The IRS has issued final versions of 2016 Form 1120, US Corporation Income Tax Return; Form 1120S, US Income Tax Return for an S Corporation; Form 1065, US Return of Partnership Income; and the instructions for those forms.
In this article, we summarize how those forms and instructions were changed from their 2015 counterparts.
1. New question regarding filing forms 1042 and 1042-S. Form 1120 Schedule K, which is entitled “Other Information,” has a new question – question 19 – that asks whether the corporation made payments that require it to file forms 1042 and 1042-S under Chapter 3 or 4 of the Internal Revenue Code.
In general, a withholding agent must file an information return on Form 1042-S, Foreign Person’s US Source Income Subject to Withholding, to report amounts paid to foreign persons that are reportable under Chapter 3 and Chapter 4 of Subtitle A of the Code. And withholding agents must file a withholding return, Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons.
2. Information reporting by specified domestic entities. Beginning in 2016, domestic corporations formed or availed of for purposes of holding – directly or indirectly – specified foreign financial assets must attach a disclosure statement to their income tax return for any year in which the aggregate value of all such assets is greater than $50,000 on the last day of the tax year or $75,000 at any time during the tax year.
“Specified foreign financial assets” are:
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- Depository or custodial accounts at foreign financial institutions.
- To the extent not held in an account at a financial institution, stocks or securities issued by foreign persons, any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a US person, and any interest in a foreign entity.
The form to be used for this filing is Form 8938, Statement of Specified Foreign Financial Assets.
A domestic corporation required to file Form 8938 with its Form 1120 for the tax year should check “Yes” to Form 1120, Schedule N, Foreign Operations of US Corporations, Question 8, and also include that form with its Form 1120.
3. Alternative tax for corporations with qualified timber gains. For tax years beginning in 2016, if a corporation has both net capital gain and qualified timber gain (as defined in Code Section 1201(b)(2)), a 23.8 percent alternative tax may apply to the portion of the corporation’s taxable income attributable to the qualified timber gain (or, if less, the corporation’s net capital gain for the tax year).
The tax is figured on Schedule D (Form 1120), Part IV and is entered on Form 1120, Schedule J, Line 2.
4. Suspension of 10 percent limitation on certain Native Corporations. In past years, qualified farmers and ranchers (as defined in Section 170(b)(1)(E)(v)) that do not have publicly traded stock could deduct contributions of qualified conservation property without regard to the general 10 percent limit on charitable contributions. That rule continues to apply for 2016 and has been expanded to also apply to Native Corporations (as defined in Section 170(b)(2)(C)(iii)) that contribute property which was land conveyed under the Alaska Native Claims Settlement Act.
The total amount of the contribution claimed for the qualified conservation property cannot exceed 100 percent of the excess of the corporation’s taxable income over all other allowable charitable contributions.
5. Changes in due date for filing corporate returns. Historically, domestic corporations had to file their returns by the 15th day of the third month after the end of the tax year; thus, those with a calendar year had to file their returns by March 15 of the following year.
However, as a result of 2015 legislation, for tax years beginning after 2015, the due date for filing corporate returns generally is the 15th day of the fourth month after the end of the corporation’s tax year. Under the exception to this rule, a corporation with a tax year ending June 30 must file by the 15th day of the third month after the end of its tax year.
1. Food inventory contributions. S corporations must provide certain information on a statement attached to Schedule K-1, including 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 charitable contribution for donated food inventory is the lesser of:
- The basis of the donated food plus half of the appreciation (gain if the donated food was sold at fair market value on the date of the gift); or
- Twice the basis of the donated food.
For tax years that begin after Dec. 31, 2015, a corporation that does not account for inventories and is not required to capitalize indirect costs under Section 263A may elect to treat the basis of the donated food as equal to 25 percent of the fair market value of the food. See Section 170(e)(3)(C) for more details.
2. Credit for increasing research activities. Schedule K (and K-1), Line 13g is “Other Credits.” The 1120S instructions provide that the credit for increasing research activities is one such “other credit.” That credit is subject to different limits if the taxpayer is an eligible small business (Section 38(c)(5)(A)).
New for 2016, the 1120S instructions provide that the S corporation must indicate on an attached statement whether or not the corporation is an eligible small business.
3. Information reporting by specified domestic entities. See “Information reporting by specified domestic entities” under Form 1120, above.
1. Information reporting by specified domestic entities. For tax years beginning after Dec. 31, 2015, domestic partnerships that are formed or availed of to hold specified foreign financial assets (“specified domestic entities”) must file Form 8938 with their Form 1065 for the tax year. Form 8938 must be filed each year the value of the partnership’s specified foreign financial assets meets or exceeds the reporting threshold.
A domestic partnership required to file Form 8938 with its Form 1065 for the tax year should check “Yes” to new question 22 of Schedule B, Form 1065.
2. New question regarding filing forms 1042 and 1042-S. New question 21 of Schedule B, Form 1065 is the same question found in “New question regarding filing forms 1042 and 1042-S” under Form 1120, above.
3. Food inventory contributions. The new requirements here are the same as those found in “Food inventory contributions” under Form 1120S, above.
4. Credit for increasing research activities. The new requirements here are the same as those found in “Credit for increasing research activities” under Form 1120S, above.
5. Due date for Form 1065. For tax years beginning after 2015, the due date for a domestic partnership to file its Form 1065 has changed to the 15th day of the third month following the date its tax year ended.