foreign Tax Credit for  
Individuals.  
Qualified rehabilitation expenditures (other than rental real  
estate) (code C). Enter total qualified rehabilitation  
expenditures from activities other than rental real estate  
activities. See the Instructions for Form 3468 for details on  
qualified rehabilitation expenditures.  
Schedule K-1. Report each shareholder's pro rata share of  
amounts reported on lines 16a, 16b, 16c, and 16f (concerning  
items affecting shareholder basis) in box 16 of Schedule K-1  
using codes A, B, C, and F, respectively. Report property  
distributions (line 16d) and repayment of loans from  
shareholders (line 16e) on the Schedule K-1 of the  
shareholder(s) that received the distributions or repayments  
(using codes D and E).  
Report qualified rehabilitation expenditures related to  
rental real estate activities on line 13c.  
TIP  
Schedule K-1. Report each shareholder's pro rata share of  
qualified rehabilitation expenditures related to activities other  
than rental real estate activities in box 17 of Schedule K-1 using  
code C. Attach a statement to Schedule K-1 that provides the  
information and the shareholder's pro rata share of the basis and  
expenditure amounts the shareholder will need to figure the  
amounts to report in Part VII of Form 3468. See the Instructions  
for Form 3468 for details. If the corporation has expenditures  
from more than one activity, identify on a statement attached to  
Schedule K-1 the information and amounts for each separate  
activity. See Passive Activity Reporting Requirements, earlier.  
Other Information  
Lines 17a and 17b. Investment Income and  
Expenses  
Enter on line 17a the investment income included on lines 4, 5a,  
6, and 10 of Schedule K. Don't include other portfolio gains or  
losses on this line.  
Enter on line 17b the investment expense included on  
line 12d of Schedule K.  
39  
Instructions for Form 1120-S (2023)  
       
The alternative fuel vehicle refueling property credit. See  
Basis of energy property (code D). In box 17 of  
section 30C(e)(5) for details.  
Schedule K-1, enter code D followed by an asterisk and enter  
“STMT” in the entry space for the dollar amount. Attach a  
statement to Schedule K-1 that provides the shareholder's pro  
rata share of the basis and capacity amounts the shareholder  
will need to figure the amounts to report on Part VI, lines 1a, 3a,  
3e, 5a, 5f, 5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e,  
19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 29a of Form 3468.  
See the Instructions for Form 3468 for details.  
Look-back interest—Completed long-term contracts (code  
I). If the corporation is closely held (defined in section 460(b)(4)  
(C)(iii)) and it entered into any long-term contracts after February  
28, 1986, that are accounted for under either the percentage of  
completion-capitalized cost method or the percentage of  
completion method, it must attach a statement to Form 1120-S  
showing the information required in items (a) and (b) of the  
instructions for lines 1 and 3 of Part II of Form 8697. It must also  
report the amounts for Part II, lines 1 and 3, to its shareholders.  
See the Instructions for Form 8697 for more information.  
Recapture of low-income housing credit (codes E and F). If  
recapture of part or all of the low-income housing credit is  
required because (a) the prior year qualified basis of a building  
decreased, or (b) the corporation disposed of a building or part  
of its interest in a building, see Form 8611, Recapture of  
Low-Income Housing Credit. Complete lines 1 through 7 of Form  
8611 to figure the amount of the credit to recapture.  
Use code E on Schedule K-1 to report recapture of the  
low-income housing credit from a section 42(j)(5) partnership.  
Use code F to report recapture of any other low-income housing  
credit. See the instructions for lines 13a and 13b, earlier, for  
more information.  
Look-back interest—Income forecast method (code J). If  
the corporation is closely held (defined in section 460(b)(4)(C)  
(iii)) and it depreciated certain property placed in service after  
September 13, 1995, under the income forecast method, it must  
attach to Form 1120-S the information specified in the  
instructions for Form 8866, line 2, for the 3rd and 10th tax years  
beginning after the tax year the property was placed in service. It  
must also report the line 2 amounts to its shareholders. See the  
Instructions for Form 8866 for more details.  
Dispositions of property with section 179 deductions  
(code K). This represents gain or loss on the sale, exchange, or  
other disposition of property for which a section 179 deduction  
has been passed through to shareholders. The corporation must  
provide all the following information with respect to such  
dispositions (see the instructions for Form 1120-S, line 4,  
earlier).  
If a shareholder's ownership interest in a building  
decreased because of a transaction at the shareholder  
level, the corporation must provide the necessary  
TIP  
information to the shareholder to enable the shareholder to figure  
the recapture.  
The disposal of a building or an interest therein will  
Description of the property.  
generate a credit recapture unless it is reasonably  
!
CAUTION  
Date the property was acquired and placed in service.  
Date of the sale or other disposition of the property.  
The shareholder's pro rata share of the gross sales price or  
expected that the building will continue to be operated  
as a qualified low-income building for the remainder of the  
building's compliance period.  
amount realized.  
See Form 8586, Form 8611, and section 42 for more  
information.  
The shareholder's pro rata share of the cost or other basis  
plus expense of sale (reduced as explained in the instructions for  
Form 4797, line 21).  
Recapture of investment credit (code G). Complete and  
attach Form 4255 if, before the end of the recapture period,  
investment credit property is disposed of or no longer qualifies  
for the credit or if credit recapture is otherwise required. See the  
Instructions for Form 4255 for details about when credit  
recapture is required. State the type of property at the top of  
Form 4255, and complete lines 2, 3, 4, 10, and 11, whether or  
not any shareholder is subject to recapture of the credit.  
Attach to each Schedule K-1 a separate statement providing  
the information the corporation is required to show on Form  
4255, but list only the shareholder's pro rata share of the basis of  
the property subject to recapture. Also indicate the lines of Form  
4255 on which the shareholders should report these amounts.  
The shareholder's pro rata share of the depreciation allowed  
or allowable, determined as described in the instructions for  
Form 4797, line 22, but excluding the section 179 deduction.  
The shareholder's pro rata share of the section 179 deduction  
(if any) passed through for the property and the corporation's tax  
year(s) in which the amount was passed through.  
If the disposition is due to a casualty or theft, a statement  
indicating so, and any additional information needed by the  
shareholder.  
For an installment sale, any information the shareholder  
needs to complete Form 6252. The corporation must also  
separately report the shareholder's pro rata share of all  
payments received for the property in future tax years.  
(Installment payments received for installment sales made in  
prior tax years should be reported in the same manner used in  
prior tax years.) See the Instructions for Form 6252 for details.  
The corporation itself is liable for investment credit recapture  
in certain cases. See Investment credit recapture tax, earlier, for  
details.  
Recapture of other credits (code H). On an attached  
statement to Schedule K-1, provide any information  
shareholders will need to report recapture of credits (other than  
recapture of low-income housing credit and investment credit  
reported on Schedule K-1 using codes E, F, and G). The  
following are examples of credits subject to recapture and  
reported using code H.  
Recapture of section 179 deduction (code L). This amount  
represents recapture of the section 179 deduction if business  
use of the property dropped to 50% or less before the end of the  
recapture period. If the business use of any property for which a  
section 179 deduction was passed through to shareholders  
dropped to 50% or less (for a reason other than disposition), the  
corporation must provide all the following information.  
The new clean vehicle credit. See section 30D(f)(5) for  
The shareholder's pro rata share of the original basis and  
details.  
depreciation allowed or allowable (not including the section 179  
deduction).  
The new markets credit. See Form 8874 and Form 8874-B,  
Notice of Recapture Event for New Markets Credit, for details.  
The shareholder's pro rata share of the section 179 deduction  
The credit for employer-provided childcare facilities and  
(if any) passed through for the property and the corporation's tax  
services. See section 45F(d) for details.  
year(s) in which the amount was passed through.  
The alternative motor vehicle credit. See section 30B(h)(8) for  
See Regulations section 1.179-1(e) for details.  
details.  
40  
Instructions for Form 1120-S (2023)  
     
Section 453(l)(3) information (code M). Supply any  
information needed by a shareholder to figure the interest due  
under section 453(l)(3). If the corporation elected to report the  
dispositions of certain timeshares and residential lots on the  
installment method, each shareholder's tax liability must be  
increased by the shareholder's pro rata share of the interest on  
tax attributable to the installment payments received during the  
tax year.  
Net investment income (code U). Use code U to report any  
information that may be relevant for shareholders to figure their  
net investment income tax when the information isn't otherwise  
identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach  
a statement that shows a description and dollar amount of each  
relevant item.  
Examples of items reported using code U may include the  
following.  
Net rental real estate income reported on Form 1120-S,  
Section 453A(c) information (code N). Supply any  
information shareholders need to figure the interest charge  
under section 453A(c). See Pub. 537, Installment Sales. This  
information must include the following from each Form 6252  
where the shareholder's pro rata share of the selling price,  
including mortgages and other debts, is greater than $150,000.  
Schedule K, line 2, and other net rental income reported on  
Form 1120-S, Schedule K, line 3c, derived from a section 212  
for-profit activity (and not from a section 162 trade or business).  
Gains and losses from dispositions of assets attributable to a  
section 212 for-profit activity (and not from a section 162 trade or  
business).  
Description of property.  
Gain reported on the installment sale basis (or attributable to  
Date acquired.  
a private annuity) that is attributable to the disposition of property  
held in a trade or business.  
Date property sold.  
Selling price, including mortgages and other debts (not  
Gain or loss from the disposition of a partnership interest, but  
including interest, whether stated or unstated).  
only if such partnership was engaged, directly or indirectly, in  
one or more trades or businesses, and at least one of those  
trades or businesses wasn't trading in financial instruments or  
commodities.  
Mortgages, debts, and other liabilities the buyer assumed or  
took the property subject to.  
Gross profit.  
Contract price.  
The shareholder’s pro rata share of interest income, or interest  
Gross profit percentage.  
expense, that is attributable to a loan between the corporation  
and the shareholder (self-charged interest).  
Current year payments and deemed payments received  
during the year, not including interest whether stated or unstated.  
If the corporation received a Form 1065, Schedule K-1, the  
Origination year payments and deemed payments received  
detail and amounts reported to the corporation using box 20,  
code Y.  
during the year, not including interest whether stated or unstated.  
Payments received in prior years, not including interest  
If the corporation received a Form 1041, Schedule K-1, the  
whether stated or unstated.  
amount of the adjustment reported.  
Installment sale income.  
Character of the income—capital or ordinary.  
In addition, Regulations section 1.1411-10 provides special  
rules with respect to stock of CFCs and passive foreign  
investment companies (PFICs) owned by the corporation. If the  
corporation owns, directly or indirectly, stock of a CFC or PFIC,  
then additional reporting may be required under code U.  
CFCs and QEFs. In the case of stock of CFCs and QEFs  
owned directly or indirectly by the corporation, the corporation  
must provide the name and EIN (if one has been issued) for  
each CFC and QEF the stock of which is owned by the  
corporation for which an election under Regulations section  
1.1411-10(g) is not in effect and with respect to which the  
corporation isn't engaged in a trade or business described in  
section 1411(c)(2). For each of these entities, the corporation  
must provide the following information on an entity-by-entity  
basis (to the extent such information isn't otherwise identifiable  
on Schedule K-3).  
See section 453A(c) for information on how to compute the  
interest charge on the deferred tax liability. The section 453A  
interest charge is reported on the other tax line of the  
shareholder's tax return. See Interest on Deferred Tax in Pub.  
