Instructions for IRS Form 1120-S Schedule D "Capital Gains and Losses and Built-In Gains"

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2020
Department of the Treasury
Internal Revenue Service
Instructions for Schedule D
(Form 1120-S)
Capital Gains and Losses and Built-in Gains
The sale or other disposition of
memoranda; or similar property.
Section references are to the Internal Revenue
Code unless otherwise noted.
securities or commodities held in
However, see the Note, later.
connection with a trading business, if
Certain patents, inventions, models,
Future Developments
the corporation made a mark-to-market
or designs (whether or not patented);
For the latest information about
election.
secret formulas or processes; or similar
developments related to Schedule D
The involuntary conversion (from
property.
(Form 1120-S) and its instructions, such
other than casualty or theft) of property
U.S. Government publications,
as legislation enacted after they were
used in the corporation's trade or
including the Congressional Record,
published, go to IRS.gov/Form1120S.
business and capital assets held in
that the corporation received from the
connection with a trade or business or a
government, other than by purchase at
General Instructions
transaction entered into for profit.
the normal sales price, or that the
The disposition of noncapital assets
corporation got from another taxpayer
Purpose of Schedule
other than inventory or property held
who had received it in a similar way, if
primarily for sale to customers in the
the corporation's basis is determined by
Use Schedule D to report the following.
ordinary course of the corporation's
reference to the previous owner's basis.
The overall capital gains and losses
trade or business.
Certain commodities derivative
from transactions reported on Form
Election to defer a qualified section
financial instruments held by a dealer in
8949, Sales and Other Dispositions of
1231 gain invested in a Qualified
connection with its dealer activities.
Capital Assets.
Opportunity Fund (QOF).
Certain identified hedging
Certain transactions the corporation
transactions entered into in the normal
doesn't have to report on Form 8949.
Use Form 4684, Casualties and
course of the trade or business.
Capital gains from Form 6252,
Thefts, to report involuntary conversions
Supplies regularly used in the trade
Installment Sale Income.
of property due to casualty or theft.
or business.
Capital gains and losses from Form
Use Form 6781, Gains and Losses
For details, see section 1221(a).
8824, Like-Kind Exchanges.
From Section 1256 Contracts and
Gains on distributions to
Note. The corporation can elect to treat
Straddles, to report gains and losses
shareholders of appreciated capital
as capital assets certain musical
from section 1256 contracts and
assets.
compositions or copyrights in musical
straddles.
Capital gain distributions.
works it sold or exchanged. See section
Tax on built-in gains. See
Part III.
Additional information. For more
1221(b)(3) and Pub. 550 for details.
Built-in Gains
Tax.
information, see the instructions for the
forms listed above. Also, see Pub. 544,
Short- or Long-Term Gain
Other Forms the
Sales and Other Dispositions of Assets,
or Loss
Corporation May Have To
and Pub. 550, Investment Income and
Expenses.
Report short-term gains or losses in Part
File
I. Report long-term gains or losses in
Use Form 8949 to report the sale or
Capital Assets
Part II. The holding period for short-term
exchange of a capital asset (defined
capital gains and losses is generally 1
Each item of property the corporation
later) not reported on another form or
year or less. The holding period for
held (whether or not connected with its
schedule and to report the deferral or
long-term capital gains and losses is
trade or business) is a capital asset
exclusion of capital gains. See the
generally more than 1 year. However,
except the following.
Instructions for Form 8949. Complete all
an exception applies for certain sales of
Stock in trade or other property
necessary pages of Form 8949 before
applicable partnership interests. See
included in inventory or held mainly for
you complete line 1b, 2, 3, 8b, 9, or 10
Transactions with respect to applicable
sale to customers. However, see the
of Schedule D. See
Lines 1a and
partnership
interests, later.
Note, later.
8a—Transactions Not Reported on
Accounts or notes receivable
For more information about holding
Form
8949, later, for more information
acquired in the ordinary course of the
periods, see the Instructions for Form
about when to use Form 8949.
trade or business for services rendered
8949.
