Tax and Payments

Line 24b. Estimated tax payments.   Enter any estimated tax payments the REIT made for the tax year.

Line 24f.   Enter the credit (from Form 2439) for the REIT's share of the tax paid by a regulated investment company or another REIT on undistributed long-term capital gains included in the REIT's income. Attach Form 2439 to Form 1120-REIT.

Line 24g.   Enter the credit from Form 4136, Credit for Federal Tax Paid on Fuels, if the REIT qualifies to take this credit. Attach Form 4136 to Form 1120-REIT.

Line 24h.   Add the amounts on lines 24d through 24g and enter the total on line 24h.

Backup withholding.   If the REIT had income tax withheld from any payments it received because, for example, it failed to give the payer its correct EIN, include the amount withheld in the total for line 24h. This type of withholding is called Backup Withholding. Show the amount withheld in the blank space in the right-hand column between lines 23 and 24h, and write Backup Withholding.

Line 25. Estimated tax penalty.   A REIT that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a REIT is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of:

• Its alternative minimum tax minus the credit for Federal tax paid on fuels for 2002 as shown on the return or
• Its prior year's tax (computed in the same manner). See section 6655 for details and exceptions, including special rules for large corporations.

Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the REIT owes a penalty and to figure the amount of the penalty. Generally, the REIT does not have to file this form because the IRS can figure the amount of any penalty and bill the REIT for it. However, even if it does not owe the penalty, the REIT must complete and attach Form 2220 if the annualized income or adjusted seasonal installment method is used, or the REIT is a large corporation computing its first required installment based on the prior year's tax. See the Instructions for Form 2220 for the definition of a large corporation.

If Form 2220 is attached, check the box on line 25, page 1, Form 1120-REIT, and enter the amount of any penalty on this line.

Part II - Tax on Net Income From Foreclosure Property

Complete Part II only if the gross income, gains, losses, and deductions from foreclosure property (defined in section 856(e)) result in net income. If an overall net loss results, report the gross income, gains, losses, and deductions from foreclosure property on the appropriate lines of Part I.

Property may be treated as foreclosure property only if it meets the requirements of section 856(e) and the REIT elects to treat the property as foreclosure property in the year it was acquired. The property continues to be foreclosure property until the close of the 3rd tax year following the tax year in which the REIT acquired it. For more information, see section 856(e). However, if the foreclosure property is qualified health care property, it will cease to be foreclosure property as of the close of the 2nd year following the tax year the REIT acquired it (although the REIT may request one or more extensions to this two year grace period not to extend beyond the 6th year). See section 856(e)(6) for details.

This election must be made by the due date for filing Form 1120-REIT (including extensions). To make the election, attach a statement that:

• Indicates that the election under section 856(e) is being made;
• Identifies the property to which the election applies;
• Includes the name, address, and EIN of the REIT, the date the property was acquired, and a brief description of how the property was acquired (including the name of the person from whom the property was acquired); and
• Gives a description of the lease or debt with respect to which default occurred or was imminent.

The REIT can revoke the election by filing a revocation on or before the due date (including extensions) for filing Form 1120-REIT. See section 856(e) for more details.

Line 2. Gross income from foreclosure property.   Do not include income that qualifies under the REIT's 75% gross income test under section 856(c)(3)(A), (B), (C), (D), (E), or (G). These amounts must be reported in Part I.

Line 4. Deductions.   Deduct only those expenses that have a proximate and primary relationship to earning the income shown on line 3. This includes:

• Depreciation on foreclosure property;
• Interest paid or accrued on debt of the REIT that is attributable to the carrying of the property;
• Real estate taxes; and
• Fees charged by an independent contractor to manage such property.

Do not deduct general overhead and administrative expenses in Part II.

Part III - Tax for Failure To Meet Certain Source-of-Income Requirements

All REITs must complete lines 1a through 8 of Part III. If line 8 is zero, do not complete the rest of Part III. The tax imposed under section 857(b)(5) does not apply. If line 8 is greater than zero, complete the rest of Part III. Enter the tax from line 16 on Schedule J, line 3c.

If line 8 is greater than zero, the REIT must:

• Attach a schedule listing the nature and amount of each item of its gross income described in section 856(c)(2) and (3);
• Not have fraudulently included any incorrect information in the attached schedule; and
• Have reasonable cause for not meeting the requirements of section 856(c)(2) and (3).

Important:   Failure to meet the three conditions above will terminate the election to be treated as a REIT effective for this tax year and all succeeding tax years.

Part IV - Tax on Net Income From Prohibited Transactions

Section 857(b)(6) imposes a tax equal to 100% of the net income derived from prohibited transactions. The 100% tax is imposed to prevent a REIT from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development tract.

Line 1. Gain from sale or other disposition of property.   Include only gain from the sale or other disposition of property described in section 1221(a)(1) that is not foreclosure property and that does not qualify as an exception. See section 857(b)(6)(C) for information on certain sales that do not qualify as prohibited transactions. See section 856(j) for a special rule regarding a shared appreciation mortgage.