537 for additional details on how to compute the section 453A(c)  
interest.  
Section 1260(b) information (code O). Supply any  
information needed by a shareholder to figure the interest due  
under section 1260(b). If the corporation had gain from certain  
constructive ownership transactions, each shareholder's tax  
liability must be increased by the shareholder's pro rata share of  
interest due on any deferral of gain recognition. See section  
1260(b) for details, including how to figure the interest.  
Interest allocable to production expenditures (code P).  
Supply any information needed by a shareholder to properly  
capitalize interest as required by section 263A(f). See Section  
263A uniform capitalization rules, earlier, for more information.  
Section 951(a) inclusions.  
Section 951A inclusions to the extent allocated to the CFC  
under section 951A(f)(2) if the corporation has elected entity  
treatment under Notice 2020-60, 2020-39 I.R.B. 604.  
CCF nonqualified withdrawals (code Q). Report nonqualified  
withdrawals by the corporation from a capital construction fund.  
Attach a statement to the shareholder's Schedule K-1 providing  
details of the withdrawal. See Pub. 595.  
Section 1293(a)(1)(A) inclusions.  
Section 1293(a)(1)(B) inclusions.  
Section 959(d) distributions subject to section 1411.  
Section 1293(c) distributions subject to section 1411.  
Amount of gain or loss derived with respect to dispositions of  
Depletion information—Oil and gas (code R). Report gross  
income and other information relating to oil and gas well  
properties to shareholders to allow them to figure the depletion  
deduction for oil and gas well properties. Allocate to each  
shareholder a proportionate share of the adjusted basis of each  
corporate oil or gas well property. See section 613A(c)(11) for  
details.  
The corporation can't deduct depletion on oil and gas wells.  
Each shareholder must determine the allowable amount to report  
on the shareholder's return.  
the stock of CFCs and QEFs that is taken into account for  
section 1411 purposes.  
Amounts that are derived with respect to the disposition of the  
stock of CFCs and QEFs and included in income as a dividend  
under section 1248 for section 1411 purposes.  
In the case of stock of CFCs and QEFs directly or indirectly  
owned by the corporation for which an election under  
Regulations section 1.1411-10(g) is in effect, the corporation  
must provide the following information (to the extent such  
information isn't otherwise identifiable on Schedule K-3), on  
either an aggregate basis or an entity-by-entity basis.  
Codes S and T. Reserved for future use.  
Section 951(a) inclusions.  
41  
Instructions for Form 1120-S (2023)  
 
Section 951A inclusions to the extent allocated to the CFC  
Don’t add amounts into a single number and report it in  
box 17 on Schedule K-1. The section 199A information  
must be separately identified for each trade or business  
under section 951A(f)(2) if the corporation has elected entity  
treatment under Notice 2020-60.  
!
CAUTION  
Section 1293(a)(1)(A) inclusions.  
Section 1293(a)(1)(B) inclusions.  
In the case of stock of CFCs and QEFs directly or indirectly  
the S corporation directly conducts, including specified service  
trades or businesses.  
The S corporation must make an initial determination of which  
items are qualified items of income, gain, deduction, and loss at  
its level and report to each shareholder their pro rata share of all  
items that may be qualified items at the shareholder level. These  
items must be separately stated where necessary for the  
shareholder to figure the deduction. See Determining the S  
must then determine whether each item is includible in its QBI.  
In addition, the S corporation must also report whether any of  
its trades or businesses are specified service trades or  
businesses (SSTBs) and identify on the statement any trades or  
businesses that are aggregated.  
owned by the corporation with respect to which the corporation  
is engaged in a trade or business described in section 1411(c)  
(2), the corporation must provide the following information (to the  
extent such information isn't otherwise identifiable on the  
Schedule K-3), on either an aggregate or an entity-by-entity  
basis, or may aggregate this information with other income  
derived by the corporation that is net investment income under  
section 1411(c)(1)(A)(ii).  
Section 951(a) inclusions.  
Section 951A inclusions to the extent allocated to the CFC  
under section 951A(f)(2) if the corporation has elected entity  
treatment under Notice 2020-60.  
Section 1293(a)(1)(A) inclusions.  
Note. The S corporation must report the pro rata share of  
qualified items of income, gain, deduction, and loss from a PTP  
so that shareholders can determine their qualified PTP income.  
However, W-2 wages and UBIA of qualified property from the  
PTP shouldn’t be reported because shareholders can’t use that  
information in figuring their QBI deduction.  
S corporations should use Statement A—QBI Pass-Through  
Entity Reporting, or a substantially similar statement, to report  
each shareholder’s pro rata information from each trade or  
business, including QBI items, W-2 wages, UBIA of qualified  
property, qualified PTP items, and section 199A dividends by  
attaching the completed statement(s) to each shareholder’s  
Schedule K-1. The S corporation should also use Statement A to  
report each shareholder’s pro rata share of QBI items, W-2  
wages, UBIA of qualified property, qualified PTP items, and  
section 199A dividends reported to the S corporation by another  
entity.  
S corporations should use Statement B—QBI Pass-Through  
Entity Aggregation Election(s), or a substantially similar  
statement, to report aggregated trades or businesses and  
provide supporting information to shareholders on each  
Schedule K-1.  
S corporations should use Statement C—QBI Pass-Through  
Horticultural Cooperatives, or a substantially similar statement,  
to report pro rata QBI and W-2 wages allocable to qualified  
payments from a specified agricultural or horticultural  
cooperative for each trade or business. This statement should  
also be used to report each shareholder’s pro rata section  
199A(g) deduction reported to the S corporation by the specified  
cooperative.  
Section 1293(a)(1)(B) inclusions.  
Section 1296 mark-to-market PFICs. In the case of stock of  
PFICs directly or indirectly owned by the corporation for which an  
election under section 1296 is in effect, the corporation must  
provide the following information (to the extent such information  
isn't otherwise identifiable on Schedule K-3), on either an  
aggregate basis or an entity-by-entity basis (except as provided  
below).  
Amounts included in income under section 1296(a)(1).  
Amounts deducted from income under section 1296(a)(2).  
In the case of PFIC stock owned directly or indirectly by the  
corporation for which an election under section 1296 is in effect  
and with respect to which the corporation is engaged in a trade  
or business described in section 1411(c)(2), the corporation may  
aggregate this information with other income derived by the  
corporation that is net investment income under section 1411(c)  
(1)(A)(ii).  
Section 1291 funds. In the case of stock of PFICs directly or  
indirectly owned by the corporation with respect to which direct  
or indirect shareholders are subject to section 1291, the  
corporation must provide the following information (to the extent  
such information isn't otherwise identifiable on Schedule K-3), on  
an entity-by-entity basis.  
Excess distributions made by a PFIC with respect to which the  
shareholder is subject to section 1291.  
Gains derived with respect to the disposition of stock of a  
PFIC with respect to which a shareholder is subject to section  
1291.  
Section 199A information (code V). The qualified business  
income (QBI) deduction may be taken by eligible taxpayers,  
including individuals and some trusts and estates. The  
deduction is determined at the shareholder level. S corporations  
are required to report information necessary for their  
shareholders to figure the deduction. Use the code with an  
asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and  
enter “STMT” in the entry space to indicate that the information is  
provided on an attached statement separately identifying the  
shareholder’s pro rata share of:  
The S corporation must also report all QBI information  
reported to it by any entity in which the S corporation has an  
ownership interest.  
Determining the S corporation’s qualified trades or  
businesses. The S corporation’s qualified trades or businesses  
include its section 162 trades or businesses, except for SSTBs,  
or the trade or business of providing services as an employee. A  
section 162 trade or business generally includes any activity if  
the taxpayer’s primary purpose for engaging in the activity is for  
income or profit and the S corporation is involved in the activity  
with continuity and regularity. For more information on what  
qualifies as a trade or business for purposes of section 199A,  
see the instructions for Form 8995, Qualified Business Income  
Deduction Simplified Computation, or Form 8995-A, Qualified  
Business Income Deduction.  
Qualified items of income, gain, deduction, and loss;  
W-2 wages;  
Unadjusted basis immediately after acquisition (UBIA) of  
qualified property;  
Qualified publicly traded partnership (PTP) items; and  
Section 199A dividends, also known as qualified real estate  
investment trust (REIT) dividends.  
Rental real estate. Rental real estate may constitute a trade  
or business for purposes of the QBI deduction if the rental real  
estate:  
42  
Instructions for Form 1120-S (2023)  
 
Rises to the level of a trade or business under section 162;  
Satisfies the requirements for the rental real estate safe  
substantially similar statement, and attach it to each  
Schedule K-1. The statement must provide the information  
necessary to identify each separate trade or business included  
in each aggregation, a description of the aggregated trades or  
businesses, and an explanation of the factors met that allow the  
aggregation in accordance with Regulations section 1.199A-4.  
The aggregation statement must be completed each year to  
show the S corporation's trade or business aggregations. Failure  
to disclose the aggregations may cause them to be  
disaggregated.  
The S corporation's aggregations must be reported  
consistently for all subsequent years, unless there is a change in  
facts and circumstances that changes or disqualifies the  
aggregation. The S corporation must provide a written  
explanation for any changes to prior year aggregations that  
describes the change in facts and circumstances.  
If the S corporation directly or indirectly owns an interest in  
another relevant pass-through entity (RPE) that aggregates  
multiple trades or businesses, it must attach a copy of the RPE's  
aggregation to each Schedule K-1. The S corporation can’t  
break apart the aggregation of another RPE, but it may add  
trades or businesses to the aggregation, assuming the  
requirements above are satisfied.  
Determining the S corporation’s QBI or qualified PTP  
items. The S corporation’s items of QBI include qualified items  
of income, gain, deduction, and loss from the S corporation’s  
trades or businesses that are effectively connected with the  
conduct of a trade or business within the United States. This may  
include, but isn’t limited to, items such as ordinary business  
income or losses, section 1231 gains or losses, section 179  
deductions, and interest from debt-financed distributions.  
QBI may also include rental income or losses or royalty  
income, if the activity rises to the level of a trade or business, or  
is a qualified trade or business for purposes of section 199A; and  
gambling gains or losses, but only if the S corporation is  
engaged in the trade or business of gambling. Whether an  
activity rises to the level of a trade or business must be  
determined at the entity level and, once made, is binding on  
shareholders.  
Qualified PTP items include the S corporation’s share of  
qualified items of income, gain, deduction, and loss from a PTP  
and may also include gain or loss recognized on the disposition  
of the S corporation’s partnership interest that isn’t treated as a  
capital gain or loss.  
harbor in Rev. Proc. 2019-38, 2019-42 I.R.B. 942; or  
Meets the self-rental exception (that is, the rental or licensing  
of property to a commonly controlled trade or business  
conducted by an individual or relevant pass-through entity)  
described in Regulations section 1.199A-1(b)(14).  
The determination of whether rental real estate constitutes a  
trade or business for purposes of the QBI deduction is made by  
the S corporation. The S corporation must first make this  
determination and then only include the pro rata share of QBI  
information for rental real estate that constitutes a trade or  
business on the statement provided to shareholders. Rental real  
estate that doesn’t meet any of the three conditions noted above  
doesn’t constitute a trade or business for purposes of the QBI  
deduction and must not be included in the QBI information  
provided to shareholders.  