Use Form 4797, Sales of Business
or from the sale of stock in trade or other
Items for Special
property included in inventory or held
Property, to report the following.
mainly for sale to customers.
The sale, exchange, or distribution of
Treatment
real property used in a trade or
Depreciable or real property used in
Note. For more information, see Pub.
the trade or business, even if it is fully
business.
544.
depreciated.
The sale, exchange, or distribution of
depreciable and amortizable property.
Certain copyrights; literary, musical,
Gain from installment sales. If the
or artistic compositions; letters or
corporation sold property at a gain and it
Dec 10, 2020
Cat. No. 64419L
2020
Department of the Treasury
Internal Revenue Service
Instructions for Schedule D
(Form 1120-S)
Capital Gains and Losses and Built-in Gains
The sale or other disposition of
memoranda; or similar property.
Section references are to the Internal Revenue
Code unless otherwise noted.
securities or commodities held in
However, see the Note, later.
connection with a trading business, if
Certain patents, inventions, models,
Future Developments
the corporation made a mark-to-market
or designs (whether or not patented);
For the latest information about
election.
secret formulas or processes; or similar
developments related to Schedule D
The involuntary conversion (from
property.
(Form 1120-S) and its instructions, such
other than casualty or theft) of property
U.S. Government publications,
as legislation enacted after they were
used in the corporation's trade or
including the Congressional Record,
published, go to IRS.gov/Form1120S.
business and capital assets held in
that the corporation received from the
connection with a trade or business or a
government, other than by purchase at
General Instructions
transaction entered into for profit.
the normal sales price, or that the
The disposition of noncapital assets
corporation got from another taxpayer
Purpose of Schedule
other than inventory or property held
who had received it in a similar way, if
primarily for sale to customers in the
the corporation's basis is determined by
Use Schedule D to report the following.
ordinary course of the corporation's
reference to the previous owner's basis.
The overall capital gains and losses
trade or business.
Certain commodities derivative
from transactions reported on Form
Election to defer a qualified section
financial instruments held by a dealer in
8949, Sales and Other Dispositions of
1231 gain invested in a Qualified
connection with its dealer activities.
Capital Assets.
Opportunity Fund (QOF).
Certain identified hedging
Certain transactions the corporation
transactions entered into in the normal
doesn't have to report on Form 8949.
Use Form 4684, Casualties and
course of the trade or business.
Capital gains from Form 6252,
Thefts, to report involuntary conversions
Supplies regularly used in the trade
Installment Sale Income.
of property due to casualty or theft.
or business.
Capital gains and losses from Form
Use Form 6781, Gains and Losses
For details, see section 1221(a).
8824, Like-Kind Exchanges.
From Section 1256 Contracts and
Gains on distributions to
Note. The corporation can elect to treat
Straddles, to report gains and losses
shareholders of appreciated capital
as capital assets certain musical
from section 1256 contracts and
assets.
compositions or copyrights in musical
straddles.
Capital gain distributions.
works it sold or exchanged. See section
Tax on built-in gains. See
Part III.
Additional information. For more
1221(b)(3) and Pub. 550 for details.
Built-in Gains
Tax.
information, see the instructions for the
forms listed above. Also, see Pub. 544,
Short- or Long-Term Gain
Other Forms the
Sales and Other Dispositions of Assets,
or Loss
Corporation May Have To
and Pub. 550, Investment Income and
Expenses.
Report short-term gains or losses in Part
File
I. Report long-term gains or losses in
Use Form 8949 to report the sale or
Capital Assets
Part II. The holding period for short-term
exchange of a capital asset (defined
capital gains and losses is generally 1
Each item of property the corporation
later) not reported on another form or
year or less. The holding period for
held (whether or not connected with its
schedule and to report the deferral or
long-term capital gains and losses is
trade or business) is a capital asset
exclusion of capital gains. See the
generally more than 1 year. However,
except the following.
