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The corporation must request IRS approval to use other substitute Schedules K-1. To request approval, write to Internal Revenue Service, Attention: Substitute Forms Program Coordinator, SE:W:CAR:MP:T:T:SP, 1111 Constitution Avenue, NW, Washington, DC 20224.
The corporation may be subject to a penalty if it files a substitute Schedule K-1 that does not conform to the specifications of Rev. Proc. 2003-73, 2003-39 I.R.B. 647.
Shareholder’s Pro Rata Share Items
Items of Income, loss, deductions, etc., are allocated to a shareholder on a daily basis, according to the number of shares of stock held by the shareholder on each day during the tax year of the corporation. See the instructions for item A.
A shareholder who disposes of stock is treated as the shareholder for the day of disposition. A shareholder who dies is treated as the shareholder for the day of the shareholder's death.
Termination of shareholder’s interest.
If a shareholder terminates his or her interest in a corporation during the tax year, the corporation, with the consent of all affected shareholders (including the one whose interest is terminated), may elect to allocate income and expenses, etc., as if the 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 1120S for the
FIGURE A.15 (Continued)
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 (e.g., 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, write “Section 1377(a)(2) Election Made' at the top of each affected shareholder s Schedule K-1.
For more details on the election, see Temporary Regulations section 1.1377-1 T(b).
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,
2. A redemption treated as an exchange under section 302(a) or 303(a) of at least 20% of the corporation s outstanding 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.
To make the election, the corporation must attach a statement to a timely filed original or amended Form 1120S 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 separate tax years, give the facts relating to the qualifying disposition (e.g., 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 elections made under this special rule for the tax year.
For more details on the election, see Temporary Regulations section 1.1368-1T(g)(2).
Specific Instructions (Schedule K-1 Only)
On each Schedule K-1, complete the date spaces at the top: enter the names, addresses, and identifying numbers of the shareholder and corporation; complete items A through D; and enter the
shareholder's pro rata share of each item. Schedule K-1 must be prepared and given to each shareholder on or before the day on which Form 1120S is filed. Note: Space has been provided on line
23 (Supplemental Information) of Schedule K-1 for the corporation to provide additional information to shareholders. This space, if sufficient, should be used in place of any attached schedules required for any lines on Schedule K-1, or other amounts not shown on lines 1 through 22 of Schedule K-1. Please be sure to identify the applicable line number next to the information entered below line 23.
Special Reporting Requirements for Corporations With Multiple Activities
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 lines 1, 2, or 3 of Schedule K-1, the corporation must provide information for each activity to its shareholders. See Passive Activity Reporting Requirements on page 11 for details on the reporting requirements.