Line 13. Salaries and Wages

Enter the amount of salaries and wages paid for the tax year, reduced by any:

• Work opportunity credit from Form 5884,
• Empowerment zone credit from Form 8844,
• Indian employment credit from Form 8845, and
• Welfare-to-work credit from Form 8861.

See the instructions for these forms for more information. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the corporation provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages the amount allocated for depreciation and other expenses claimed on lines 20 and 27.

Line 14. Repairs and Maintenance

Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that do not add to the value of the property or appreciably prolong its life. New buildings, machinery, or permanent improvements that increase the value of the property are not deductible. They must be depreciated or amortized.

Line 15. Bad Debts

Enter the total debts that became worthless in whole or in part during the tax year. A small bank or thrift institution using the reserve method of section 585 should attach a schedule showing how it figured the current year's provision. A cash basis taxpayer may not claim a bad debt deduction unless the amount was previously included in income.

Line 16. Rents

If the corporation rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred during the year. Also complete Part V of Form 4562, Depreciation and Amortization. If the corporation leased a vehicle for a term of 30 days or more, the deduction for vehicle lease expense may have to be reduced by an amount called the inclusion amount. The corporation may have an inclusion amount if:

The lease term began:	And the vehicle's FMV on the first day of the lease exceeded:
After 12/31/98		$15,500
After 12/31/96 but before 1/1/99		$15,800
After 12/31/94 but before 1/1/97		$15,500
After 12/31/93 but before 1/1/95		$14,600
If the lease term began before January 1, 1994, or, the leased vehicle was an electric vehicle, see Pub. 463, Travel, Entertainment, Gift, and Car Expenses, to find out if the corporation has an inclusion amount.

See Pub. 463 for instructions on figuring the inclusion amount.

Line 17. Taxes and Licenses

Enter taxes paid or accrued during the tax year, but do not include the following:

• Federal income taxes.
• Foreign or U.S. possession income taxes if a tax credit is claimed.
• Taxes not imposed on the corporation.
• Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property (these taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition).
• Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).
• Taxes deducted elsewhere on the return, such as those reflected in cost of goods sold.

See section 164(d) for apportionment of taxes on real property between seller and purchaser.

See section 906(b)(1) for rules concerning certain foreign taxes imposed on income from U.S. sources that may not be deducted or credited.

Line 18. Interest

Important: In determining the amount of interest expense disallowed under section 265 or 163(j), deferred under section 163(e) or 267(a)(3), or capitalized under section 263A from a U.S. trade or business, take into account only the amount of interest expense allocable to effectively connected income under Regulations section 1.882-5. Note: The deduction for interest is limited when the corporation is a policyholder or beneficiary with respect to a life insurance, endowment, or annuity contract issued after June 8, 1997. For details, see section 264(f). Attach a schedule showing the computation of the deduction.

Allocation of interest. All foreign corporations (including corporations that are residents of countries with which the U.S. has an income tax treaty) must use the 3-step process described in Regulations 1.882-5 to allocate interest. In addition, all corporations must attach a schedule showing how the deduction was determined, using the exclusive rules outlined in the regulations.

The interest expense allocable to effectively connected income is the sum of:

• The interest paid or accrued by the foreign corporation on its liabilities booked in the U.S., adjusted under the 3-step process described in Regulations section 1.882-5 and
• Any interest directly allocated to income from an asset (see Regulations section 1.882-5(a)(1)(ii)).

In determining the amount of interest expense allocable to effectively connected income (Step 3 of the process), the corporation may use either:

• The adjusted booked liabilities method (Regulations section 1.882-5(d)) or
• The separate currency pools method (Regulations section 1.882-5(e)).

Generally, once a method is elected, it must be used for a consecutive 5-year period. Indicate the method used.

If the separate currency pool method is used, attach a schedule showing the following:

1. The currency denomination of each currency pool in which U.S. assets are denominated;
2. The amount of U.S.-connected liabilities in each currency pool; and
3. The average rate of interest paid on liabilities by all branches and offices of the foreign corporation world-wide in each currency pool. The corporation may convert any currency pool in which it holds less than 3% of its U.S. assets for the year in U.S. dollars, and apply the U.S. dollar interest rate. See Regulations 1.882-5(e).

Line 19. Charitable Contributions

Note: This deduction is allowed for all contributions, whether or not connected with income that is effectively connected with the conduct of a trade or business in the United States. See section 882(c)(1)(B).

Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused contributions carried over from prior years.

Corporations reporting taxable income on the accrual method may elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return, signed by an officer, stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. Also attach a copy of the resolution.