Instructions for Form 8949. Complete all
an exception applies for certain sales of
Stock in trade or other property
necessary pages of Form 8949 before
applicable partnership interests. See
included in inventory or held mainly for
you complete line 1b, 2, 3, 8b, 9, or 10
Transactions with respect to applicable
sale to customers. However, see the
of Schedule D. See
Lines 1a and
partnership
interests, later.
Note, later.
8a—Transactions Not Reported on
Accounts or notes receivable
For more information about holding
Form
8949, later, for more information
acquired in the ordinary course of the
periods, see the Instructions for Form
about when to use Form 8949.
trade or business for services rendered
8949.
Use Form 4797, Sales of Business
or from the sale of stock in trade or other
Items for Special
property included in inventory or held
Property, to report the following.
mainly for sale to customers.
The sale, exchange, or distribution of
Treatment
real property used in a trade or
Depreciable or real property used in
Note. For more information, see Pub.
the trade or business, even if it is fully
business.
544.
depreciated.
The sale, exchange, or distribution of
depreciable and amortizable property.
Certain copyrights; literary, musical,
Gain from installment sales. If the
or artistic compositions; letters or
corporation sold property at a gain and it
Dec 10, 2020
Cat. No. 64419L
will receive a payment in a tax year after
Report the sale or exchange of
Qualified capital gain. Qualified
the year of sale, it must generally report
tangible property used in the
capital gain is any gain recognized on
the sale on the installment method
corporation's DC Zone business on
the sale or exchange of a qualified
unless it elects not to. However, the
Form 4797.
community asset, but doesn't include
installment method may not be used to
any of the following.
Qualified capital gain. Qualified
report sales of stock or securities traded
Gain treated as ordinary income
capital gain is any gain recognized on
on an established securities market.
under section 1245.
the sale or exchange of a DC Zone
Section 1250 gain figured as if
Use Form 6252 to report the sale on
asset, but doesn't include any of the
section 1250 applied to all depreciation
the installment method. Also, use Form
following.
rather than the additional depreciation.
6252 to report any payment received
Gain attributable to periods before
Gain attributable to real property, or
during the tax year from a sale made in
1998 and after 2016.
an intangible asset, that isn't an integral
an earlier year that was reported on the
Gain treated as ordinary income
part of a renewal community business.
installment method. Enter gain from the
under section 1245.
Gain from a related-party transaction.
installment sales on Schedule D, line 4
Gain attributable to unrecaptured
See Sales and Exchanges Between
or line 11, as applicable. See the
section 1250 gain on the sale of an
Related Persons in chapter 2 of Pub.
instructions for Form 6252.
interest in a partnership that is a DC
544.
To elect out of the installment
Zone business. See the instructions for
Gains attributable to periods after
method, report the full amount of the
line 8c of Schedule K for information on
December 31, 2014.
gain on Form 8949 for the year of the
how to report unrecaptured section
See section 1400F (as in effect
sale on a return filed by the due date
1250 gain.
before its repeal on March 23, 2018) for
(including extensions). If the original
Gain on the sale or exchange of an
more details on qualified community
return was filed on time without making
interest in a partnership attributable to
assets and special rules.
the election, the corporation can make
real property or an intangible asset that
the election on an amended return filed
isn't an integral part of a DC Zone
How to report. If applicable, report
no later than 6 months after the original
business.
the sale or exchange on Form 8949,
due date of the return (excluding
Gain from a related-party transaction.
Part II, as the corporation otherwise
extensions). Enter “Filed pursuant to
See Sales and Exchanges Between
would without regard to the exclusion
section 301.9100-2” at the top of the
Related Persons in chapter 2 of Pub.
(with the appropriate box checked).
amended return.
544.
Enter “X” in column (f) and enter the
See section 1400B (as in effect
amount of the excluded gain as a
Gain on distributions of appreciated
before its repeal on March 23, 2018) for
negative number (in parentheses) in
property. Generally, gain (but not loss)
more details on DC Zone assets and
column (g). Complete all remaining
is recognized on a nonliquidating
special rules.
columns. See the Instructions for Form
distribution of appreciated property to
8949.
the extent that the property's fair market
How to report. If applicable, report
value (FMV) exceeds its adjusted basis.