Specified service trades or businesses excluded from  
qualified trades or businesses. SSTBs are generally  
excluded from the definition of a qualified trade or business. An  
SSTB is any trade or business providing services in the fields of  
health, law, accounting, actuarial science, performing arts,  
consulting, athletics, financial services, brokerage services,  
investing and investment management, trading or dealing in  
securities, partnership interests, or commodities, or any other  
trade or business where the principal asset is the reputation or  
skill of one or more of its employees or owners. The term “any  
trade or business” where the principal asset is the reputation or  
skill of one or more of its employees or owners means any trade  
or business that consists of (i) a trade or business in which a  
person receives fees, compensation, or other income for  
endorsing products or services; (ii) a trade or business in which  
a person licenses or receives fees, compensation, or other  
income for the use of an individual’s image, likeness, name,  
signature, voice, trademark, or any other symbols associated  
with the individual’s identity; or (iii) receiving fees, compensation,  
or other income for appearing at an event or on radio, television,  
or another media format.  
Note. S corporations must separately report QBI information for  
all trades or businesses engaged in by the S corporation,  
including SSTBs, and must also identify which trades or  
businesses are SSTBs.  
Aggregation of trades or businesses. An S corporation  
engaged in more than one trade or business may choose to  
aggregate multiple trades or businesses into a single trade or  
business for purposes of section 199A if it meets the following  
requirements:  
1. The same person, or group of persons, either directly or  
through attribution, owns 50% or more of each trade or business  
for a majority of the tax year, including the last day of the tax  
year, and all trades or businesses use the same tax year-end;  
QBI and qualified PTP items don’t include the following:  
Items that aren’t properly includible in income;  
Income that isn’t effectively connected with the conduct of  
business within the United States (go to IRS.gov/ECI for more  
information);  
Items that are treated as capital gain or loss under any  
provision of the Internal Revenue Code;  
Dividends or dividend equivalents, including qualified REIT  
2. None of the trades or businesses is an SSTB; and  
dividends;  
3. The trades or businesses to be aggregated meet at least  
Interest income (unless received in connection with the trade  
two of the following three factors:  
or business);  
a. They provide products, property, or services that are the  
same or that are customarily offered together;  
b. They share facilities or share significant centralized  
business elements, such as personnel, accounting, legal,  
manufacturing, purchasing, human resources, or information  
technology resources; or  
Wage income;  
Commodities transactions, or foreign currency gains or losses  
described in sections 954(c)(1)(C) or (D);  
Income, loss, or deductions from notional principal contracts  
under section 954(c)(1)(F);  
Annuities (unless received in connection with the trade or  
business);  
c. They are operated in coordination with, or reliance upon,  
Guaranteed payments described in section 707(c) received  
one or more of the businesses in the aggregated group.  
by the entity for services rendered to a partnership; or  
Payments described in section 707(a) received by the entity  
If the S corporation chooses to aggregate multiple trades or  
businesses, it must report the aggregation on Statement B, or a  
for services rendered to a partnership.  
43  
Instructions for Form 1120-S (2023)  
 
QBI Flowchart  
S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to  
shareholders.  
Questions  
Yes  
No  
1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question.  
Stop. This item isn’t QBI.  
Stop. This item isn’t QBI.  
2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section Continue to next question.  
179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not  
considered attributable to the trade or business at the entity level include gambling income (loss)  
where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation  
properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc.  
3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or Stop. This item isn’t QBI.  
Continue to next question.  
Continue to next question.  
is it a dividend or dividend equivalent?  
4. Is the item interest income other than interest income properly allocable to a trade or business? Stop. This item isn’t QBI.  
(Note that interest income attributable to an investment of working capital, reserves, or similar  
accounts isn’t properly allocable to a trade or business).  
5. Is the item an annuity, other than an annuity received in connection with the trade or business?  
Stop. This item isn’t QBI.  
Stop. This item isn’t QBI.  
Continue to next question.  
Continue to next question.  
6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss  
described in sections 954(c)(1)(C) or (D)?  
7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)?  
8. Is the item of income or loss from a qualified publicly traded partnership?  
Stop. This item isn’t QBI.  
Continue to next question.  
This item is a qualified PTP  
item. Report this item as  
qualified PTP income or  
loss, subject to  
This item is QBI. Report this  
item as QBI subject to  
shareholder-specific  
determinations.  
shareholder-specific  
determinations, and check  
the PTP box.  
similar statement, attached to Schedule K-1. This includes the  
pro rata share of W-2 wages and UBIA of qualified property  
reported to the S corporation from any qualified trades or  
businesses of an RPE the S corporation owns directly or  
indirectly. However, S corporations that own a direct or indirect  
interest in a PTP may not include any amounts for W-2 wages or  
UBIA of qualified property from the PTP, as the W-2 wages and  
UBIA of qualified property from a PTP aren’t allowed in figuring  
the W-2 wage and UBIA limitations.  
The W-2 wages are amounts paid to employees described in  
sections 6051(a)(3) and (8). If the S corporation conducts more  
than one trade or business, it must allocate the W-2 wages  
among its trades or businesses. See Rev. Proc. 2019-11,  
2019-09 I.R.B. 742 for more information.  
Specific instructions for Statement A—QBI Pass-Through  
Entity Reporting.  
QBI or qualified PTP items. The S corporation must first  
determine if it is engaged in one or more trades or businesses. It  
must then determine if any of its trades or businesses are  
SSTBs. It must also determine whether it has qualified PTP  
items from an interest in a PTP. It must indicate the status in the  
appropriate checkboxes for each trade or business (or  
aggregated trade or business) or PTP interest reported.  
Note. SSTBs and PTPs can’t be aggregated with any other  
trade or business. So, if the aggregation box is checked, the  
SSTB and PTP boxes for that specific aggregated trade or  
business shouldn’t be checked.  
Next, the S corporation must report to each shareholder their  
pro rata share of all items that are QBI or qualified PTP items for  
each trade or business the S corporation owns directly or  
indirectly. Use the QBI flowchart above to determine if an item is  
reportable as a QBI item or qualified PTP item subject to  
shareholder-specific determination.  
The descriptions on the statement generally match the  
descriptions reported on Schedule K-1. So the amounts should  
reflect each trade or business’s portion of the qualified items of  
income, gain, deduction, or loss reported in the applicable box of  
the shareholder’s Schedule K-1. For example, the amount  
reported on the “Ordinary business income (loss)” line of this  
statement should reflect the attributable portion of qualified items  
of income, gain, deduction, and loss for each trade or business  
included in the “Ordinary business income (loss)” reported in  
box 1 of the shareholder’s Schedule K-1. Each item included  
under “Other income (loss)” and “Other deductions” must be  
stated separately, identifying the nature and amount of each  
item.  
The unadjusted basis of qualified property is figured by  
adding the unadjusted basis of all qualified assets immediately  
after acquisition. Qualified property includes all tangible property  
subject to depreciation under section 167 for which the  
depreciable period hasn’t ended that is held and used for the  
production of QBI by the trade or business during the tax year  
and held on the last day of the tax year. The depreciable period  
ends on the later of 10 years after the property is placed in  
service or the last day of the full year for the applicable recovery  
period under section 168.  
Section 199A dividends. The S corporation must report the  
pro rata share of any section 199A dividends, also known as  
qualified real estate investment trust (REIT) dividends, to each  
shareholder on Statement A, or a substantially similar statement,  
attached to Schedule K-1. Section 199A dividends don’t have to  
be separately reported by trades or businesses and can be  
reported as a single amount to shareholders. Section 199A  
dividends include any dividend the S corporation receives from a  
REIT held for more than 45 days, for which the payment isn’t  
obligated to someone else, isn’t a capital gain dividend under  
section 857(b)(3), and isn’t a qualified dividend under section  
1(h)(11), plus any qualified REIT dividends received from a  
regulated investment company (RIC).  
W-2 wages and UBIA of qualified property. The S  
corporation must determine the W-2 wages and UBIA of  
qualified property properly allocable to QBI for each qualified  
trade or business, including SSTBs, and report the pro rata  
share to each shareholder on Statement A, or a substantially  
Fiscal year S corporations. For purposes of determining the  
QBI or qualified PTP items, UBIA of qualified property, and the  
44  
Instructions for Form 1120-S (2023)  
aggregate amount of qualified section 199A dividends, fiscal  
year-end S corporations include all items from the fiscal tax year.  
For purposes of determining W-2 wages, fiscal year-end S  
corporations include amounts paid to employees under sections  
6051(a)(3) and (8) for the calendar year ended with or within the  
S corporation’s tax year. If the S corporation conducts more than  
one trade or business, it must allocate W-2 wages among its  
trades or businesses. See Rev. Proc. 2019-11 for more  
information.  
Statement A—QBI Pass-Through Entity Reporting  
S corporation's name:  
Shareholder’s name:  
S corporation's EIN:  
Shareholder’s identifying number:  
Trade or Business 1  
Trade or Business 2  
Trade or Business 3  
PTP  
PTP  
PTP  
Aggregated  
SSTB  
Aggregated  
SSTB  
Aggregated  
SSTB  
Shareholder’s share of:  
QBI or qualified PTP items subject to shareholder-specific determinations:  
Ordinary business income (loss)  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Rental income (loss)  
Royalty income (loss)  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Section 1231 gain (loss)  
Other income (loss)  
.
.
.
.
Section 179 deduction  
Other deductions  
.
.
.
W-2 wages.  
UBIA of qualified property  
Section 199A dividends.  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
disaggregated. The S corporation's aggregations must be  
reported consistently for all subsequent years, unless there is a  
change in facts and circumstances that changes or disqualifies  
the aggregation. The S corporation must provide a written  
explanation for any changes to prior year aggregations that  
describes the change in facts and circumstances.  
If the S corporation holds a direct or indirect interest in an  
RPE that aggregates multiple trades or businesses, the S  
corporation must also include a copy of the RPE’s aggregations  
with each shareholder’s Schedule K-1. The S corporation can’t  
break apart the aggregation of another RPE, but it may add  
trades or businesses to the aggregation, assuming the  
aggregation requirements are satisfied.  
Specific instructions for Statement B—QBI Pass-Through  
Entity Aggregation Election(s). If the S corporation elects to  
aggregate more than one trade or business that meets all the  
requirements to aggregate, the S corporation must report the  
aggregation to shareholders on Statement B, or a substantially  
similar statement, and attach it to each Schedule K-1. The S  
corporation must indicate trades or businesses that were  
aggregated by checking the appropriate box on Statement A for  
each aggregated trade or business. The S corporation must also  
provide a description of the aggregated trade or business and an  
explanation of the factors met that allow the aggregation.  
The aggregation statement must be completed each year to  
show the S corporation's trade or business aggregations. Failure  
to disclose the aggregations may cause them to be  
45  
Instructions for Form 1120-S (2023)  
 
Statement B—QBI Pass-Through Entity Aggregation Election(s)  
S corporation's name:  
S corporation's EIN:  
Trade or business aggregation 1*  
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations  
section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or  
businesses, attach a copy of the RPE's aggregations.  
Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired,  
or disposed of, or having ceased operations. If yes, explain.  
* If the S corporation has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.  
QBI items and W-2 wages allocable to qualified payments  
include QBI items included on Statement A that are allocable to  
the qualified payments reported to the S corporation on Form  
1099-PATR from the cooperative.  