Limitation on deduction. The total amount claimed may not exceed 10% of taxable income (Section II, line 31) computed without regard to the following:

• Any deduction for contributions,
• The special deductions on line 30b,
• The deduction allowed under section 249,
• Any net operating loss (NOL) carryback to the tax year under section 172, and
• Any capital loss carryback to the tax year under section 1212(a)(1).

Carryover. Charitable contributions over the 10% limitation may not be deducted for the tax year but may be carried over to the next 5 tax years.

Special rules apply if the corporation has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the tax year, the 10% limit is applied using the taxable income after taking into account any deduction for the NOL.

To figure the amount of any remaining NOL carryover to later years, taxable income must be modified (see section 172(b)). To the extent that contributions are used to reduce taxable income for this purpose and increase an NOL carryover, a contributions carryover is not allowed. See section 170(d)(2)(B).

Substantiation requirements. Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed, and gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the corporation's return, or if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with the corporation's records. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions, described below.

For more information on substantiation and recordkeeping requirements, see the regulations under section 170 and Pub. 526, Charitable Contributions.

Contributions to organizations conducting lobbying activities. Contributions made to an organization that conducts lobbying activities are not deductible if:

• The lobbying activities relate to matters of direct financial interest to the donor's trade or business and
• The principal purpose of the contribution was to avoid Federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor.

Contributions of property other than cash. If a corporation (other than a closely held or personal service corporation) contributes property other than cash and claims over a $500 deduction for the property, it must attach a schedule to the return describing the kind of property contributed and the method used to determine its FMV. Closely held corporations and personal service corporations must complete Form 8283 and attach it their returns. All other corporations must generally complete and attach Form 8283 for contributions of property (other than money) if the total claimed deduction for all property contributed was more than $5,000.

If the corporation made a qualified conservation contribution under section 170(h), also include the FMV of the underlying property before and after the donation, as well as the type of legal interest contributed, and describe the conservation purpose benefited by the donation. If a contribution carryover is included, show the amount and how it was determined.

Reduced deduction for contributions of certain property. For a charitable contribution of property, reduce the contribution by the sum of:

• The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and
• For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV.

The reduction for the long-term capital gain applies to:

• Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption and
• Contributions of any property to or for the use of certain private foundations, except for stock for which market quotations are readily available (section 170(e)(5)).

Larger deduction. A larger deduction is allowed for certain contributions of:

• Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (see section 170(e)(3) and Regulations section 1.170A-4A);
• Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations (other than by personal holding companies and service organizations) (see section 170(e)(4)); and
• Computer technology and equipment for educational purposes.

Contributions of computer technology and equipment for educational purposes. A corporation may take an increased deduction under section 170(e)(6) for qualified contributions of computer technology or equipment for educational purposes. Computer technology or equipment means computer software, computer or peripheral equipment, and fiber optic cable related to computer use. A contribution is a qualified contribution if:

• It is made to an eligible donee (see below);
• Substantially all of the donee property's use is:
  1. Related to the purpose or function of the donee;
  2. For use within the United States; and
  3. For educational purposes.
• The contribution is made not later than 3 years after the date the taxpayer acquired or substantially completed the construction of the property;
• The original use of the property is by the donor or the donee;
• The property is not transferred by the donee for money, services, or other property, except for shipping, transfer, and installation costs;
• The property fits productively into the donee's education plan; and
• The property meets standards, if any, that may be prescribed by future regulations, to assure it meets minimum functionality and suitability for educational purposes.

Eligible donee. The term eligible donee means:

• An educational organization that normally maintains a regular faculty and curriculum and has a regularly enrolled body of pupils in attendance at the place where its educational activities are regularly conducted,
• A section 501(c)(3) entity organized primarily for purposes of supporting elementary and secondary education, or
• A public library (as described in section 170(e)(6)(B)(i)(III)).

Exceptions. The following exceptions apply to the above rules for computer technology and equipment:

• Contributions to private foundations may qualify if the foundation contributes the property to an eligible donee within 30 days after the contribution and notifies the donor of the contribution. For details, see section 170(e)(6)(C).
• For contributions of property reacquired by the manufacturer of the property, the 3 year period begins on the date that the original construction of the property was substantially completed. Also, the original use of the property may be someone other than the donor or the donee.

Line 20. Depreciation

In addition to depreciation, include on line 20 the part of the cost that the corporation elected to expense under section 179 for certain tangible property placed in service during tax year 2001, or carried over from 2000. See Form 4562 and its instructions.

Line 23. Depletion

See sections 613 and 613A for percentage depletion rates applicable to natural deposits. Also, see section 291 for the limitation on the depletion deduction for iron ore and coal (including lignite).

Attach Form T (Timber), Forest Activities Schedules, if a deduction for depletion of timber is claimed.