Gain on the constructive sale of cer-
the sale or exchange on Form 8949,
See section 311.
tain appreciated financial positions.
Part II, as the corporation otherwise
Generally, the S corporation must
would without regard to the exclusion
Rollover of gain from empowerment
recognize gain (but not loss) on the date
(with the appropriate box checked).
zone assets. If the corporation sold a
it enters into a constructive sale of any
Enter “X” in column (f). Enter the amount
qualified empowerment zone asset held
appreciated position in stock, a
of the exclusion as a negative number
for more than 1 year, it may be able to
partnership interest, or certain debt
(in parentheses) in column (g).
elect to postpone part or all of the gain.
instruments as if the position were
Complete all remaining columns. See
See section 1397B and Pub. 544 for
disposed of at FMV on that date.
the Instructions for Form 8949 for
details. To apply section 1397B in 2020
details.
requires that the corporation purchases
The S corporation is treated as
the replacement qualified empowerment
making a constructive sale of an
Exclusion of gain from qualified
zone asset during the required 60-day
appreciated position when it (or a
community assets. If the corporation
period before January 1, 2021.
related person, in some cases) does
sold or exchanged a qualified
one of the following.
community asset acquired after 2001
Exclusion of gain from DC Zone as-
Enters into a short sale of the same or
and before 2010, it may be able to
sets. If the corporation sold or
substantially identical property (that is, a
exclude any qualified capital gain that
exchanged a District of Columbia
“short sale against the box”).
the corporation would otherwise include
Enterprise Zone (DC Zone) asset
Enters into an offsetting notional
in income. The exclusion applies to an
acquired after 1997 and before 2012,
principal contract relating to the same or
interest in, or property of, certain
and held for more than 5 years, it can
substantially identical property.
renewal community businesses.
exclude any qualified capital gain that
Enters into a futures or forward
the corporation would otherwise include
Qualified community asset. A
contract to deliver the same or
in income. The exclusion applies to an
qualified community asset is any of the
substantially identical property.
interest in, or property of, certain
following.
Acquires the same or substantially
businesses operating in the District of
Qualified community stock.
identical property (if the appreciated
Columbia.
Qualified community partnership
position is a short sale, offsetting
interest.
DC Zone asset. A DC Zone asset is
notional principal contract, or a futures
Qualified community business
any of the following.
or forward contract).
property.
DC Zone business stock.
Exception. Generally, constructive
DC Zone partnership interest.
sale treatment doesn't apply if:
DC Zone business property.
-2-
Instructions for Schedule D (Form 1120-S) (2020)
The S corporation closed the
XYZ Co.–2010 short sale closed.” Fill in
on wash sales, see section 1091 and
transaction before the end of the 30th
the other columns according to their
Pub. 550.
day after the end of the tax year in which
instructions. Report the short sale the
The wash sale rules don’t apply to a
it was entered into,
same way if the corporation received a
redemption of shares in a floating-NAV
The S corporation held the
2020 Form 1099-B (or substitute
(net asset value) money market fund.
appreciated position to which the
statement) that doesn't show the
Report the transaction as the
transaction relates throughout the
proceeds (sales price).
corporation otherwise would on Form
60-day period starting on the date the
Gain on certain short-term federal,
8949, Part I or II (depending on how
transaction was closed, and
state, and municipal obligations
long the corporation owned the stock or
At no time during that 60-day period
(other than tax-exempt obligations).
securities). Check the appropriate box.
was the S corporation's risk of loss
If a short-term governmental obligation
Enter “W” in column (f). Enter the
reduced by holding certain other
(other than a tax-exempt obligation) that
nondeductible loss as a positive number
positions.
is a capital asset is acquired at an
in column (g). Complete all remaining
For details and other exceptions to
acquisition discount, a portion of any
columns. See the Instructions for Form
these rules, see Pub. 550.
gain realized is treated as ordinary
8949.
income and any remaining balance is
Gain from certain constructive own-
Loss from securities that are capital
treated as a short-term capital gain. See
ership transactions. Gain in excess of
assets that become worthless dur-
section 1271.
the net underlying long-term gain the
ing the year. Except for securities held
corporation would have recognized if it
Contingent payment debt instru-
by a bank, treat the loss as a capital loss
had held a financial asset directly during
ments. Any gain recognized on the
as of the last day of the tax year. See
the term of a derivative contract must be
sale, exchange, or retirement of a
section 582 for the rules on the
treated as ordinary income. See section
contingent payment debt instrument
treatment of securities held by a bank.
