Instructions for Form 1120-S, U.S. Income Tax Return for an S Corporation Revision Date 01/20/2022

• Issuer: Treasury Department
• Section: Treasury Department

Userid: CPM Schema: instrx Leadpct: 100% Pt. size: 9 Draft Ok to Print

AH XSL/XML Fileid: … ons/i1120s/2023/a/xml/cycle05/source (Init. & Date) _______

Page 1 of 55 10:19 - 17-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2023

Instructions for Form 1120-S

U.S. Income Tax Return for an S Corporation

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code unless

otherwise noted.

Contents Page

What’s New ............................... 1

Photographs of Missing Children ................ 2

The Taxpayer Advocate Service ................. 2

Direct Deposit of Refund ...................... 2

How To Get Forms and Publications .............. 2

General Instructions ......................... 2

Purpose of Form ......................... 2

How To Make the Election .................. 2

Who Must File .......................... 2

Termination of Election .................... 2

Electronic Filing ......................... 3

When To File ........................... 3

Where To File ........................... 4

Who Must Sign .......................... 3

Paid Preparer Authorization ................. 3

Assembling the Return .................... 4

Tax Payments ........................... 4

Electronic Deposit Requirement .............. 4

Estimated Tax Payments ................... 5

Interest and Penalties ..................... 5

Accounting Methods ...................... 6

Accounting Period ....................... 6

Rounding Off to Whole Dollars ............... 6

Recordkeeping .......................... 6

Amended Return ........................ 6

Other Forms and Statements That May Be

Required ............................ 7

At-Risk Limitations ....................... 8

Passive Activity Limitations ................. 8

Net Investment Income Tax Reporting

Requirements ........................ 13

Specific Instructions ........................ 13

Income .............................. 14

Deductions ........................... 16

Tax and Payments ...................... 21

Schedule B. Other Information .............. 22

Schedules K and K-1 (General Instructions) .... 24

Specific Instructions (Schedule K-1 Only) ...... 25

Part I. Information About the Corporation ...... 25

Part II. Information About the Shareholder ...... 25

Specific Instructions (Schedules K and K-1,

Part III) ............................. 26

Schedule L. Balance Sheets per Books ....... 47

Schedule M-1. Reconciliation of Income

(Loss) per Books With Income (Loss) per

Return ............................. 48

Contents Page

Schedule M-2. Analysis of AAA, PTEP,

Accumulated E&P, and OAA ............. 48

Principal Business Activity Codes .............. 52

Index ................................... 55

Future Developments

For the latest information about developments related to Form

1120-S and its instructions, such as legislation enacted after

they were published, go to IRS.gov/Form1120S.

What’s New

Electronically filed returns. The electronic filing threshold for

corporate returns required to be filed on or after January 1, 2024,

has decreased to 10 or more returns. See Electronic Filing, later.

Increase in penalty for failure to file. For tax returns required

to be filed in 2024, the minimum penalty for failure to file a return

that is more than 60 days late has increased to the smaller of the

tax due or $485. See Late filing of return, later.

Deduction for certain energy efficient commercial building

property. For tax years beginning in 2023, corporations filing

Form 1120-S and claiming the energy efficient commercial

buildings deduction should report the deduction on line 19. See

the instructions for line 19.

Expiration of 100% business meal expense deduction. The

temporary 100% business meal expense deduction for food and

beverages provided by a restaurant does not apply to amounts

paid or incurred after 2022.

Elective payment election. Applicable entities and electing

taxpayers can elect to treat certain credits as elective payments.

See the instructions for line 24d and the Instructions for Form

3800.

Digital assets. Digital assets are required to be reported. See

new question 16 on Schedule B, later.

Schedules K and K-1 reporting codes. Separate reporting

codes are assigned to items grouped under code H for Other

income (loss), code S for Other deductions, code P for Other

credits, and code AD for Other information in prior years. See the

List of Codes in the Shareholder's Instructions for Schedule K-1

(Form 1120-S).

The following new reporting credit codes are added to

line 13g.

•Code A. Zero-emission nuclear power production credit.

•Code B. Production from advanced nuclear power facilities

credit.

•Code AG. Credit for military spouse participation.

•Code AX. Carbon oxide sequestration credit recapture.

•Code AY. New clean vehicle credit.

•Code BC. Eligible credits from transferor(s) under section

6418.

Reminder

Election by a small business corporation. Don't file Form

1120-S unless the corporation has filed or is attaching Form

Jan 17, 2024 Cat. No. 11515K

Page 2 of 55 Fileid: … ons/i1120s/2023/a/xml/cycle05/source 10:19 - 17-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2553, Election by a Small Business Corporation. For details, see

the Instructions for Form 2553.

Photographs of

Missing Children

The Internal Revenue Service is a proud partner with the

National Center for Missing & Exploited Children® (NCMEC).

Photographs of missing children selected by the Center may

appear in instructions on pages that would otherwise be blank.

You can help bring these children home by looking at the

photographs and calling 1-800-THE-LOST (1-800-843-5678) if

you recognize a child.

The Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent

organization within the IRS that helps taxpayers and protects

taxpayer rights. TAS strives to ensure that every taxpayer is

treated fairly and knows and understands their rights under the

Taxpayer Bill of Rights.

As a taxpayer, the corporation has rights that the IRS must

abide by in its dealings with the corporation. TAS can help the

corporation if:

•A problem is causing financial difficulty for the business;

•The business is facing an immediate threat of adverse action;

or

•The corporation has tried repeatedly to contact the IRS but no

one has responded, or the IRS hasn't responded by the date

promised.

TAS has offices in every state, the District of Columbia, and

Puerto Rico. Local advocates' numbers are in their local

directories and at TaxpayerAdvocate.IRS.gov. The corporation

can also call TAS at 877-777-4778.

TAS also works to resolve large-scale or systemic problems

that affect many taxpayers. If the corporation knows of one of

these broad issues, please report it to TAS through the Systemic

Advocacy Management System at IRS.gov/SAMS.

For more information, go to IRS.gov/Advocate.

Direct Deposit of Refund

To request a direct deposit of the corporation's income tax refund

into an account at a U.S. bank or other financial institution, attach

Form 8050, Direct Deposit of Corporate Tax Refund. See the

instructions for line 28.

How To Get Forms and Publications

Internet. You can access the IRS website 24 hours a day, 7

days a week, at IRS.gov to:

•Download forms, instructions, and publications;

•Order IRS products online;

•Research your tax questions online;

•Search publications online by topic or keyword;

•View Internal Revenue Bulletins (IRBs) published in recent

years; and

•Sign up to receive local and national tax news by email.

Tax forms and publications. The corporation can view, print,

or download all of the forms and publications it may need on

IRS.gov/FormsPubs. Otherwise, the corporation can go to

IRS.gov/OrderForms to place an order and have forms mailed to

it.

General Instructions

Purpose of Form

Use Form 1120-S to report the income, gains, losses,

deductions, credits, and other information of a domestic

corporation or other entity for any tax year covered by an election

to be an S corporation.

How To Make the Election

For details about the election, see Form 2553, Election by a

Small Business Corporation, and the Instructions for Form 2553.

Who Must File

A corporation or other entity must file Form 1120-S if (a) it

elected to be an S corporation by filing Form 2553, (b) the IRS

accepted the election, and (c) the election remains in effect.

After filing Form 2553, you should have received confirmation

that Form 2553 was accepted. If you didn't receive notification of

acceptance or nonacceptance of the election within 2 months of

filing Form 2553 (5 months if you checked box Q1 to ask for a

letter ruling), please follow up by calling 800-829-4933. Don't file

Form 1120-S for any tax year before the year the election takes

effect.

Relief for late elections. If you haven't filed Form 2553, or

didn't file Form 2553 on time, you may be entitled to relief for a

late-filed election to be an S corporation. See the Instructions for

Form 2553 for details.

Termination of Election

Once the election is made, it stays in effect until it is terminated.

If the election is terminated, the corporation (or a successor

corporation) can make another election on Form 2553 only with

IRS consent for any tax year before the fifth tax year after the first

tax year in which the termination took effect. See Regulations

section 1.1362-5 for details.

An election terminates automatically in any of the following

cases.

1. The corporation is no longer a small business corporation

as defined in section 1361(b). This kind of termination of an

election is effective as of the day the corporation no longer

meets the definition of a small business corporation. Attach to

Form 1120-S for the final year of the S corporation a statement

notifying the IRS of the termination and the date it occurred.

2. For each of 3 consecutive tax years, the corporation (a)

has accumulated earnings and profits (AE&P), and (b) derives

more than 25% of its gross receipts from passive investment

income as defined in section 1362(d)(3)(C). The election

terminates on the first day of the 1st tax year beginning after the

3rd consecutive tax year. The corporation must pay a tax for

each year it has excess net passive income. See the line 23a

instructions for details on how to figure the tax.

3. The election is revoked. An election can be revoked only

with the consent of shareholders who, at the time the revocation

is made, hold more than 50% of the number of issued and

outstanding shares of stock (including nonvoting stock). The

revocation can specify an effective revocation date that is on or

after the day the revocation is filed. If no date is specified, the

revocation is effective at the start of the tax year if the revocation

is made on or before the 15th day of the 3rd month of that tax

year. If no date is specified and the revocation is made after the

15th day of the 3rd month of the tax year, the revocation is

effective at the start of the next tax year.

To revoke the election, the corporation must file a statement

with the appropriate service center listed under Where To File in

the Instructions for Form 2553. In the statement, the corporation

must notify the IRS that it is revoking its election to be an S

corporation. The statement must be signed by each shareholder

who consents to the revocation and contain the information

required by Regulations section 1.1362-6(a)(3).

A revocation can be rescinded before it takes effect. See

Regulations section 1.1362-6(a)(4) for details.

2Instructions for Form 1120-S (2023)

Page 3 of 55 Fileid: … ons/i1120s/2023/a/xml/cycle05/source 10:19 - 17-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

For rules on allocating income and deductions between an S

corporation's short year and a C corporation's short year and

other special rules that apply when an election is terminated, see

section 1362(e) and Regulations section 1.1362-3.