Section 199A(g) deduction. The S corporation must report  
to its shareholders their pro rata share of any section 199A(g)  
deduction passed through from the cooperative, as reported on  
Form 1099-PATR. Section 199A(g) deductions don’t have to be  
separately reported by trades or businesses and can be  
reported as a single amount to shareholders.  
Specific instructions for Statement C—QBI Pass-Through  
Entity Reporting—Patrons of Specified Agricultural and  
Horticultural Cooperatives.  
QBI items and W-2 wages allocable to qualified  
payments. If the S corporation is a patron of a specified  
agricultural or horticultural cooperative, the S corporation must  
provide the pro rata share of QBI items and W-2 wages allocable  
to qualified payments from each trade or business to each of its  
shareholders on Statement C, or a substantially similar  
statement, and attach it to each Schedule K-1 so each  
shareholder can figure their patron reduction under section  
199A(b)(7).  
Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural  
Cooperatives  
S corporation's name:  
Shareholder’s name:  
S corporation's EIN:  
Shareholder’s identifying number:  
Trade or Business 1  
Trade or Business 2  
Trade or Business 3  
PTP  
PTP  
PTP  
Aggregated  
SSTB  
Aggregated  
SSTB  
Aggregated  
SSTB  
Shareholder’s share of:  
QBI items allocable to qualified payments subject to shareholder-specific determinations:  
Ordinary business income (loss)  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Rental income (loss)  
Royalty income (loss)  
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Section 1231 gain (loss)  
Other income (loss)  
.
.
.
.
Section 179 deduction  
Other deductions  
.
.
.
W-2 wages allocable to qualified payments .  
Section 199A(g) deduction . .  
.
.
.
.
.
.
.
.
.
.
line 41, for excess taxable income on Schedule K. Report the  
shareholder's pro rata share in box 17 of Schedule K-1.  
Codes W through Z. Reserved for future use.  
Excess taxable income (code AA). If the S corporation is  
Excess business interest income (code AB). If the S  
corporation is required to file Form 8990, it may determine it has  
excess business interest income. If so, enter the amount from  
required to file Form 8990, Limitation on Business Interest  
Expense Under Section 163(j), it may determine it has excess  
taxable income. If so, enter the amount from Form 8990, Part III,  
46  
Instructions for Form 1120-S (2023)  
   
Form 8990, Part III, line 42, for excess taxable income on  
Schedule K. Report the shareholder's pro rata share in box 17 of  
Schedule K-1.  
Reportable transactions (code AW). If the corporation  
participates in a transaction that must be disclosed on Form  
8886 (discussed earlier), both the corporation and its  
shareholders may be required to file Form 8886. The corporation  
must determine if any of its shareholders are required to disclose  
the transaction and provide those shareholders with information  
they will need to file Form 8886. This determination is based on  
the category(ies) under which a transaction qualified for  
disclosures. See the Instructions for Form 8886 for details.  
Gross receipts for section 448(c) (code AC). Provide  
information shareholders need to complete the gross receipts  
test for section 448(c) purposes. See the Instructions for Form  
8990 for details.  
Codes AD through AI. Reserved for future use.  
Excess business loss limitation (code AJ). If the corporation  
has deductions attributable to a business activity, provide a  
statement showing the aggregate gross income or gain and the  
aggregate deductions from the business activity that  
Codes AX through BD. Reserved for future use.  
Other information (code ZZ). Any other information the  
shareholders need to prepare their tax returns, including  
information needed to prepare state and local tax returns.  
shareholders need to figure any excess business loss limitation.  
See section 461(l) and the Instructions for Form 461 for details.  
Line 18. More Than One At-Risk Activity  
Codes AK through AM. Reserved for future use.  
Farming and fishing business (code AN). In box 17 of  
Schedule K-1, enter code AN followed by an asterisk and enter  
“STMT” in the entry space for the dollar amount. Attach a  
statement to Schedule K-1 that provides the shareholder's pro  
rata share of the following amounts.  
1. Gross farming and fishing income the shareholder will  
need to report on line 42 of Schedule E (Form 1040). See the  
Instructions for Schedule E (Form 1040) for details.  
If the corporation entered into more than one activity subject to  
the at-risk rules (at-risk activity), the corporation is required to  
provide information separately for each at-risk activity to its  
shareholders. This information is reported on an attachment to  
Schedule K-1. Check the box to indicate there is more than one  
at-risk activity for which a statement is attached. See At-Risk  
Activity Reporting Requirements under At-Risk Limitations,  
earlier, for details.  
2. Gross farming and fishing income and gains as well as  
losses and deductions attributable to farming and fishing  
business activities the shareholder may need to figure the  
amounts to report on Schedule J (Form 1040). See section  
1301.  
Line 19. More Than One Passive Activity  
If the corporation entered into more than one activity  
(determined for purposes of the passive activity loss and credit  
limitations), the corporation is required to provide information  
separately for each activity to its shareholders. This information  
is reported on an attachment to Schedule K-1. Check the box to  
indicate there is more than one passive activity for which a  
statement is attached. See Passive Activity Reporting  
Requirements under Passive Activity Limitations, earlier, for  
details.  
Code AO. Reserved for future use.  
Inversion gain (code AP). Any income or gain reported on  
lines 1 through 10 of Schedule K that qualifies as inversion gain,  
if the corporation is an expatriated entity or is a partner in an  
expatriated entity. For details, see section 7874. Attach a  
statement to Form 1120-S that shows the amount of each type of  
income or gain included in the inversion gain. The corporation  
must report each shareholder's pro rata share of the inversion  
gain in box 17 of Schedule K-1 using code AP. Attach a  
statement to Schedule K-1 that shows the shareholder's pro rata  
share of the amount of each type of income or gain included in  
the inversion gain.  
Reconciliation  
Line 18. Income/Loss Reconciliation  
(Schedule K Only)  
To the extent the corporation has an amount on line 16f of  
Schedule K (foreign taxes paid and accrued), subtract that  
amount for purposes of figuring the corporation's net income  
(loss). The amount reported on line 18 must be the same as the  
amount reported on line 8 of Schedule M-1 or line 26, column  
(d), in Part II of Schedule M-3 (Form 1120-S).  
Codes AQ and AR. Reserved for future use.  
Qualifying advanced coal project property and qualifying  
gasification project property (code AS). Basis in qualifying  
advanced coal project property and qualifying gasification or  
advanced energy project property. Attach a statement to  
Schedule K-1 that provides the shareholder's pro rata share of  
the basis amounts the shareholder will need to figure the  
amounts to report on Part II, lines 1a, 2a, and 3a; or lines 4a and  
5a of Form 3468. See the Instructions for Form 3468 for details.  
Schedule L. Balance Sheets per  
Books  
The balance sheets should agree with the corporation's books  
and records. Schedule L isn't required to be completed if the  
corporation answered “Yes” to question 11 on Schedule B. If the  
corporation is required to complete Schedule L, include total  
assets reported on Schedule L, line 15, column (d), on page 1,  
item F.  
Qualifying advanced energy project property (code AT).  
Basis in qualifying advanced energy project property. Attach a  
statement to Schedule K-1 that provides the shareholder's pro  
rata share of the basis amounts the shareholder will need to  
figure the amounts to report on Part III, line 1a, of Form 3468.  
See the Instructions for Form 3468 for details.  
Corporations with total assets of $10 million or more on the  
last day of the tax year must file Schedule M-3 (Form 1120-S)  
instead of Schedule M-1. However, see the instructions for  
Schedule M-1, later. See the separate Instructions for  
Schedule M-3 (Form 1120-S) for provisions that also affect  
Schedule L.  
Advanced manufacturing investment property (code AU).  
Basis in advanced manufacturing investment facility property.  
Attach a statement to Schedule K-1 that provides the  
shareholder's pro rata share of the basis amounts the  
shareholder will need to figure the amounts to report on Part IV,  
line 1b, of Form 3468. See the Instructions for Form 3468 for  
details.  
If the S election terminated during the tax year and the  
corporation reverted to a C corporation, the year-end balance  
sheet should generally agree with the books and records at the  
Code AV. Reserved for future use.  
47  
Instructions for Form 1120-S (2023)  
 
end of the C short year. However, if the corporation elected  
under section 1362(e)(3) to have items assigned to each short  
year under normal tax accounting rules, the year-end balance  
sheet should agree with the books and records at the end of the  
S short year.  
Describe each such item of income. Attach a statement if  
necessary.  
Line 3b. Travel and Entertainment  
Include any of the following applicable expenses.  
Entertainment expenses not deductible under section 274(a).  
Meal expenses not deductible under section 274(n).  
Line 5. Tax-Exempt Securities  
Include on this line:  
Qualified transportation fringes not deductible under section  
State and local government obligations, the interest on which  
274(a)(4).  
is excludable from gross income under section 103(a); and  
Expenses for the use of an entertainment facility.  
Stock in a mutual fund or other regulated investment company  
The part of business gifts over $25.  
that distributed exempt-interest dividends during the tax year of  
the corporation.  
Expenses of an individual over $2,000 that are allocable to  
conventions on cruise ships.  
Employee achievement awards of nontangible property or  
Line 24. Retained Earnings  
tangible property over $400 ($1,600 if part of a qualified plan).  
The cost of skyboxes.  
If the corporation maintains separate accounts for appropriated  
and unappropriated retained earnings, it may want to continue  
such accounting for purposes of preparing its financial balance  
sheet. Also, if the corporation converts to C corporation status in  
a subsequent year, it will be required to report its appropriated  
and unappropriated retained earnings on separate lines of  
Schedule L of Form 1120.  
The part of luxury water travel expenses not deductible under  
section 274(m).  
Expenses for travel as a form of education.  
Nondeductible club dues.  
Other nondeductible travel and entertainment expenses.  
An S corporation should include tax-exempt income from  
the forgiveness of PPP loans on line 5 of the  
Schedule M-1 (if it was included on line 1 of the  
TIP  
Line 25. Adjustments to Shareholders' Equity  
Schedule M-1), or on Part II, line 22, of the Schedule M-3,  
column (c), as a negative number (if it was included on line 22 in  
column (a) as income per income statement).  
The following are some examples of adjustments to report on  
this line.  
Unrealized gains and losses on securities held “available for  
sale.”  
If the corporation has an amount on line 16f of  
Foreign currency translation adjustments.  
Schedule K (foreign taxes paid and accrued), take that  
amount into account for purposes of figuring expenses  
TIP  
The excess of additional pension liability over unrecognized  
prior service cost.  
and deductions to enter on lines 3 and 6.  
Guarantees of employee stock ownership plan (ESOP) debt.  
Compensation related to employee stock award plans.  
If the total adjustment to be entered is a negative amount,  
Schedule M-2. Analysis of  
enter the amount in parentheses.  
Accumulated Adjustments Account,  
Shareholders' Undistributed Taxable  
Income Previously Taxed,  
Schedule M-1. Reconciliation of  
Income (Loss) per Books With  
Accumulated Earnings and Profits,  
and Other Adjustments Account  
Column (a). Accumulated Adjustments Account  
Income (Loss) per Return  
In completing Schedule M-1, the following apply.  
Schedule M-1 isn't required to be completed if the corporation  
answered “Yes” to question 11 on Schedule B.  