1260.
subject to the noncontingent bond
Also see section 165(g).
method is generally treated as interest
Gain on disposition of market dis-
Undistributed long-term gains from
income rather than as capital gain. In
count bonds. In general, a capital gain
a regulated investment company
certain situations, all or a portion of a
upon the disposition of a market
(RIC) or real estate investment trust
loss recognized on the sale, exchange,
discount bond is treated as interest
(REIT). Report the corporation's share
or retirement of a contingent payment
income to the extent of accrued market
of long-term gains from Form 2439,
debt instrument subject to the
discount as of the date of disposition.
Notice to Shareholder of Undistributed
noncontingent bond method may be
See sections 1276 through 1278 and
Long-Term Capital Gains, on Form
treated as an ordinary loss rather than
Pub. 550 for more information on market
8949, Part II (with box F checked). Enter
as a capital loss. See Regulations
discount. See the Instructions for Form
“From Form 2439” in column (a). Enter
section 1.1275-4(b) and Pub. 1212,
8949 for detailed information about how
the gain in column (h). Leave all other
Guide to Original Issue Discount
to report the disposition of a market
columns blank. See the Instructions for
Instruments, for more information on
discount bond.
Form 8949.
contingent payment debt instruments
Gain or loss on distribution of prop-
subject to the noncontingent bond
NAV method for money market
erty in complete liquidation.
method. See the Instructions for Form
funds. Report capital gain or loss
Generally, gain or loss is recognized on
8949 for detailed information about how
determined under the NAV method with
property distributed in a complete
to report the disposition of a contingent
respect to shares in a money market
liquidation. Treat the property as if it had
payment debt instrument.
fund on Form 8949, Part I, with box C
been sold at its FMV. See section 336.
checked. Enter the name of each fund
Loss from a sale or exchange be-
followed by “(NAV)” in column (a). Enter
Gain or loss on an option to buy or
tween the corporation and a related
the net gain or loss in column (h). Leave
sell property. See sections 1032 and
person. Except for distributions in
all other columns blank. See the
1234 for the rules that apply to a
complete liquidation of a corporation, no
Instructions for Form 8949.
purchaser or grantor of an option or a
loss is allowed from the sale or
securities futures contract (as defined in
exchange of property between the
Deferral of gain invested in a quali-
section 1234B). See Pub. 550 for
corporation and certain related persons.
fied opportunity fund. If the
details.
See section 267.
corporation realized gain from an actual,
or deemed, sale or exchange with an
Gain or loss from a short sale of
Loss from a wash sale. A wash sale
unrelated person and during the
property. Report the gain or loss on
occurs if the corporation acquires (by
180-day period beginning on the date
Form 8949 to the extent that the
purchase or exchange), or has a
the corporation realized the gain,
property used to close the short sale is
contract or option to acquire,
invested an amount of the gain in a
considered a capital asset in the hands
substantially identical stock or securities
QOF, the corporation may be able to
of the taxpayer. Report any short sale in
within 30 days before or after the date of
elect to temporarily defer part or all of
the year the sale closes.
the sale or exchange. The corporation
the gain that would otherwise be
can’t deduct a loss from a wash sale of
If a short sale closed in 2020 but the
included in income. If the corporation
stock or securities (including contracts
corporation didn’t get a 2020 Form
makes the election, the gain is included
or options to acquire or sell stock or
1099-B (or substitute statement) for it
in income only to the extent, if any, the
securities) unless the corporation is a
because the corporation entered into it
amount of realized gain exceeds the
before 2011, report it on Form 8949 in
dealer in stock or securities and the loss
aggregate amount invested in a QOF
Part I with box C checked or Part II with
was sustained in a transaction made in
during the 180-day period beginning on
box F checked (whichever applies). In
the ordinary course of the corporation's
the date gain is realized. The
column (a), enter (for example) “100 sh.