Do not net losses from prohibited transactions against gains in determining the amount to enter on line 1. Enter losses from prohibited transactions on the appropriate line in Part I.

Line 2. Deductions.   Deduct only those expenses that have a proximate and primary relationship to the earning of the income shown on line 1. Do not deduct general overhead and administrative expenses in Part IV.

Schedule A - Deduction for Dividends Paid

Lines 1 through 5.   Section 561 (taking into account sections 857(b)(8), 857(d)(3)(B), and 858(a)) determines the deduction for dividends paid.

Line 3.   Dividends declared in October, November, or December and payable to shareholders of record in October, November, or December are treated by the REIT as paid on December 31 of that calendar year. The REIT is then eligible for the deduction for dividends paid for the year the dividends are declared even though they are not actually paid until January of the following calendar year.

If the REIT declared dividends in any of those months and actually paid them in January, as discussed above, enter on line 3 those dividends not already included on lines 1, 2, and 4 of Schedule A.

Line 6.   If, for any tax year the REIT has net income from foreclosure property (as defined in section 857(b)(4)(B)), the deduction for dividends paid to be entered on line 6 (and on line 21b, page 1) is determined by multiplying the amount on line 5 by the following fraction:

REIT taxable income (determined without regard to the deduction for dividends paid)

REIT taxable income (determined without regard to the deduction for dividends paid) + (Net income from foreclosure property minus the tax on net income from foreclosure property)

Schedule J - Tax Computation

Note:   Members of a controlled group must attach to Form 1120-REIT a statement showing the computation of the tax entered on line 3a. You may use the Tax Computation Worksheet for Members of a Controlled Group below for this purpose.

Lines 1 and 2

Members of a controlled group.   A member of a controlled group, as defined in section 1563, must check the box on line 1 and complete lines 2a and 2b of Schedule J.

Line 2a.   Members of a controlled group are entitled to one $50,000, one $25,000, and one $9,925,000 taxable income bracket amount (in that order) on line 2a.

When a controlled group adopts or later amends an apportionment plan, each member must attach to its tax return a copy of its consent to this plan. The copy (or an attached statement) must show the part of the amount in each taxable income bracket apportioned to that member. See Regulations section 1.1561-3(b) for other requirements and for the time and manner of making the consent.

Unequal apportionment plan.   Members of a controlled group may elect an unequal apportionment plan and divide the taxable income brackets as they want. There is no need for consistency between taxable income brackets. Any member may be entitled to all, some, or none of the taxable income brackets. However, the total amount for all members cannot be more than the total amount in each taxable income bracket.

Equal apportionment plan.   If no apportionment plan is adopted, the members of the controlled group must divide the amount in each taxable income bracket equally among themselves. For example, Controlled Group AB consists of Corporation A and Corporation B. They do not elect an apportionment plan. Therefore, each corporation is entitled to:

• $25,000 (one-half of $50,000) on line 2a(1);
• $12,500 (one-half of $25,000) on line 2a(2); and
• $4,962,500 (one-half of $9,925,000) on line 2a(3).

Line 2b.   Members of a controlled group are treated as one corporation to figure the applicability of the additional 5% tax and the additional 3% tax. If an additional tax applies, each member will pay that tax based on the part of the amount used in each taxable income bracket to reduce that member's tax. See section 1561(a). If an additional tax applies, attach a schedule showing the taxable income of the entire group and how the corporation figured its share of the additional tax.

Line 2b(1).   Enter the corporation's share of the additional 5% tax on line 2b(1).

Line 2b(2).   Enter the corporation's share of the additional 3% tax on line 2b(2).

Line 3a-Tax on REIT Taxable Income

Most REITs figure their tax by using the Tax Rate Schedule below. An exception applies to members of a controlled group (see worksheet below).

Tax Rate Schedule

If taxable income (line 22, page 1) is:
Over -	But not over -	Tax is:	Of the amount over -
$0	$50,000	15%	$0
50,000	75,000	$ 7,500 + 25%	50,000
75,000	100,000	13,750 + 34%	75,000
100,000	335,000	22,250 + 39%	100,000
335,000	10,000,000	113,900 + 34%	335,000
10,000,000	15,000,000	3,400,000 + 35%	10,000,000
15,000,000	18,333,333	5,150,000 + 38%	15,000,000
18,333,333	- - - - -	35%	0

Tax Computation Worksheet for Members of a Controlled Group (keep for your records)

Note: Each member of a controlled group must compute the tax using this worksheet.
1.	Enter REIT taxable income (line 22, page 1)
2.	Enter line 1 or the REIT's share of the $50,000 taxable income bracket, whichever is less
3.	Subtract line 2 from line 1
4.	Enter line 3 or the REIT's share of the $25,000 taxable income bracket, whichever is less
5.	Subtract line 4 from line 3
6.	Enter line 5 or the REIT's share of the $9,925,000 taxable income bracket, whichever is less
7.	Subtract line 6 from line 5
8.	Multiply line 2 by 15%
9.	Multiply line 4 by 25%
10.	Multiply line 6 by 34%
11.	Multiply line 7 by 35%
12.	If the taxable income of the controlled group exceeds $100,000, enter this member's share of the smaller of: 5% of the taxable income in excess of $100,000, or $11,750. (See the instructions for line 2b above.)
13.	If the taxable income of the controlled group exceeds $15 million, enter this member's share of the smaller of 3% of the taxable income in excess of $15 million, or $100,000. (See the instructions for line 2b above.)
14.	Total. Add lines 8 through 13. Enter here and on line 3a, Schedule J