If an election was terminated under (1) or (2) above and the

corporation believes the termination was inadvertent, the

corporation can ask for permission from the IRS to continue to

be treated as an S corporation. See Regulations section

1.1362-4 for the specific requirements that must be met to

qualify for inadvertent termination relief.

Electronic Filing

S corporations can generally electronically file (e-file) Form

1120-S, related forms, schedules, statements, and attachments;

Form 7004 (automatic extension of time to file); and Forms 940,

941, and 944 (employment tax returns). Form 1099 and other

information returns can also be electronically filed. The option to

e-file doesn't, however, apply to certain returns.

For returns filed on or after January 1, 2024, S corporations

that file 10 or more returns are required to e-file Form 1120-S.

See Regulations section 301.6037-2. However, these

corporations can request a waiver of the electronic filing

requirements.

For more information on e-filing, see E-file for Business and

Self Employed Taxpayers on IRS.gov.

Exclusions From Electronic Filing Requirement

Waivers. The IRS may waive the electronic filing rules if the S

corporation demonstrates that a hardship would result if it were

required to file its return electronically. A corporation interested in

requesting a waiver of the mandatory electronic filing

requirement must file a written request, and request one in the

manner prescribed by the IRS. All written requests for waivers

should be mailed to:

Internal Revenue Service

Ogden Submission Processing Center

Attn: Form 1120 e-file Waiver Request

Mail Stop 1057

Ogden, UT 84201

If using a delivery service, requests for waivers should be

mailed to:

Internal Revenue Service

Ogden Submission Processing Center

Attn: Form 1120 e-file Waiver Request

Mail Stop 1057

1973 N. Rulon White Blvd.

Ogden, UT 84404

Waiver requests can also be faxed to 877-477-0575. Contact

the e-Help Desk at 866-255-0654 for questions regarding the

waiver procedures or process.

Exemptions. The IRS may provide exemptions from the

requirements to electronically file. If using the technology

required to electronically file conflicts with religious beliefs, the

corporation is exempt from the requirement. Clearly indicate the

exemption on the corporation’s return. Write “Religious

Exemption” at the top of the Form 1120-S. File the return at the

applicable IRS address. See Where To File, later. For more

information, see Notice 2024-18.

When To File

Generally, an S corporation must file Form 1120-S by the 15th

day of the 3rd month after the end of its tax year. For calendar

year corporations, the due date is March 15, 2024. A corporation

that has dissolved must generally file by the 15th day of the 3rd

month after the date it dissolved.

If the due date falls on a Saturday, Sunday, or legal holiday,

the corporation can file on the next day that isn’t a Saturday,

Sunday, or legal holiday.

If the S corporation election was terminated during the tax

year and the corporation reverts to a C corporation, file Form

1120-S for the S corporation's short year by the due date

(including extensions) of the C corporation's short year return.

Private Delivery Services

Corporations can use certain private delivery services (PDS)

designated by the IRS to meet the “timely mailing as timely filing”

rule for tax returns. Go to IRS.gov/PDS for the current list of

designated services.

The PDS can tell you how to get written proof of the mailing

date.

For the IRS mailing address to use if you are using a PDS, go

to IRS.gov/PDSStreetAddresses.

Private delivery services can't deliver items to P.O.

boxes. You must use the U.S. Postal Service to mail any

item to an IRS P.O. box address.

Extension of Time To File

File Form 7004, Application for Automatic Extension of Time To

File Certain Business Income Tax, Information, and Other

Returns, to ask for an extension of time to file. Generally, the

corporation must file Form 7004 by the regular due date of the

return. See the Instructions for Form 7004.

Who Must Sign

The return must be signed and dated by:

•The president, vice president, treasurer, assistant treasurer,

chief accounting officer; or

•Any other corporate officer (such as tax officer) authorized to

sign.

If a return is filed on behalf of a corporation by a receiver,

trustee, or assignee, the fiduciary must sign the return instead of

the corporate officer. Returns and forms signed by a receiver or

trustee in bankruptcy on behalf of a corporation must be

accompanied by a copy of the order or instructions of the court

authorizing signing of the return or form.

If an employee of the corporation completes Form 1120-S,

the paid preparer space should remain blank. Anyone who

prepares Form 1120-S but doesn't charge the corporation

shouldn't complete that section. Generally, anyone who is paid to

prepare the return must sign it and fill in the “Paid Preparer Use

Only” area.

The paid preparer must complete the required preparer

information and:

•Sign the return in the space provided for the preparer's

signature,

•Include their Preparer Tax Identification Number (PTIN), and

•Give a copy of the return to the taxpayer.

A paid preparer may sign original or amended returns by

rubber stamp, mechanical device, or computer software

program.

Paid Preparer Authorization

If the corporation wants to allow the IRS to discuss its 2023 tax

return with the paid preparer who signed it, check the “Yes” box

in the signature area of the return. This authorization applies only

to the individual whose signature appears in the “Paid Preparer

CAUTION

!

TIP

Instructions for Form 1120-S (2023) 3