trade or business. For more information
corporation may also be able to
Instructions for Schedule D (Form 1120-S) (2020)
-3-
permanently exclude the gain from the
the disposition of converted wetland or
corporate level (because a shareholder
sale or exchange of any investment in a
highly erodible cropland that is first used
was entitled to purchase replacement
QOF if the investment is held for at least
for farming after March 1, 1986, is
stock). If the corporation had a gain on
10 years. For more information, see
reported as a long-term capital loss on
qualified stock that could qualify for the
section 1400Z-2.
Form 8949, but any gain on such a
exclusion under section 1202, report
disposition is reported as ordinary gain
that gain on Form 8949 (and on Form
Qualified opportunity fund. A
on Form 4797. See section 1257 for
1120-S, Schedule K, line 10).
QOF is any investment vehicle that is
details.
organized as either a corporation or
To be QSB stock, the stock must
Nonbusiness bad debts. A
partnership for the purpose of investing
meet all of the following tests.
nonbusiness bad debt must be treated
in eligible property that is located in a
It must be stock in a C corporation.
as a short-term capital loss and can be
qualified opportunity zone.
It must have been originally issued
deducted only in the year the debt
after August 10, 1993.
Eligible gain. Gain that is eligible to
becomes totally worthless. See section
As of the date the stock was issued,
be deferred if it is invested in a QOF
166(d) and Nonbusiness Bad Debts in
the corporation was a qualified small
includes any amount treated as a capital
Pub. 550 for details.
business. A qualified small business is a
gain for federal income tax purposes.
domestic C corporation with total gross
Nonrecognition of gain on sale of
See section 1400Z-2 for more details on
assets of $50 million or less (a) at all
stock to an employee stock owner-
QOFs and the special rules. Also, see
times after August 9, 1993, and before
ship plan (ESOP) or an eligible co-
IRS.gov/OZFAQs.
the stock was issued, and (b)
operative. See section 1042 and
How to report. If applicable, report
immediately after the stock was issued.
Temporary Regulations section
the eligible gain on Schedule D as it
Gross assets include those of any
1.1042-1T for rules under which the
would otherwise be reported if the
predecessor of the corporation. All
corporation can elect not to recognize
corporation were not making the
corporations that are members of the
gain from the sale of certain stock to an
election. See the Instructions for Form
same parent-subsidiary controlled
ESOP or an eligible cooperative.
8949 for information on how to report
group are treated as one corporation.
Real estate subdivided for sale.
the deferral. You will also need to
The corporation must have acquired
Certain lots or parcels that are part of a
annually attach to your tax return Form
the stock at its original issue (either
tract of real estate subdivided for sale
8997, Initial and Annual Statement of
directly or through an underwriter),
may be treated as capital assets. See
Qualified Opportunity Fund (QOF)
either in exchange for money or other
section 1237.
Investments, until you dispose of the
property or as pay for services (other
QOF investment. For more information,
than as an underwriter) to the
Rollover of gain from qualified small
see Form 8997 and its instructions.
corporation. In certain cases, the
business (QSB) stock. If the
corporation may meet the test if it
corporation sold QSB stock (defined
Bonds and other debt instruments.
acquired the stock from another person
below) it held for more than 6 months, it
See Pub. 550.
who met this test (such as by gift or
can postpone gain if it purchased other
Collectibles gain (28% rate gain) or
inheritance) or through a conversion or
QSB stock during the 60-day period that
loss. Report any 28% rate gain or loss
exchange of QSB stock held by the
began on the date of the sale and
on line 8b of Schedule K (and each
corporation.
before January 1, 2021. The corporation
shareholder's share in box 8b of
During substantially all the time the
must recognize gain to the extent the
Schedule K-1). A collectibles gain or
corporation held the stock:
sale proceeds exceed the cost of the
loss is any long-term gain or deductible
replacement stock. Reduce the basis of
1. The issuer was a C corporation;
long-term loss from the sale or
the replacement stock by any
2. At least 80% of the value of the
exchange of a collectible that is a capital
postponed gain.
issuer's assets were used in the active
asset.
