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If this is the first year the Last-in, First-out (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Also check the LIFO box on line 9c. On line 9d, enter the amount or the percent of total closing inventories covered under section 472. Estimates are acceptable.
If the corporation changed or extended its inventory method to LIFO and has had to write up its opening inventory to cost in the year of election, report the effect of this write-up as income (line 5. page 1) proportionately over a Ç-year period that begins with the tax year of the LIFO election (section 472(d)).
See Pub. 538 for more information on inventory valuation methods.
Schedule B. Other Information
Be sure to answer the questions and provide other information in items 1 through 8.
Complete line 7 if the corporation (a) was a Ñ 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 Ñ corporation and (b) has net unrealized built-in gain (defined below) in excess of the net recognized built-in gain from prior years.
The corporation is liable for section 1374 tax if (a) and (b) above apply and it has a net recognized built-in gain (section 1374(d)(2)) for its tax year.
The corporation's net unrealized built-in gain is the amount, if any, by
Line 5. Other Costs
FIGURE A.15 (Continued)
which the 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 Ñ corporation) exceeds the aggregate adjusted basis of such assets at that time.
Enter on line 7 the corporation's net unrealized built-in gain reduced by the net recognized built-in gain for prior years. See sections 1374(c)(2) and (d)(1).
Check the box on line 8 if the corporation was a Ñ corporation in a prior year and has accumulated earnings and profits (E&P) at the close of its 2003 tax year.
For details on figuring accumulated E&P. see section 312. If the corporation has accumulated E&P, it may be liable for tax imposed on excess net passive income. See the instructions for line 22a. page 1, of Form 1120S for details on this tax.
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
• Income reported on Schedule K. lines 3a. 4a, 4b(2), and 4c.
• Income or net gain reported on Schedule K. lines 4d(2). 4e(2). 4f. 5. and
• Income or net gain reported on Form 8825, lines 2, 19, and 20a.
General Instructions for Schedules Ê and K-1. Shareholders’ Shares of Income, Credits, Deductions, etc.
Purpose of Schedules
The corporation is liable for taxes on lines 22a. 22b. and 22c. page 1. Form 1120S. Shareholders are liable for income tax on their shares of the corporation's income (reduced by any taxes paid by the corporation on income) and 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 is not self-employment income and is not subject to self-employment tax.
Schedule Ê is a summary schedule of all shareholders' shares of the corporation's income, deductions, credits, etc. Schedule K-1 shows each shareholder's separate share. Attach a copy of each shareholder's Schedule K-1 to the Form 1120S filed with the IRS. Keep a copy as a part of the corporation's records, and give each shareholder a separate copy.
The total pro rata share items (column
(b)) of all Schedules K-1 should equal the amount reported on the same line of
Schedule K. Lines 1 through 20 of Schedule Ê correspond to lines 1 through 20 of Schedule K-1. Other lines do not correspond, but instructions explain the differences.
Be sure to give each shareholder a copy of the Shareholder's Instructions for Schedule K-1 (Form 1120S). These instructions are available separately from Schedule K-1 at most IRS offices.
Note: Instructions that apply only to line items reported on Schedule K-1 may be prepared and given to each shareholder instead of the instructions printed by the IRS.
The corporation does not need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule, or if it contains only those lines the taxpayer is required to use. and the lines have the same numbers and titles and are in the same order as on the IRS Schedule K-1. In either case, the substitute schedule must include the OMB number and either (a) the Shareholder's Instructions for Schedule K-1 (Form 1120S) or (b) instructions that apply to the items reported on Schedule K-1 (Form 1120S).