Corporations with total assets of $10 million or more on the  
The accumulated adjustments account (AAA) is an account of  
the S corporation that generally reflects the accumulated  
undistributed net income of the corporation for the corporation's  
post-1982 years. S corporations with accumulated earnings and  
profits (AE&P) must maintain the AAA to determine the tax effect  
of distributions during years as an S corporation, the  
post-termination transition period, and cash distributions  
following a post-termination transition period. An S corporation  
without AE&P doesn't need to maintain the AAA in order to  
determine the tax effect of distributions. Nevertheless, if an S  
corporation without AE&P engages in certain transactions to  
which section 381(a) applies, such as a merger into an S  
corporation with AE&P, the S corporation must be able to  
calculate its AAA at the time of the merger for purposes of  
determining the tax effect of post-merger distributions.  
Therefore, it is recommended that the AAA be maintained by all  
S corporations.  
last day of the tax year must file Schedule M-3 (Form 1120-S)  
instead of Schedule M-1.  
A corporation filing Form 1120-S that isn't required to file  
Schedule M-3 may voluntarily file Schedule M-3 instead of  
Schedule M-1. See the Instructions for Schedule M-3 (Form  
1120-S) for more information.  
For 2023, corporations that (a) are required to file  
Schedule M-3 (Form 1120-S) and have less than $50 million  
total assets at the end of the tax year, or (b) aren't required to file  
Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3  
(Form 1120-S), must either (i) complete Schedule M-3 (Form  
1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S)  
through Part I, and complete Form 1120-S, Schedule M-1,  
instead of completing Parts II and III of Schedule M-3 (Form  
1120-S). If the corporation chooses to complete Schedule M-1  
instead of completing Parts II and III of Schedule M-3, line 1 of  
Schedule M-1 must equal line 11 of Part I of Schedule M-3. See  
the Instructions for Schedule M-3 (Form 1120-S) for more  
information.  
On the first day of the corporation's first tax year as an S  
corporation, the balance of the AAA is zero. At the end of the tax  
year, adjust the AAA for the items as explained below and in the  
order listed.  
Line 2  
Report on this line income included on Schedule K, lines 1, 2,  
3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year.  
1. Increase the AAA by income (other than tax-exempt  
income) and the excess of the deduction for depletion over the  
48  
Instructions for Form 1120-S (2023)  
     
basis of the property subject to depletion (unless the property is  
an oil and gas property the basis of which has been allocated to  
shareholders).  
Column (c). Accumulated Earnings and Profits  
If the corporation was a C corporation in a prior year, or if it  
engaged in a tax-free reorganization with a C corporation, enter  
the amount of any AE&P at the close of its 2022 tax year on  
line 1 in column (c). For details on figuring AE&P, see section  
312. Estimates based on retained earnings at the end of the tax  
year are acceptable. If the corporation has AE&P, it may be liable  
for tax imposed on excess net passive income. See Excess net  
passive income tax, earlier, for details on this tax.  
2. Generally, decrease the AAA by deductible losses and  
expenses, nondeductible expenses (other than expenses related  
to tax-exempt income), and the sum of the shareholders'  
deductions for depletion for any oil or gas property held by the  
corporation as described in section 1367(a)(2)(E). If deductible  
losses and expenses include the fair market value (FMV) of  
certain contributed property (discussed earlier), further adjust  
AAA by adding back the FMV of the contributed property and  
subtracting instead the property's adjusted basis. If the total  
decreases under (2) exceed the total increases under (1) above,  
the excess is a “net negative adjustment.If the corporation has a  
net negative adjustment, don't take it into account under (2).  
Instead, take it into account only under (4) below.  
Column (d). Other Adjustments Account  
The other adjustments account is adjusted for tax-exempt  
income (and related expenses) and federal taxes attributable to  
a C corporation tax year. After these adjustments are made, the  
account is reduced for any distributions made during the year.  
See Distributions, later.  
3. Decrease AAA (but not below zero) by property  
distributions (other than dividend distributions from AE&P),  
unless the corporation elects to reduce AE&P first. See  
Distributions, later, for definitions and other details.  
PPP loans. An S corporation should include tax-exempt  
income from the forgiveness of PPP loans in column (d)  
on line 3 of the Schedule M-2.  
TIP  
4. Decrease AAA by any net negative adjustment. For  
adjustments to the AAA for redemptions, reorganizations, and  
corporate separations, see Regulations section 1.1368-2(d).  
An S corporation should report expenses paid this year with  
proceeds from PPP loans that were forgiven this year in column  
(d) on line 5 of the Schedule M-2.  
The AAA may have a negative balance at year end. See  
If column (a) on line 2 or line 4 of the Schedule M-2 includes  
expenses paid with proceeds from forgiven PPP loans, an S  
corporation should report that amount in column (a) on line 3 and  
in column (d) on line 5 of the Schedule M-2.  
section 1368(e).  
TIP  
Column (b). Shareholders' Undistributed  
Taxable Income Previously Taxed  
If column (a) on line 1 of the Schedule M-2 includes expenses  
that were paid in a prior year with proceeds from PPP loans that  
were forgiven this year, an S corporation should report that  
amount in column (a) on line 3 and in column (d) on line 5 of the  
Schedule M-2.  
The shareholders' undistributed taxable income previously taxed  
account, also called previously taxed earnings and profits  
(PTEP), is maintained only if the corporation had a balance in  
this account at the start of its 2023 tax year. If there is a  
beginning balance for the 2023 tax year, no adjustments are  
made to the account except to reduce the account for  
Distributions  
General rule. Unless the corporation makes one of the  
elections described below, property distributions (including  
cash) are applied in the following order (to reduce accounts of  
the S corporation that are used to figure the tax effect of  
distributions made by the corporation to its shareholders).  
1. Reduce the AAA determined without regard to any net  
negative adjustment for the tax year (but not below zero). If  
distributions during the tax year exceed the AAA at the close of  
the tax year, determined without regard to any net negative  
distributions made under section 1375(d) (as in effect before the  
enactment of the Subchapter S Revision Act of 1982). See  
Distributions, later, for the order of distributions from the account.  
Each shareholder's right to nontaxable distributions from  
PTEP is personal and can't be transferred to another person.  
The corporation is required to keep records of each  
shareholder's net share of PTEP.  
Keep for Your Records  
Schedule M-2 Worksheet  
(a)  
(b)  
(c)  
(d)  
Accumulated  
Shareholders'  
Accumulated  
Other adjustments  
account  
adjustments account  
undistributed taxable  
income previously taxed  
earnings and profits  
1. Balance at beginning of tax  
-0-  
-0-  
year . . . . . . . . . . . . . . . . . . . . .  
2. Ordinary income from page 1,  
10,000  
20,000  
line 22 . . . . . . . . . . . . . . . . . . .  
3. Other additions . . . . . . . . . . . . .  
4. Loss from page 1, line 22 . . . . . . .  
5. Other reductions . . . . . . . . . . . .  
6. Combine lines 1 through 5 . . . . . .  
7. Distributions . . . . . . . . . . . . . . .  
5,000  
(
)
(36,000)  
(6,000)  
-0-  
(
)
5,000  
5,000  
8. Balance at end of tax year. Subtract  
(6,000)  
-0-  
line 7 from line 6 . . . . . . . . . . . . .  
49  
Instructions for Form 1120-S (2023)  
     
adjustment for the tax year, the AAA is allocated pro rata to each  
distribution made during the tax year. See section 1368.  
Statement regarding elections. To make any of the above  
elections, the corporation must attach a statement to a timely  
filed original or amended Form 1120-S for the tax year for which  
the election is made. In the statement, the corporation must  
identify the election it is making and must state that each  
shareholder consents to the election. The statement of election  
to make a deemed dividend must include the amount of the  
deemed dividend distributed to each shareholder. For more  
details on the election, see Regulations section 1.1368-1(f)(5).  
2. Reduce shareholders' PTEP account for any section  
1375(d) (as in effect before 1983) distributions. A distribution  
from the PTEP account is tax free to the extent of a  
shareholder's basis in the shareholder's stock in the corporation.  
3. Reduce AE&P. Generally, the S corporation has AE&P  
only if it hasn't distributed E&P accumulated in prior years when  
the S corporation was a C corporation (section 1361(a)(2)). See  
section 312 for information on E&P. The only adjustments that  
can be made to the AE&P of an S corporation are:  
Example  
The following example shows how the Schedule M-2 accounts  
are adjusted for items of income (loss), deductions, and  
distributions reported on Form 1120-S. In this example, the  
corporation has no PTEP or AE&P.  
a. Reductions for dividend distributions;  
b. Adjustments for redemptions, liquidations,  
reorganizations, etc.; and  
c. Reductions for investment credit recapture tax for which  
the corporation is liable.  
Items per return are:  
1. Page 1, line 22 income—$10,000;  
2. Schedule K, line 2 loss—($3,000);  
See section 1371(c) and (d)(3).  
4. Reduce the other adjustments account (OAA).  
5. Reduce any remaining shareholders' equity accounts.  
3. Schedule K, line 4 income—$4,000;  
4. Schedule K, line 5a income—$16,000;  
5. Schedule K, line 12a deduction—$24,000;  
6. Schedule K, line 12d deduction—$3,000;  
7. Schedule K, line 13g work opportunity credit—$6,000;  
8. Schedule K, line 16a tax-exempt interest—$5,000;  
Elections relating to source of distributions. The  
corporation may modify the above ordering rules by making one  
or more of the following elections.  
Election to distribute AE&P first. If the corporation has  
AE&P and wants to distribute from this account before making  
distributions from the AAA, it may elect to do so with the consent  
of all its affected shareholders (section 1368(e)(3)(B)). This  
election is irrevocable and applies only for the tax year for which  
it is made. For details on making the election, see Statement  
Election to make a deemed dividend. If the corporation  
wants to distribute all or part of its AE&P through a deemed  
dividend, it may elect to do so with the consent of all its affected  
shareholders (section 1368(e)(3)(B)). Under this election, the  
corporation will be treated as also having made the election to  
distribute AE&P first. The amount of the deemed dividend can't  
exceed the AE&P at the end of the tax year. The E&P at year end  
is first reduced by any actual distributions of AE&P made during  
the tax year. A deemed dividend is treated as if it were a pro rata  
distribution of money to the shareholders, received by the  
shareholders, and immediately contributed back to the  
corporation, all on the last day of the tax year. This election is  
irrevocable and applies only for the tax year for which it is made.  
For details on making the election, see Statement regarding  
elections, later.  
Election to forego PTEP. If the corporation wants to forego  
distributions of PTEP, it may elect to do so with the consent of all  
its affected shareholders (section 1368(e)(3)(B)). Under this  
election, item (2) under General rule, earlier, doesn't apply to any  
distribution made during the tax year. This election is irrevocable  
and applies only for the tax year for which it is made. For details  
on making the election, see Statement regarding elections next.  
9. Schedule K, line 16c nondeductible expenses—$6,000  
(reduction in salaries and wages for work opportunity credit); and  
10. Schedule K, line 16d distributions—$65,000.  
Based on items (1) through (10) above and starting balances  
of zero, the columns for the AAA and the other adjustments  
account are completed as shown in the Schedule M-2  
Worksheet.  
For the AAA, the worksheet line 3—$20,000 amount is the  
total of the Schedule K, lines 4 and 5a income of $4,000 and  
$16,000. The worksheet line 5—$36,000 amount is the total of  
the Schedule K, line 2 loss of ($3,000), line 12a (code A)  
deduction of $24,000, line 12d (code ZZ) deduction of $3,000,  
and the line 16c nondeductible expenses of $6,000. The  
worksheet line 7 is zero. The AAA at the end of the tax year  
(figured without regard to distributions and the net negative  
adjustment of $6,000) is zero, and distributions can't reduce the  
AAA below zero.  