If the corporation chooses to
conduct of one or more qualified
Collectibles include works of art,
postpone gain, report the entire gain
businesses (defined below); and
rugs, antiques, metals (such as gold,
realized on the sale on Form 8949, Part
3. The issuing corporation wasn't a
silver, and platinum bullion), gems,
I or II (with the appropriate box
foreign corporation, domestic
stamps, coins, alcoholic beverages, and
checked). Enter “R” in column (f). Enter
international sales corporation (DISC),
certain other tangible property.
the amount of the postponed gain as a
former DISC, corporation that has made
Report any 28% rate gain or loss
negative number (in parentheses) in
(or that has a subsidiary that has made)
column (g). Complete all remaining
from a sale or exchange of a collectible
a section 936 election, regulated
columns. See the Instructions for Form
on Form 8949, Part II (with the
investment company (RIC), real estate
8949.
appropriate box checked). See the
investment trust (REIT), real estate
Instructions for Form 8949.
mortgage investment conduit (REMIC),
The corporation must also
Also include gain (but not loss) from
financial asset securitization investment
separately state the amount of
!
the sale or exchange of an interest in a
trust (FASIT), or cooperative.
the gain rolled over on qualified
CAUTION
partnership or trust held more than 1
Note. A specialized small business
stock under section 1045 on Form
year and attributable to unrealized
investment company (SSBIC) is treated
1120-S, Schedule K, line 10. Each
appreciation of collectibles. See
as having met test (2) above.
shareholder must determine if he or she
Regulations section 1.1(h)-1. Also,
qualifies for the rollover at the
A qualified business is any business
attach the statement required under
shareholder level. Also, the corporation
other than the following.
Regulations section 1.1(h)-1(e).
must separately state on that line (and
One involving services performed in
not on Form 8949) any gain that could
the fields of health, law, engineering,
Disposition of converted wetland or
qualify for the section 1045 rollover at
architecture, accounting, actuarial
highly erodible cropland. Any loss on
the shareholder level instead of the
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Instructions for Schedule D (Form 1120-S) (2020)
Disposal of QOF
science, performing arts, consulting,
The limitation on investment interest
athletics, financial services, or
expense that applies to investors
Investment
brokerage services.
doesn't apply to interest paid or incurred
If you disposed of any investment in a
One whose principal asset is the
in a trading business. A trader reports
QOF during the tax year, check the box
reputation or skill of one or more
interest expense and other expenses
on the top of Schedule D and see the
employees.
(excluding commissions and other costs
Instructions for Form 8949 for additional
Any banking, insurance, financing,
of acquiring and disposing of securities)
reporting requirements.
leasing, investing, or similar business.
from a trading business on page 1 of
Any farming business (including the
Form 1120-S.
Parts I and II
raising or harvesting of trees).
A trader may also hold securities for
Any business involving the production
investment. The rules for investors will
Lines 1a and 8a—Transactions
of products for which percentage
generally apply to those securities. If
Not Reported on Form 8949
depletion can be claimed.
they apply, allocate interest and other
The corporation can report on line 1a
Any business of operating a hotel,
expenses between the corporation's
(for short-term transactions) or line 8a
motel, restaurant, or similar business.
trading business and investment
(for long-term transactions) the
For more details about limits and
securities. Report investment interest
aggregate totals from any transactions
additional requirements that may apply,
expense on line 12b of Schedule K and
(other than sales of collectibles) for
see Pub. 550 or section 1202.
in box 12 of Schedule K-1 using code H.