Line 3e

Enter the amount of the 100% excise tax imposed on the following:

• Income of a taxable REIT subsidiary (TRS) for services provided to the REIT's tenants that is improperly included in rents from real property reported by the REIT instead of being reported by the TRS.
• Deductions that are improperly allocated between the REIT to its TRS.
• Interest deductions of a TRS to the extent that interest payments to its REIT are in excess of a rate that is commercially reasonable.

See section 857(b)(7) for details and exceptions.

Line 3f-Alternative Minimum Tax (AMT)

Unless the REIT is treated as a small corporation exempt from the AMT, it may owe the AMT if it has any of the adjustments and tax preference items listed on Form 4626. The REIT must file Form 4626 if its taxable income (loss) combined with these adjustments and tax preference items is more than the smaller of:

• $40,000 or
• The REIT's allowable exemption amount (from Form 4626).

For this purpose, taxable income does not include the NOL deduction. See Form 4626 for details.

Exemption for small corporations.   A REIT is treated as a small corporation exempt from the AMT for its tax year beginning in 2002 if that year is the REIT's first tax year in existence (regardless of its gross receipts) or:

1. It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997 and
2. Its average annual gross receipts for the 3-tax-year period (or portion thereof during which the REIT was in existence) ending before its tax year beginning in 2002 did not exceed $7.5 million ($5 million if the REIT had only 1 prior tax year).

For more details, see the Instructions for Form 4626.

Line 3g-Income Tax

Deferred tax under section 1291.   If the REIT was a shareholder in a passive foreign investment company (PFIC) and received an excess distribution or disposed of its investment in the PFIC during the year, it must include the increase in taxes due under section 1291(c)(2) in the total for line 3g. On the dotted line to the left of line 3g, write Section 1291 and the amount.

Do not include on line 3g any interest due under section 1291(c)(3). Instead, show the amount of interest owed in the bottom margin of page 1, Form 1120-REIT, and write Section 1291 interest. For details, see Form 8621.

Additional tax under section 197(f).   A corporation that elects to pay tax on the gain from the sale of an intangible under the related person exception to the anti-churning rules should include any additional tax due under section 197(f)(9)(B) in the total for line 3g. On the dotted line next to line 3g, write Section 197 and the amount. For more information, see Pub. 535, Business Expenses.

Line 4a-Foreign Tax Credit

To find out when a REIT can take the foreign tax credit for payment of income tax to a foreign country or U.S. possession, see Form 1118, Foreign Tax Credit-Corporations.

Line 4b

If the REIT can take either of the following credits, check the appropriate box(es) and include the amount of the credits in the total for line 4b.

Nonconventional source fuel credit.   A credit is allowed for the sale of qualified fuels produced from a nonconventional source. Section 29 contains a definition of qualified fuels, provisions for figuring the credit, and other special rules. Attach a separate schedule to the return showing the computation of the credit.

Qualified electric vehicle credit.   Use Form 8834, Qualified Electric Vehicle Credit, if the corporation can claim a credit for the purchase of a new qualified electric vehicle. Vehicles that qualify for this credit are not eligible for the deduction for clean-fuel vehicles under section 179A.

Line 4c-General Business Credit

Enter on line 4c the REIT's total general business credit.

If the REIT is filing Form 8844, Empowerment Zone and Renewal Community Employment Credit, or Form 8884, New York Liberty Zone Business Employee Credit, check the Form(s) box, write the form number in the space provided, and include the allowable credit on line 4c.

If the REIT is required to file Form 3800, General Business Credit, check the Form 3800 box and include the allowable credit on line 4c. If the REIT is not required to file Form 3800, check the Form(s) box, write the form number in the space provided, and include on line 4c the allowable credit from the applicable form listed below.

• Investment Credit (Form 3468).
• Work Opportunity Credit (Form 5884).
• Credit for Alcohol Used as Fuel (Form 6478).
• Credit for Increasing Research Activities (Form 6765).
• Low-Income Housing Credit (Form 8586).
• Orphan Drug Credit (Form 8820).
• Disabled Access Credit (Form 8826).
• Enhanced Oil Recovery Credit (Form 8830).
• Renewable Electricity Production Credit (Form 8835).
• Indian Employment Credit (Form 8845).
• Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips (Form 8846).
• Credit for Contributions to Selected Community Development Corporations (Form 8847).
• Welfare-to-Work Credit (Form 8861).
• New Markets Credit (Form 8874).
• Credit for Small Employer Pension Plan Startup Costs (Form 8881).
• Credit for Employer-Provided Child Care Facilities and Services (Form 8882).

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