For the other adjustments account, the worksheet line 3  
amount is the Schedule K, line 16a, tax-exempt interest income  
of $5,000. The worksheet line 7 amount is $5,000, reducing the  
other adjustments account to zero. The remaining $60,000 of  
distributions aren't entered on Schedule M-2.  
Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United  
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to  
figure and collect the right amount of tax.  
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form  
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents  
may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential,  
as required by section 6103.  
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of  
December 2023, for taxpayers filing 2023 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC,  
1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented  
separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs  
include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and  
submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden  
50  
Instructions for Form 1120-S (2023)  
 
associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic  
errors, implying lower post-filing burden.  
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience  
lower than average burden, with taxpayer burden varying considerably by taxpayer type.  
The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden  
for corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT,  
1120-RIC, 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates there is significant variation in  
taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer,  
the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these  
estimates.  
Table 1 – Taxpayer Burden for Entities Taxed as Partnerships  
Forms 1065, 1066, and all attachments  
Primary Form Filed or Type of  
Taxpayer  
Number of Returns  
(millions)  
Average Time (hours)  
Average Cost ($)  
Average Monetized  
Burden ($)  
All Partnerships  
Small  
5.3  
4.9  
0.4  
60  
50  
200  
5,000  
3,200  
27,800  
8,700  
5,200  
50,800  
Large*  
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and  
pass-through corporations. A small business is any business that does not meet the definition of a large business.  
Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations  
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments  
Primary Form Filed or Type of  
Taxpayer  
Number of Returns  
(millions)  
Average Time (hours)  
Average Cost ($)  
Average Monetized  
Burden ($)  
All Taxable Corporations  
2.1  
2.0  
0.1  
105  
55  
830  
6,700  
3,600  
53,800  
14,900  
6,200  
149,000  
Small  
Large*  
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and  
pass-through corporations. A small business is any business that does not meet the definition of a large business.  
Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations  
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments  
Primary Form Filed or Type of  
Taxpayer  
Number of Returns  
(millions)  
Average Time (hours)  
Average Cost ($)  
Average Monetized  
Burden ($)  
All Pass-Through Corporations  
5.8  
5.7  
0.1  
65  
60  
295  
4,400  
3,800  
37,700  
7,500  
6,400  
71,800  
Small  
Large*  
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and  
pass-through corporations. A small business is any business that does not meet the definition of a large business.  
Note.The data shown are the best estimates for 2023 business entity income tax returns. Reported time and cost burdens are  
national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by  
taxpayer type. The estimates are subject to change as new forms and data become available.  
Comments and suggestions. We welcome your comments about these forms and suggestions for future editions.  
You can send us comments through IRS.gov/FormComments. Or you can write to the Internal Revenue Service, Tax Forms and  
Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.  
Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your  
comments and suggestions as we revise our tax forms, instructions, and publications. Don't send tax questions, tax returns, or  
payments to the above address.  
51  
Instructions for Form 1120-S (2023)  
largest percentage of its “total receipts.” Total receipts is  
defined as the sum of gross receipts or sales (page 1,  
line 1a); all other income (page 1, lines 4 and 5); income  
reported on Schedule K, lines 4, 5a, and 6; income or  
net gain reported on Schedule K, lines 7, 8a, 9, and 10;  
and income or net gain reported on Form 8825, lines 2,  
19, and 20a. If the company purchases raw materials  
and supplies them to a subcontractor to produce the  
finished product, but retains title to the product, the  
company is considered a manufacturer and must use  
one of the manufacturing codes (311110-339900).  
Once the principal business activity is determined,  
enter the six-digit code from the list below on page 1,  
item B. Also enter the business activity on page 2,  
Schedule B, line 2(a) and a brief description of the  
principal product or service of the business on line 2(b).  
Principal Business Activity Codes  
This list of principal business activities and their  
associated codes is designed to classify an enterprise  
by the type of activity in which it is engaged to facilitate  
the administration of the Internal Revenue Code. These  
principal business activity codes are based on the North  
American Industry Classification System.  
Using the list of activities and codes below,  
determine from which activity the company derives the  
238290 Other Building Equipment  
Contractors  
238300 Building Finishing Contractors  
(including drywall, insulation,  
painting, wallcovering, flooring,  
tile, & finish carpentry)  
238900 Other Specialty Trade  
Contractors (including site  
preparation)  
325900 Other Chemical Product &  
336990 Other Transportation Equipment  
Mfg  
Agriculture, Forestry, Fishing  
and Hunting  
Preparation Mfg  
Plastics and Rubber Products  
Furniture and Related Product  
Manufacturing  
Manufacturing  
Crop Production  
326100 Plastics Product Mfg  
326200 Rubber Product Mfg  
337000 Furniture & Related Product  
Manufacturing  
111100 Oilseed & Grain Farming  
111210 Vegetable & Melon Farming  
Miscellaneous Manufacturing  
Nonmetallic Mineral Product  
(including potatoes & yams)  
Manufacturing  
339110 Medical Equipment & Supplies  
111300 Fruit & Tree Nut Farming  
Mfg  
327100 Clay Product & Refractory Mfg  
327210 Glass & Glass Product Mfg  
327300 Cement & Concrete Product Mfg  
327400 Lime & Gypsum Product Mfg  
111400 Greenhouse, Nursery, &  
Manufacturing  
Food Manufacturing  
339900 Other Miscellaneous  
Manufacturing  
Floriculture Production  
111900 Other Crop Farming (including  
tobacco, cotton, sugarcane, hay,  
peanut, sugar beet & all other  
crop farming)  
Wholesale Trade  
311110 Animal Food Mfg  
311200 Grain & Oilseed Milling  
327900 Other Nonmetallic Mineral  
Merchant Wholesalers, Durable Goods  
Product Mfg  
311300 Sugar & Confectionery Product  
423100 Motor Vehicle & Motor Vehicle  
Animal Production  
Mfg  
Primary Metal Manufacturing  
Parts & Supplies  
112111 Beef Cattle Ranching & Farming  
112112 Cattle Feedlots  
311400 Fruit & Vegetable Preserving &  
Specialty Food Mfg  
331110 Iron & Steel Mills & Ferroalloy  
423200 Furniture & Home Furnishings  
Mfg  
423300 Lumber & Other Construction  
311500 Dairy Product Mfg  
331200 Steel Product Mfg from  
Purchased Steel  
112120 Dairy Cattle & Milk Production  
112210 Hog & Pig Farming  
Materials  
311610 Animal Slaughtering &  
423400 Professional & Commercial  
Equipment & Supplies  
Processing  
331310 Alumina & Aluminum Production  
112300 Poultry & Egg Production  
112400 Sheep & Goat Farming  
& Processing  
311710 Seafood Product Preparation &  
Packaging  
423500 Metal & Mineral (except  
331400 Nonferrous Metal (except  
Aluminum) Production &  
Processing  
Petroleum)  
112510 Aquaculture (including shellfish &  
311800 Bakeries, Tortilla, & Dry Pasta  
423600 Household Appliances &  
Electrical & Electronic Goods  
finfish farms & hatcheries)  
Mfg  
112900 Other Animal Production  
Forestry and Logging  
331500 Foundries  
311900 Other Food Mfg (including  
coffee, tea, flavorings &  
seasonings)  
423700 Hardware, & Plumbing & Heating  
Fabricated Metal Product  
Equipment & Supplies  
113110 Timber Tract Operations  
Manufacturing  
423800 Machinery, Equipment, &  
Supplies  
Beverage and Tobacco Product  
113210 Forest Nurseries & Gathering of  
332110 Forging & Stamping  
Manufacturing  
Forest Products  
332210 Cutlery & Handtool Mfg  
423910 Sporting & Recreational Goods &  
312110 Soft Drink & Ice Mfg  
312120 Breweries  
113310 Logging  
Supplies  
332300 Architectural & Structural Metals  
Fishing, Hunting and Trapping  
114110 Fishing  
Mfg  
423920 Toy & Hobby Goods & Supplies  
423930 Recyclable Materials  
312130 Wineries  
312140 Distilleries  
332400 Boiler, Tank, & Shipping  
Container Mfg  
114210 Hunting & Trapping  
423940 Jewelry, Watch, Precious Stone,  
332510 Hardware Mfg  
312200 Tobacco Manufacturing  
Textile Mills and Textile Product Mills  
313000 Textile Mills  
& Precious Metals  
Support Activities for Agriculture and  
Forestry  
332610 Spring & Wire Product Mfg  
423990 Other Miscellaneous Durable  
Goods  
115110 Support Activities for Crop  
Production (including cotton  
ginning, soil preparation,  
332700 Machine Shops; Turned Product;  
& Screw, Nut, & Bolt Mfg  
Merchant Wholesalers, Nondurable  
314000 Textile Product Mills  
Apparel Manufacturing  
Goods  
332810 Coating, Engraving, Heat  
Treating, & Allied Activities  
planting, & cultivating)  
424100 Paper & Paper Products  
315100 Apparel Knitting Mills  
315210 Cut & Sew Apparel Contractors  
115210 Support Activities for Animal  
332900 Other Fabricated Metal Product  
424210 Drugs & Druggists' Sundries  
424300 Apparel, Piece Goods, & Notions  
424400 Grocery & Related Products  
424500 Farm Product Raw Materials  
424600 Chemical & Allied Products  
424700 Petroleum & Petroleum Products  
Production (including farriers)  
Mfg  
115310 Support Activities For Forestry  
315250 Cut & Sew Apparel Mfg (except  
Machinery Manufacturing  
Contractors)  
333100 Agriculture, Construction, &  
Mining  
315990 Apparel Accessories & Other  
Apparel Mfg  
Mining Machinery Mfg  
211120 Crude Petroleum Extraction  
211130 Natural Gas Extraction  
212110 Coal Mining  
333200 Industrial Machinery Mfg  
Leather and Allied Product  
333310 Commercial & Service Industry  
Manufacturing  
424800 Beer, Wine, & Distilled Alcoholic  
Machinery Mfg  
316110 Leather & Hide Tanning &  
Finishing  
Beverages  
212200 Metal Ore Mining  
212310 Stone Mining & Quarrying  
333410 Ventilation, Heating,  
Air-Conditioning, & Commercial  
Refrigeration Equipment Mfg  
424910 Farm Supplies  
316210 Footwear Mfg (including rubber &  
424920 Book, Periodical, & Newspapers  
212320 Sand, Gravel, Clay, & Ceramic &  
Refractory Minerals Mining &  
Quarrying  
plastics)  
333510 Metalworking Machinery Mfg  
424930 Flower, Nursery Stock, & Florists'  
316990 Other Leather & Allied Product  
Mfg  
Supplies  
333610 Engine, Turbine & Power  
Transmission Equipment Mfg  
212390 Other Nonmetallic Mineral  
424940 Tobacco Products & Electronic  
Cigarettes  
Wood Product Manufacturing  
Mining & Quarrying  
333900 Other General Purpose  
Machinery Mfg  
321110 Sawmills & Wood Preservation  
213110 Support Activities for Mining  
424950 Paint, Varnish, & Supplies  
321210 Veneer, Plywood, & Engineered  
