Gain or loss on an option to buy or sellproperty.
See sections 1032 and 1234 for therules that apply to a purchaser or grantor of anoption.
Gain or loss from a short sale of property.
Report the gain or loss to the extent that theproperty used to close the short sale isconsidered a capital asset in the hands of thetaxpayer.
Loss from securities that are capital assetsthat become worthless during the year.
Except for securities held by a bank, treat theloss as a capital loss as of the last day of thetax year. See section 582 for the rules on thetreatment of securities held by a bank.
Nonrecognition of gain on sale of stock toan employee stock ownership plan (ESOP)or an eligible cooperative.
See section 1042and Temporary Regulations section 1.1042-1Tfor rules under which a taxpayer may elect notto recognize gain from the sale of certain stockto an ESOP or an eligible cooperative.
Disposition of market discount bonds.
Seesection 1276 for rules on the disposition of anymarket discount bonds.
Capital gain distributions.
amount of capital gain distributions aslong-term capital gain on line 10, column (f),regardless of how long the corporation held theinvestment. Enter on line 10, column (g), the28% rate gain portion of your total capital gaindistributions.
Nonbusiness bad debts.
A nonbusiness baddebt must be treated as a short-term capitalloss and can be deducted only in the year thedebt becomes totally worthless. For each baddebt, enter the name of the debtor and“schedule attached” in column (a) of line 1 andthe amount of the bad debt as a loss in column(f). Also attach a statement of facts to supporteach bad debt deduction.
Real estate subdivided for sale.
Certain lotsor parcels that are part of a tract of real estatesubdivided for sale may be treated as capitalassets.See section 1237.
Sale of a partnership interest.
A sale orother disposition of an interest in a partnershipowning unrealized receivables or inventoryitems may result in ordinary gain or loss. See
Partnerships, for more details.
Special rules for traders in securities.Traders in securities
are engaged in the
of buying and selling securities fortheir own account. To be engaged in abusiness as a trader in securities thecorporation:
Must seek to
profit from daily marketmovements
in the prices of securities and notfrom dividends, interest, or capital appreciation.
Must be involved in a trading activity that is
Must carry on the activity with
.The following facts and circumstancesshould be considered in determining if acorporation's activity is a business:
Typical holding periods for securities boughtand sold.
The frequency and dollar amount of thecorporation's trades during the year.
The extent to which the activity is pursuedto produce income for a livelihood.
The amount of time devoted to the activity.Like an investor, a trader must report eachsale of securities (taking into accountcommissions and any other costs of acquiringor disposing of the securities) on Schedule Dor on an attached statement containing all thesame information for each sale in a similarformat. However, if a trader made themark-to-market election (see page 4 of theInstructions for Form 1120S), each transactionis reported in Part II of Form 4797 instead ofSchedule D.The limitation on investment interestexpense that applies to investors does notapply to interest paid or incurred in a tradingbusiness. A trader reports interest expense andother expenses (excluding commissions andother costs of acquiring and disposing ofsecurities) from a trading business on page 1of Form 1120S.A trader also may hold securities forinvestment. The rules for investors generallywill apply to those securities.Allocate interestand other expenses between a tradingbusiness and investment securities. Investmentinterest expense is reported on line 11a ofSchedules K and K-1.
Certain constructive ownershiptransactions.
Gain in excess of the gain thecorporation would have recognized if it hadheld a financial asset directly during the termof a derivative contract must be treated asordinary income.See section 1260 for details.
Constructive sale treatment for certainappreciated positions.
Generally, thecorporation must recognize gain (but not loss)on the date it enters into a constructive sale ofany appreciated interest in stock, a partnershipinterest, or certain debt instruments as if theposition were disposed of at fair market valueon that date.The corporation is treated as making aconstructive sale of an appreciated position ifit (or a related person, in some cases) does
of the following:
Enters into a short sale of the same orsubstantially identical property (i.e., a “shortsale against the box”).
Enters into an offsetting notional principalcontract relating to the same or substantiallyidentical property.
Enters into a futures or forward contract todeliver the same or substantially identicalproperty.
Acquires the same or substantially identicalproperty (if the appreciated position is a shortsale, offsetting notional principal contract, or afutures or forward contract).
Generally, constructive saletreatment
The transaction was closed before the endof the 30th day after the end of the year inwhich it was entered into,
The appreciated position to which thetransaction relates was held throughout the60-day period starting on the date thetransaction was closed,
At no time during that 60-day period was thecorporation's risk of loss reduced by holdingcertain other positions.For details and other exceptions to theserules, see
Investment Income andExpenses.
Rollover of gain from qualified stock.
If thecorporation sold qualified small business stock(defined on below) that it held for more than 6months, it may postpone gain if it purchasedother qualified small business stock during the60-day period that began on the date of thesale.The corporation must recognize gain tothe extent the sale proceeds exceed the costof the replacement stock. Reduce the basis ofthe replacement stock by any postponed gain.If the corporation chooses to postpone gain,report the entire gain realized on the sale online 1 or 7. Directly below the line on which thecorporation reported the gain, enter in column(a) “Section 1045 Rollover” and enter as a(loss) in column (f) the amount of thepostponed gain.
The corporation also must separately state the amount of the gain rolled over on qualified stock under section 1045 on Form 1120S, Schedule K, line 6, because each shareholder must determine if he or she qualifies for the rollover at the shareholder level. Also, the corporation must include on Schedule D, line 1 or 7 (and on Form 1120S,Schedule K, line 6), any gain that could qualify for the section 1045 rollover at the shareholder level instead of the corporate level (because a shareholder was entitled to purchase replacement stock). If the corporation had a gain on qualified stock that could qualify for the 50% exclusion under section 1202, report that gain on Schedule D, line 7 (and on Form 1120S, Schedule K, line 6).
qualified small business stock
, thestock must meet
of the following tests:
It must be stock in a C corporation.
It must have been originally issued afterAugust 10, 1993.
As of the date the stock was issued, the Ccorporation was a qualified small business. Aqualified small business is a domestic Ccorporation with total gross assets of $50million or less
at all times after August 9,1993, and before the stock was issued, and
immediately after the stock was issued. Grossassets include those of any predecessor of thecorporation. All corporations that are membersof the same parent-subsidiary controlled groupare treated as one corporation.
The corporation must have acquired thestock at its original issue (either directly orthrough an underwriter), either in exchange formoney or other property or as pay for services(other than as an underwriter) to thecorporation. In certain cases, the corporationmay meet the test if it acquired the stock fromanother person who met this test (such as bygift or inheritance) or through a conversion orexchange of qualified small business stock heldby the corporation.
During substantially all the time thecorporation held the stock:
The issuer was a C corporation,
At least 80% of the value of the issuer'sassets were used in the active conduct of oneor more qualified businesses (defined below),and
The issuing corporation
aforeign corporation, DISC, former DISC,corporation that has made (or that has asubsidiary that has made) a section 936election, regulated investment company, realestate investment trust, REMIC, FASIT, orcooperative.
A specialized small business investment company (SSBIC) is treated as having met test
is any business
One involving services performed in thefields of health, law, engineering, architecture,accounting, actuarial science, performing arts,consulting, athletics, financial services, orbrokerage services.
Instructions for Schedule D (Form 1120S)