which:
Sale of a partnership interest. A sale
Transactions with respect to appli-
The corporation received a Form
or other disposition of an interest in a
cable partnership interests. The
1099-B (or substitute statement) that
partnership owning unrealized
long-term holding period for gains and
shows basis was reported to the IRS
receivables or inventory items may
losses with respect to applicable
and doesn't show any adjustments in
result in ordinary gain or loss. See Pub.
partnership interests is more than 3
box 1f or box 1g;
541, Partnerships.
years. If the holding period is 3 years or
The Ordinary checkbox in box 2 of
less, gains and losses with respect to
Form 1099-B (or substitute statement)
Special rules for traders in securi-
applicable partnership interests are
isn't checked;
ties. Traders in securities are engaged
treated as short term. An applicable
The QOF checkbox in box 3 of Form
in the business of buying and selling
partnership interest is any interest in a
1099-B (or substitute statement) isn’t
securities for their own account. To be
partnership that, directly or indirectly, is
checked; and
engaged in a business as a trader in
transferred to (or is held by) the
The corporation doesn't need to
securities, the corporation:
taxpayer in connection with the
make any adjustments to the basis or
Must seek to profit from daily market
performance of substantial services by
type of gain or loss reported on Form
movements in the prices of securities
the taxpayer, or any other related
1099-B (or substitute statement), or to
and not from dividends, interest, or
person, in any applicable trade or
its gain or loss.
capital appreciation;
business. See section 1061 and Pub.
Must be involved in a trading activity
See How To Complete Form 8949,
541 for details.
that is substantial; and
Columns (f) and (g) in the Instructions
Figure gains and losses with respect
Must carry on the activity with
for Form 8949 for details about possible
to the applicable partnership interest on
continuity and regularity.
adjustments to the corporation's gain or
Form 8949 by applying the special
loss.
The following facts and
holding period rules discussed above.
circumstances should be considered in
If the corporation chooses to report
See the Instructions for Form 8949.
determining if a corporation's activity is
these transactions on lines 1a and 8a,
a business.
Specific Instructions
don’t report them on Form 8949. Also,
Typical holding periods for securities
the corporation doesn’t need to attach a
bought and sold.
statement to explain the entries on lines
Complete all necessary pages of Form
The frequency and dollar amount of
1a and 8a.
8949 before completing line 1b, 2, 3, 8b,
the corporation's trades during the year.
9, or 10 of Schedule D.
Figure gain or loss on each line.
The extent to which the shareholders
Subtract the cost or other basis in
pursue the activity to produce income
Rounding Off to Whole
column (e) from the proceeds (sales
for a livelihood.
Dollars
price) in column (d). Enter the gain or
The amount of time devoted to the
loss in column (h). Enter negative
activity.
Cents can be rounded to whole dollars
amounts in parentheses.
Like an investor, a trader must
on Schedule D. If cents are rounded to
generally report each sale of securities
whole dollars, all amounts must be
Example 1—basis reported to the
(taking into account commissions and
rounded. To round, drop amounts under
IRS. The corporation received a Form
50 cents and increase amounts from 50
any other costs of acquiring or
1099-B reporting the sale of stock held
to 99 cents to the next dollar. For
disposing of the securities) on Form
for 3 years, showing proceeds (in
example, $1.49 becomes $1 and $2.50
8949 unless one of the exceptions
box 1d) of $6,000 and cost or other
becomes $3.
described under Exceptions to reporting
basis (in box 1e) of $2,000. Box 12 is
each transaction on a separate row in
checked, meaning that basis was
If two or more amounts have to be
the Instructions for Form 8949 applies.
reported to the IRS. The corporation
added to figure the amount to enter on a
However, if a trader made the
doesn't need to make any adjustments
line, include cents when adding the
mark-to-market election (see the
to the amounts reported on Form
amounts and round off only the total.
Instructions for Form 4797), each
1099-B or enter any codes. This was
transaction is reported in Part II of Form
the corporation's only 2020 transaction.
4797 instead of on Form 8949.
Instead of reporting this transaction on
Instructions for Schedule D (Form 1120-S) (2020)
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