Foreign intangible drilling costs and foreign exploration and development costs must either be added to the corporation's basis for cost depletion purposes or be deducted ratably over a 10-year period. See sections 263(i), 616, and 617 for details.

Line 25. Pension, Profit-sharing, etc., Plans

Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the corporation does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. For more information, see sections 6652(e) and 6662(f).

Form 5500, Annual Return/Report of Employee Benefit Plan. File this form for a plan that is not a one-participant plan (see below).

Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers the owner (or the owner and his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire business.

Line 26. Employee Benefit Programs

Enter contributions to employee benefit programs not claimed elsewhere on the return (e.g., insurance, health, and welfare programs, etc.) that are not an incidental part of a pension, profit-sharing, etc., plan included on line 25.

Line 27. Other Deductions

Attach a schedule listing by type and amount, all allowable deductions that are not deductible elsewhere on Form 1120-F.

Examples of other deductions to include:

• Amortization of pollution control facilities, organization expenses, etc. (see Form 4562).
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the business.
• Utilities.
• Ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary income against ordinary losses. Instead, include the income on line 10. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.
• Dividends paid in cash on stock held by an employee stock ownership plan. However, a deduction may only be taken if, according to the plan, the dividends are:

1. Paid in cash directly to the plan participants or beneficiaries;
2. Paid to the plan, which distributes them in cash to the plan participants or their beneficiaries no later than 90 days after the end of the plan year in which the dividends are paid; or
3. Used to make payments on a loan described in section 404(a)(9).

See section 404(k) for more details and the limitation on certain dividends.

Also, see Special rules below for limits on certain other deductions.

Do not deduct:

• Fines or penalties paid to a government for violating any law.
• Any amount that is allocable to a class of exempt income. See section 265(b) for exceptions.

Special rules apply to the following expenses:

Travel, meals, and entertainment. Subject to limitations and restrictions discussed below, a corporation can deduct ordinary and necessary travel, meals, and entertainment expenses paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water travel, convention expenses, and entertainment tickets. See section 274 and Pub. 463 for more details.

Travel. The corporation cannot deduct travel expenses of any individual accompanying a corporate officer or employee, including a spouse or dependent of the officer or employee, unless:

• That individual is an employee of the corporation and
• His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual.

Meals and entertainment. Generally, the corporation can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses paid or incurred in its trade or business. In addition (subject to exceptions under section 274(k)(2)):

• Meals must not be lavish or extravagant;
• A bona fide business discussion must occur during, immediately before, or immediately after the meal; and
• An employee of the corporation must be present at the meal.

See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the hours of service limits of the Department of Transportation.

Membership dues. The corporation may deduct amounts paid or incurred for membership dues in civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However, no deduction is allowed if a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests. In addition, corporations may not deduct membership dues in any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion.

Entertainment facilities. The corporation cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for an activity usually considered amusement, entertainment, or recreation.

Note: The corporation may be able to deduct otherwise nondeductible meals, travel, and entertainment expenses if the amounts are treated as compensation and reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor.

Deduction for clean-fuel vehicles and certain refueling property. Section 179A allows a deduction for part of the cost of qualified clean-fuel vehicle property and qualified clean-fuel vehicle refueling property placed in service during the tax year. For more information, see Pub. 535.

Lobbying expenses. Generally, lobbying expenses are not deductible. These expenses include:

• Amounts paid or incurred in connection with influencing Federal or state legislation (but not local legislation) or
• Amounts paid or incurred in connection with any communication with certain Federal executive branch officials in an attempt to influence the official actions or positions of the officials. See Regulations section 1.162-29 for the definition of influencing legislation.

Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. See section 162(e)(3). If certain in-house lobbying expenditures do not exceed $2,000, they are deductible. For information on contributions to charitable organizations that conduct lobbying activities, see page 13. For more information on lobbying expenses, see section 162(e).

Line 29. Taxable Income Before NOL Deduction and Special Deductions

At-risk rules. Generally, special at-risk rules under section 465 apply to closely held corporations (see Passive activity limitations on page 11) engaged in any activity as a trade or business or for the production of income. These corporations may have to adjust the amount on line 29.

The at-risk rules do not apply to:

• Holding real property placed in service by the taxpayer before 1987;
• Equipment leasing under sections 465(c)(4), (5), and (6); or
• Any qualifying business of a qualified corporation described in section 465(c)(7).

However, the at-risk rules do apply to holding mineral property.

If the at-risk rules apply, adjust the amount on line 29 for any section 465(d) losses. These losses are limited to the amount for which the corporation is at risk for each separate activity at the close of the tax year. If the corporation is involved in one or more activities, any of which incurs a loss for the year, report the loss for each activity separately. Attach Form 6198, At-Risk Limitations, showing the amount at risk and gross income and deductions for the activities with the losses.

