Оберіть мову

Форма 1120-S Інструкція

Інструкція по формуванню 1120-S, U.S. Повернення податку на прибуток для корпорації S

Реп. 2023

Пов'язані форми

  • Форма 1120-S - Повернення податку на прибуток США для корпорації S
Подробиці
Формат файлу PDF
Розмір 702.2 KB
Завантажити
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 tha