Computer and Electronic Product  
424990 Other Miscellaneous Nondurable  
Utilities  
Wood Product Mfg  
Manufacturing  
Goods  
321900 Other Wood Product Mfg  
Paper Manufacturing  
334110 Computer & Peripheral  
Equipment Mfg  
221100 Electric Power Generation,  
Wholesale Trade Agents & Brokers  
Transmission & Distribution  
425120 Wholesale Trade Agents &  
334200 Communications Equipment Mfg  
334310 Audio & Video Equipment Mfg  
221210 Natural Gas Distribution  
322100 Pulp, Paper, & Paperboard Mills  
322200 Converted Paper Product Mfg  
Printing and Related Support Activities  
Brokers  
221300 Water, Sewage & Other Systems  
221500 Combination Gas & Electric  
Retail Trade  
Motor Vehicle and Parts Dealers  
441110 New Car Dealers  
334410 Semiconductor & Other  
Electronic Component Mfg  
323100 Printing & Related Support  
Construction  
334500 Navigational, Measuring,  
Electromedical, & Control  
Instruments Mfg  
Activities  
Construction of Buildings  
441120 Used Car Dealers  
441210 Recreational Vehicle Dealers  
441222 Boat Dealers  
Petroleum and Coal Products  
Manufacturing  
236110 Residential Building Construction  
334610 Manufacturing & Reproducing  
324110 Petroleum Refineries (including  
236200 Nonresidential Building  
Magnetic & Optical Media  
integrated)  
Construction  
441227 Motorcycle, ATV, & All Other  
Electrical Equipment, Appliance, and  
Component Manufacturing  
324120 Asphalt Paving, Roofing, &  
Saturated Materials Mfg  
Heavy and Civil Engineering  
Construction  
Motor Vehicle Dealers  
441300 Automotive Parts, Accessories, &  
Tire Retailers  
335100 Electric Lighting Equipment Mfg  
335200 Household Appliance Mfg  
335310 Electrical Equipment Mfg  
324190 Other Petroleum & Coal Products  
237100 Utility System Construction  
237210 Land Subdivision  
Mfg  
Building Material and Garden  
Chemical Manufacturing  
Equipment and Supplies Dealers  
237310 Highway, Street, & Bridge  
335900 Other Electrical Equipment &  
325100 Basic Chemical Mfg  
Construction  
444110 Home Centers  
Component Mfg  
325200 Resin, Synthetic Rubber, &  
Artificial & Synthetic Fibers &  
Filaments Mfg  
237990 Other Heavy & Civil Engineering  
Construction  
444120 Paint & Wallpaper Retailers  
444140 Hardware Retailers  
Transportation Equipment  
Manufacturing  
Specialty Trade Contractors  
444180 Other Building Material Dealers  
336100 Motor Vehicle Mfg  
325300 Pesticide, Fertilizer, & Other  
238100 Foundation, Structure, & Building  
Exterior Contractors (including  
framing carpentry, masonry,  
444200 Lawn & Garden Equipment &  
Agricultural Chemical Mfg  
336210 Motor Vehicle Body & Trailer Mfg  
336300 Motor Vehicle Parts Mfg  
336410 Aerospace Product & Parts Mfg  
336510 Railroad Rolling Stock Mfg  
336610 Ship & Boat Building  
Supplies Retailers  
325410 Pharmaceutical & Medicine Mfg  
325500 Paint, Coating, & Adhesive Mfg  
Food and Beverage Retailers  
glass, roofing, & siding)  
445110 Supermarkets & Other Grocery  
238210 Electrical Contractors  
325600 Soap, Cleaning Compound, &  
Retailers (except Convenience)  
Toilet Preparation Mfg  
238220 Plumbing, Heating, &  
445131 Convenience Retailers  
Air-Conditioning Contractors  
52  
 
Principal Business Activity Codes (Continued)  
445132 Vending Machine Operators  
445230 Fruit & Vegetable Retailers  
445240 Meat Retailers  
485210 Interurban & Rural Bus  
Securities, Commodity Contracts, and  
Other Financial Investments and  
Related Activities  
541340 Drafting Services  
Transportation  
541350 Building Inspection Services  
485310 Taxi & Ridesharing Services  
485320 Limousine Service  
541360 Geophysical Surveying &  
523150 Investment Banking & Securities  
Mapping Services  
445250 Fish & Seafood Retailers  
445291 Baked Goods Retailers  
445292 Confectionery & Nut Retailers  
Intermediation  
485410 School & Employee Bus  
541370 Surveying & Mapping (except  
Geophysical) Services  
523160 Commodity Contracts  
Intermediation  
Transportation  
485510 Charter Bus Industry  
541380 Testing Laboratories & Services  
445298 All Other Specialty Food  
523210 Securities & Commodity  
485990 Other Transit & Ground  
Specialized Design Services  
Retailers  
Exchanges  
Passenger Transportation  
541400 Specialized Design Services  
445320 Beer, Wine, & Liquor Retailers  
523900 Other Financial Investment  
Activities (including portfolio  
management & investment  
advice)  
Pipeline Transportation  
(including interior, industrial,  
Furniture and Home Furnishings  
graphic, & fashion design)  
486000 Pipeline Transportation  
Scenic & Sightseeing Transportation  
Retailers  
Computer Systems Design and Related  
449110 Furniture Retailers  
Services  
Insurance Carriers and Related  
487000 Scenic & Sightseeing  
449121 Floor Covering Retailers  
449122 Window Treatment Retailers  
541511 Custom Computer Programming  
Services  
Activities  
Transportation  
524110 Direct Life, Health, & Medical  
Insurance Carriers  
Support Activities for Transportation  
449129 All Other Home Furnishings  
541512 Computer Systems Design  
488100 Support Activities for Air  
Retailers  
Services  
524120 Direct Insurance (except Life,  
Transportation  
Electronics and Appliance Retailers  
541513 Computer Facilities Management  
Services  
Health, & Medical) Carriers  
488210 Support Activities for Rail  
Transportation  
449210 Electronics & Appliance Retailers  
524210 Insurance Agencies &  
Brokerages  
(including computers)  
541519 Other Computer Related  
488300 Support Activities for Water  
Services  
General Merchandise Retailers  
524290 Other Insurance Related  
Activities (including third-party  
administration of insurance &  
pension funds)  
Transportation  
Other Professional, Scientific, and  
Technical Services  
455110 Department Stores  
488410 Motor Vehicle Towing  
455210 Warehouse Clubs, Supercenters,  
488490 Other Support Activities for Road  
541600 Management, Scientific, &  
& Other General Merch. Retailers  
Transportation  
Technical Consulting Services  
Funds, Trusts, and Other Financial  
Health and Personal Care Retailers  
488510 Freight Transportation  
Arrangement  
Vehicles  
541700 Scientific Research &  
Development Services  
456110 Pharmacies & Drug Retailers  
525100 Insurance & Employee Benefit  
Funds  
456120 Cosmetics, Beauty Supplies, &  
488990 Other Support Activities for  
541800 Advertising, Public Relations, &  
Perfume Retailers  
Transportation  
Related Services  
525910 Open-End Investment Funds  
456130 Optical Goods Retailers  
Couriers and Messengers  
(Form 1120-RIC)  
541910 Marketing Research & Public  
Opinion Polling  
456190 Other Health & Personal Care  
492110 Couriers & Express Delivery  
525920 Trusts, Estates, & Agency  
Accounts  
Retailers  
Services  
541920 Photographic Services  
Gasoline Stations & Fuel Dealers  
492210 Local Messengers & Local  
Delivery  
525990 Other Financial Vehicles  
(including mortgage REITs &  
closed-end investment funds)  
541930 Translation & Interpretation  
457100 Gasoline Stations (including  
Services  
convenience stores with gas)  
Warehousing and Storage  
541940 Veterinary Services  
457210 Fuel Dealers (including heating  
oil & liquefied petroleum)  
493100 Warehousing & Storage (except  
lessors of miniwarehouses &  
self-storage units)  
Real Estate and Rental and  
Leasing  
Real Estate  
541990 All Other Professional, Scientific,  
& Technical Services  
Clothing and Accessories Retailers  
Management of Companies  
(Holding Companies)  
458110 Clothing & Clothing Accessories  
Information  
Retailers  
531110 Lessors of Residential Buildings  
& Dwellings (including equity  
REITs)  
Motion Picture and Sound Recording  
458210 Shoe Retailers  
458310 Jewelry Retailers  
Industries  
551111 Offices of Bank Holding  
Companies  
512100 Motion Picture & Video Industries  
(except video rental)  
531120 Lessors of Nonresidential  
458320 Luggage & Leather Goods  
551112 Offices of Other Holding  
Companies  
Buildings (except  
Retailers  
512200 Sound Recording Industries  
Publishing Industries  
Miniwarehouses) (including  
equity REITs)  
Sporting, Hobby, Book, Musical  
Instrument, & Miscellaneous Retailers  
Administrative and Support and  
Waste Management and  
Remediation Services  
Administrative and Support Services  
561110 Office Administrative Services  
561210 Facilities Support Services  
561300 Employment Services  
561410 Document Preparation Services  
561420 Telephone Call Centers  
561430 Business Service Centers  
(including private mail centers &  
copy shops)  
561440 Collection Agencies  
561450 Credit Bureaus  
531130 Lessors of Miniwarehouses &  
Self-Storage Units (including  
equity REITs)  
513110 Newspaper Publishers  
513120 Periodical Publishers  
513130 Book Publishers  
459110 Sporting Goods Retailers  
459120 Hobby, Toy, & Game Retailers  
459130 Sewing, Needlework, & Piece  
531190 Lessors of Other Real Estate  
513140 Directory & Mailing List  
Goods Retailers  
Property (including equity REITs)  
Publishers  
459140 Musical Instrument & Supplies  
Retailers  
531210 Offices of Real Estate Agents &  
Brokers  
513190 Other Publishers  
513210 Software Publishers  
459210 Book Retailers & News Dealers  
531310 Real Estate Property Managers  
531320 Offices of Real Estate Appraisers  
(including newsstands)  
Broadcasting & Content Providers &  
Telecommunications  
459310 Florists  
531390 Other Activities Related to Real  
516100 Radio & Television Broadcasting  
Stations  
459410 Office Supplies & Stationery  
Estate  
Retailers  
Rental and Leasing Services  
516210 Media Streaming, Social  
Networks, & Other Content  
Providers  
459420 Gift, Novelty, & Souvenir  
Retailers  
532100 Automotive Equipment Rental &  
Leasing  
459510 Used Merchandise Retailers  
459910 Pet & Pet Supplies Retailers  
459920 Art Dealers  
532210 Consumer Electronics &  
Appliances Rental  
517000 Telecommunications (including  
wired, wireless, satellite, cable &  
other program distribution,  
resellers, agents, other  
561490 Other Business Support  
Services (including repossession  
services, court reporting, &  
stenotype services)  
532281 Formal Wear & Costume Rental  
532282 Video Tape & Disc Rental  
532283 Home Health Equipment Rental  
532284 Recreational Goods Rental  
459930 Manufactured (Mobile) Home  
Dealers  
telecommunications, & Internet  
service providers)  
459990 All Other Miscellaneous Retailers  
(including tobacco, candle, &  
trophy retailers)  
561500 Travel Arrangement &  
Data Processing, Web Search Portals, &  
Other Information Services  
Reservation Services  
532289 All Other Consumer Goods  
561600 Investigation & Security Services  
Rental  
Nonstore Retailers  
518210 Computing Infrastructure  
Providers, Data Processing, Web  
Hosting, & Related Services  
561710 Exterminating & Pest Control  
532310 General Rental Centers  
Nonstore Retailers sell all types  
Services  
532400 Commercial & Industrial  
Machinery & Equipment Rental &  
Leasing  
of merchandise using such  
561720 Janitorial Services  
methods as Internet, mail-order  
catalogs, interactive television, or  
direct sales. These types of  
519200 Web Search Portals, Libraries,  
Archives, & Other Info. Services  
561730 Landscaping Services  
Lessors of Nonfinancial Intangible  
561740 Carpet & Upholstery Cleaning  
Finance and Insurance  
Retailers should select the PBA  
associated with their primary line  
of products sold. For example,  
establishments primarily selling  
prescription and non-prescription  
drugs, select PBA code 456110  
Pharmacies & Drug Retailers.  