If the corporation sells or otherwise disposes of an asset or its interest (either total or partial) in an activity to which the at-risk rules apply, determine the net profit or loss from the activity by combining the gain or loss on the sale or disposition with the profit or loss from the activity. If the corporation has a net loss, it may be limited because of the at-risk rules.

Treat any loss from an activity not allowed for the tax year as a deduction allocable to the activity in the next tax year.

Line 30a. Net Operating Loss Deduction

A corporation may use the net operating loss (NOL) incurred in one tax year to reduce its taxable income in another tax year. Generally, a corporation may carry an NOL back to each of the 2 years preceding the year of the loss and then carry any remaining amount over to each of the 20 years (15 years for NOLs incurred in tax years beginning before August 6, 1997) following the year of the loss (but see Waiving the carryback period below). For exceptions to the general rule, see Special carryback periods for certain losses below.

Enter on line 30a the total NOL carryovers from prior tax years, but do not enter more than the corporation's taxable income (after special deductions). An NOL deduction cannot be taken in a year in which the corporation has a negative taxable income. Attach a schedule showing the computation of the NOL deduction. Also complete Item S at the bottom of page 2 of the form.

For more details on the NOL deduction, see Pub. 542, Corporations.

Carryback and carryover rules. To carry back the loss and obtain a quick refund of taxes, use Form 1139, Corporation Application for Tentative Refund. Form 1139 must be filed within 12 months after the close of the tax year of the loss. See section 6411 for details.

For carryback claims filed later than 12 months after the close of the tax year of the loss, file an amended Form 1120-F instead of Form 1139.

After the corporation applies the NOL to the first tax year to which it may be carried, the taxable income of that year is modified (as described in section 172(b)) to determine how much of the remaining loss may be carried to other years. See section 172(b) and the related regulations for details.

Special NOL rules apply when:

• An ownership change occurs (i.e., the amount of the taxable income of a loss corporation that can be offset by pre-change NOL carryovers is limited). See section 382 and the related regulations. Also see Temporary Regulations section 1.382-2T(a)(2)(ii), which requires that a loss corporation file an information statement with its income tax return for each tax year that it is a loss corporation and certain shifts in ownership occurred. See Regulations section 1.382-6(b) for details on how to make the closing-of-the-books election.
• A corporation acquires control of another corporation (or acquires its assets in a reorganization) and the amount of pre-acquisition losses that may offset recognized built-in gains is limited. See section 384.

Waiving the carryback period. A corporation may make an irrevocable election to waive the carryback period and instead carry the NOL forward to years following the year of the loss. To make this election, check the box in Item R at the bottom of page 2 of Form 1120-F. To be valid, the election must be made by the due date (including extensions) for filing Form 1120-F.

Special carryback periods for certain losses. The regular 2-year carryback period generally does not apply to the following losses.

• Specified liability losses, including a product liability loss. The part of an NOL that is attributable to a specified liability loss may be carried back 10 years. The corporation may, however, elect to treat such a loss as if it were not a specified liability loss. If the corporation makes this election, the loss carryback period will be 2, 3, or 5 years, whichever applies. Make the election by attaching a statement to a timely filed return (including extensions; however, see Exception below). Also, see section 172(b)(1)(C).
• Farming losses. An NOL attributable to any farming business may be carried back 5 years. However, the corporation may elect to treat the loss as if it were not a farming loss. If the corporation makes this election, the loss carryback period will be 2 years or 3 years, whichever applies. Make the election by attaching a statement to a timely filed return (including extensions; however, see Exception). Also, see sections 172(b)(1)(G) and 172(i).

  Exception. If the corporation timely filed its return for the loss year without making the election for Specified liability losses or Farming losses above, the corporation may still make the election by filing an amended return within 6 months of the due date of the loss year return (excluding extensions). Attach the election to the amended return and write Filed pursuant to section 301.9100-2 on the election statement. File the amended return at the same address the original return was filed. Once made, the election is irrevocable.

• Eligible losses. The part of an NOL that is attributable to an eligible loss may be carried back 3 years. An eligible loss is an NOL attributable to a Presidentially-declared disaster if, for the tax year in which the NOL arose, the corporation was (a) engaged in a farming business or (b) a small business that met the gross receipts test of section 448(c). An eligible loss does not include any farming loss or specified liability loss described above.
• Corporate equity reduction interest losses. See section 172(b)(1)(E) for special rules that apply if the corporation has an NOL attributable to interest deducted in connection with corporate equity reduction transactions.
• Losses incurred by a personal service corporation (PCS). A PCS may not carry back an NOL to or from any tax year to which a section 444 election applies.

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