Assets (except copyrighted works)  
Services  
Depository Credit Intermediation  
522110 Commercial Banking  
522130 Credit Unions  
533110 Lessors of Nonfinancial  
Intangible Assets (except  
copyrighted works)  
561790 Other Services to Buildings &  
Dwellings  
561900 Other Support Services  
(including packaging & labeling  
services, & convention & trade  
show organizers)  
Professional, Scientific, and  
Technical Services  
522180 Savings Institutions & Other  
Depository Credit Intermediation  
Nondepository Credit Intermediation  
522210 Credit Card Issuing  
522220 Sales Financing  
Transportation and  
Warehousing  
Air, Rail, and Water Transportation  
481000 Air Transportation  
Waste Management and Remediation  
Legal Services  
Services  
541110 Offices of Lawyers  
541190 Other Legal Services  
562000 Waste Management &  
Remediation Services  
522291 Consumer Lending  
Accounting, Tax Preparation,  
522292 Real Estate Credit (including  
Educational Services  
Bookkeeping, and Payroll Services  
482110 Rail Transportation  
483000 Water Transportation  
Truck Transportation  
mortgage bankers & originators)  
541211 Offices of Certified Public  
611000 Educational Services (including  
522299 Intl, Secondary Market, & Other  
Nondepos. Credit Intermediation  
Accountants  
schools, colleges, & universities)  
541213 Tax Preparation Services  
541214 Payroll Services  
Activities Related to Credit  
484110 General Freight Trucking, Local  
Health Care and Social  
Assistance  
Intermediation  
484120 General Freight Trucking,  
522300 Activities Related to Credit  
Intermediation (including loan  
brokers, check clearing, & money  
transmitting)  
541219 Other Accounting Services  
Long-Distance  
Architectural, Engineering, and Related  
484200 Specialized Freight Trucking  
Offices of Physicians and Dentists  
Services  
Transit and Ground Passenger  
621111 Offices of Physicians (except  
541310 Architectural Services  
Transportation  
mental health specialists)  
541320 Landscape Architecture Services  
541330 Engineering Services  
485110 Urban Transit Systems  
621112 Offices of Physicians, Mental  
Health Specialists  
53  
Principal Business Activity Codes (Continued)  
621210 Offices of Dentists  
624200 Community Food & Housing, &  
721120 Casino Hotels  
811430 Footwear & Leather Goods  
Repair  
Emergency & Other Relief  
Services  
Offices of Other Health Practitioners  
621310 Offices of Chiropractors  
621320 Offices of Optometrists  
721191 Bed & Breakfast Inns  
811490 Other Personal & Household  
721199 All Other Traveler  
624310 Vocational Rehabilitation  
Goods Repair & Maintenance  
Accommodation  
Services  
Personal and Laundry Services  
812111 Barber Shops  
812112 Beauty Salons  
812113 Nail Salons  
721210 RV (Recreational Vehicle) Parks  
& Recreational Camps  
621330 Offices of Mental Health  
624410 Childcare Services  
Arts, Entertainment, and  
Recreation  
Practitioners (except Physicians)  
721310 Rooming & Boarding Houses,  
621340 Offices of Physical, Occupational  
& Speech Therapists, &  
Dormitories, & Workers' Camps  
Audiologists  
Food Services and Drinking Places  
812190 Other Personal Care Services  
(including diet & weight reducing  
centers)  
621391 Offices of Podiatrists  
722300 Special Food Services (including  
food service contractors &  
caterers)  
Performing Arts, Spectator Sports, and  
Related Industries  
621399 Offices of All Other  
Miscellaneous Health  
Practitioners  
812210 Funeral Homes & Funeral  
711100 Performing Arts Companies  
722410 Drinking Places (Alcoholic  
Services  
711210 Spectator Sports (including  
Beverages)  
Outpatient Care Centers  
812220 Cemeteries & Crematories  
sports clubs & racetracks)  
722511 Full-Service Restaurants  
621410 Family Planning Centers  
812310 Coin-Operated Laundries &  
711300 Promoters of Performing Arts,  
Sports, & Similar Events  
722513 Limited-Service Restaurants  
Drycleaners  
621420 Outpatient Mental Health &  
Substance Abuse Centers  
722514 Cafeterias, Grill Buffets, & Buffets 812320 Drycleaning & Laundry Services  
711410 Agents & Managers for Artists,  
Athletes, Entertainers, & Other  
Public Figures  
(except Coin-Operated)  
621491 HMO Medical Centers  
621492 Kidney Dialysis Centers  
722515 Snack & Non-Alcoholic Beverage  
Bars  
812330 Linen & Uniform Supply  
711510 Independent Artists, Writers, &  
812910 Pet Care (except Veterinary)  
621493 Freestanding Ambulatory  
Other Services  
Performers  
Services  
Surgical & Emergency Centers  
Museums, Historical Sites, and Similar  
Institutions  
Repair and Maintenance  
812920 Photofinishing  
621498 All Other Outpatient Care  
Centers  
811110 Automotive Mechanical &  
812930 Parking Lots & Garages  
812990 All Other Personal Services  
712100 Museums, Historical Sites, &  
Electrical Repair & Maintenance  
Medical and Diagnostic Laboratories  
Similar Institutions  
811120 Automotive Body, Paint, Interior,  
& Glass Repair  
621510 Medical & Diagnostic  
Religious, Grantmaking, Civic,  
Amusement, Gambling, and Recreation  
Industries  
Laboratories  
Professional, and Similar Organizations  
811190 Other Automotive Repair &  
Maintenance (including oil  
change & lubrication shops & car  
washes)  
Home Health Care Services  
813000 Religious, Grantmaking, Civic,  
713100 Amusement Parks & Arcades  
713200 Gambling Industries  
Professional, & Similar  
621610 Home Health Care Services  
Other Ambulatory Health Care Services  
Organizations (including  
condominium & homeowners  
associations)  
713900 Other Amusement & Recreation  
Industries (including golf  
courses, skiing facilities,  
811210 Electronic & Precision Equipment  
621900 Other Ambulatory Health Care  
Repair & Maintenance  
Services (including ambulance  
Other  
services & blood & organ banks)  
marinas, fitness centers, &  
bowling centers)  
811310 Commercial & Industrial  
Machinery & Equipment (except  
Automotive & Electronic) Repair  
& Maintenance  
Hospitals  
999000 Unclassified Establishments  
(unable to classify)  
622000 Hospitals  
Accommodation and Food  
Services  
Nursing and Residential Care Facilities  
811410 Home & Garden Equipment &  
623000 Nursing & Residential Care  
Appliance Repair & Maintenance  
Facilities  
Accommodation  
811420 Reupholstery & Furniture Repair  
Social Assistance  
721110 Hotels (except Casino Hotels) &  
Motels  
624100 Individual & Family Services  
54  
Index  
A
Forgiveness of PPP loans 49  
Private delivery services 3  
Property distributions 39  
Forms and Publications, how to get 2  
Accounting methods 6  
Accounting period 6  
G
Q
Accumulated adjustments  
Gain (loss), section 1231–Sch. K or  
Qualified business income  
account 48  
K-1 29  
deduction 42  
Amended return 6  
Amortization 17  
Gain, ordinary 15  
Gross receipts 14  
Qualified opportunity funds 8  
Qualified rehabilitation  
expenditures 34  
Amount owed 22  
Assembling return 4  
I
R
Income 14  
B
Recapture, low-income housing  
Income from oil and gas  
credit 40  
properties 37  
Bad debt deduction 18  
Recapture, section 179 deduction 40  
Recordkeeping 6  
Income, rental activities 27  
Income, tax-exempt 38  
Balance sheets–Sch. L 47  
Business startup expenses 17  
Reforestation 21, 33  
Income, trade or business  
activities 26  
Regulations section 1.1411-10(g) 7  
Related party transactions 16  
Religious exemption 3  
C
Installment sales 14  
Change in accounting method 6  
Charitable contributions 31  
Conservation contributions 31  
Cost of goods sold 15  
Interest deduction 18  
Interest due on tax payment 5  
Interest expense, investment 32  
International transactions 36  
Inventory 16  
Rental activities, income and  
expenses 27  
Rental deduction 18  
Return, amended 6  
D
Investment income and expenses 39  
Deductions 16, 30  
S
Deductions from oil and gas  
L
Salaries and wages 17  
Sales 14  
properties 37  
Loans from shareholders 39  
Deductions, limitations on 16  
Depletion 19  
Schedule K-2 36  
Schedule K-3 36  
Schedule L 47  
Lobbying expenses,  
nondeductible 20  
Depletion (other than oil and gas) 37  
Depreciation 19  
Low-income housing credit 33  
Low-income housing credit  
Schedule M-1 48  
Schedule M-2 48  
Schedule M-3 13  
Section 1400Z-1 8  
Digital assets 23  
recapture 40  
Direct deposit of refund 2, 22  
Distributions 49  
M
Distributions, property 39  
Section 1411 election with respect to  
Multiple activities–reporting  
CFCs and QEFs 7  
requirements 25  
E
Section 179 expense 30  
Section 199A information 42  
Section 263A rules 16  
Election, termination of 2  
Elective payment election 22  
Electronic filing 3  
N
Net investment income (code U) 41  
Section 59(e)(2) expenditures 32  
Self-charged interest 10  
Substitute Sch. K-1 24  
Net investment income tax reporting  
Electronic filing waiver 3  
Employee benefit programs 19  
requirements 13  
Employer identification number  
O
(EIN) 14  
T
Officer compensation 17  
Energy efficient commercial buildings  
Tax issues, unresolved 2  
Taxes and licenses deduction 18  
Taxes due 21  
deduction 20  
P
Estimated tax payment 5, 22  
Estimated tax penalty 22  
Exception to filing Schedule K-2 36  
Exemptions 3  
Passive activities–rental 9  
Termination of S election 2  
Passive activities–reporting  
Travel and entertainment  
requirements 12  
deduction 20  
Passive activity limitations 8  
Penalties 5  
Expenses, nondeductible–Sch. K or  
K-1 39  
W
Extension of time to file 3  
Pension, profit-sharing, etc., plans 19  
Portfolio income 10, 27  
PPP loan forgiveness 23, 49  
PPP reporting 38  
When to file 3  
Where to file 4  
Who must file 2  
Who must sign 3  
F
Farming, special rules 16  
Final return 14  
Preparer, tax return 3  
55