Instructions for Form 8810, Corporate Passive Activity Loss and Credit Limitations

• Legal Form Number: 8810
• Year: 2024
• Issuer: Treasury Department
• Section: Treasury Department

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2023

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Department of the Treasury

Internal Revenue Service

Section references are to the Internal

Revenue Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Form 8810 and

its instructions, such as legislation

enacted after they were published, go to

IRS.gov/Form8810.

General Instructions

Purpose of Form

Personal service corporations and closely

held corporations use Form 8810 to figure

the amount of any passive activity loss

(PAL) or credit for the current tax year and

the amount of losses and credits from

passive activities allowed on the

corporation's tax return. Form 8810 is also

used to make the election to increase the

basis of credit property when the

corporation disposes of its interest in an

activity for which it has an unused credit.

Generally, passive activities include

trade or business activities in which the

corporation did not materially participate

for the tax year, and rental activities

regardless of its participation.

Note. Individuals subject to the passive

activity rules use Form 8582, Passive

Activity Loss Limitations.

Who Must File

Personal service corporations and closely

held corporations that have losses or

credits (including prior year unallowed

losses and credits) from passive activities

must file Form 8810.

Passive activity loss (PAL). A personal

service corporation has a PAL for the year

if the total losses (including prior year

unallowed losses) from its passive

activities exceed the total income from its

passive activities. A closely held

corporation has a PAL for the year if the

total losses (including prior year unallowed

losses) from all its passive activities

exceed the sum of the total income from

all its passive activities and its net active

income.

Passive activity credit. A personal

service corporation has a passive activity

credit for the year if its credits from passive

activities (including prior year unallowed

credits) exceed the tax attributable to net

passive income. A closely held

corporation has a passive activity credit for

the year if its credits from passive activities

(including prior year unallowed credits)

exceed the sum of the tax attributable to

net passive income and the tax

attributable to net active income.

For more information, see Pub. 925,

Passive Activity and At-Risk Rules.

Definitions

Except as otherwise indicated, the

following terms are defined below.

Personal service corporation. A

personal service corporation is a

corporation whose principal activity for the

testing period (defined below) for the tax

year is the performance of personal

services. The services must be

substantially performed by

employee-owners. Employee-owners must

own more than 10% of the fair market

value (FMV) of the corporation's

outstanding stock on the last day of the

testing period.

Testing period. Generally, the testing

period for a tax year is the prior tax year.

The testing period for a new corporation

starts with the first day of its first tax year

and ends on the earlier of:

•The last day of its first tax year, or

•The last day of the calendar year in

which the first tax year began.

Principal activity. The principal

activity of a corporation is considered to

be the performance of personal services if,

during the testing period, the corporation's

compensation costs for the performance

of personal services are more than 50% of

its total compensation costs.

Performance of personal services.

Personal services are those performed in

the health, law, engineering, architecture,

accounting, actuarial science, performing

arts, or consulting field (as defined in

Temporary Regulations section

1.448-1T(e)). The term “performance of

personal services” includes any activity

involving the performance of personal

services in these areas.

Substantial performance by

employee-owners. Personal services

are substantially performed by

employee-owners if, for the testing period,

more than 20% of the corporation's

compensation costs for the performance

of personal services are for services

performed by employee-owners.

Employee-owner. A person is

considered to be an employee-owner if the

person is an employee of the corporation

on any day of the testing period, and owns

any outstanding stock of the corporation

on any day of the testing period. Stock

ownership is determined under the

attribution rules of section 318, except that

“any” is substituted for “50 percent or more

in value” in section 318(a)(2)(C).

Closely held corporation. A corporation

is a closely held corporation if at any time

during the last half of the tax year more

than 50% in value of its outstanding stock

is directly or indirectly owned by or for not

more than five individuals, and the

corporation is not a personal service

corporation.

Certain organizations are treated as

individuals for this test (see section

542(a)). For rules of determining stock

ownership, see section 544 (as modified

by section 465(a)(3)).

Other Passive Activity Terms

Some additional terms are defined below.

Net income. The excess of current year

income over current year deductions from

the activity. This includes any current year

gains or losses from the disposition of

assets or an interest in the activity.

Net loss. The excess of current year

deductions over current year income from

the activity. This includes any current year

gains or losses from the disposition of

assets or an interest in the activity.

Overall gain. The excess of the net

income from the activity over the prior year

unallowed losses from the activity.

Overall loss. The excess of the prior year

unallowed losses from the activity over the

net income from the activity or the prior

year unallowed losses from the activity

plus the net loss from the activity.

Prior year unallowed losses. The

deductions and losses from an activity that

were disallowed under the PAL limitations

in a prior year and carried forward to the

tax year under section 469(b). See

Regulations section 1.469-1(f)(4).

Coordination With Other

Limitations

Generally, items of deduction or loss from

a passive activity are subject to other

limitations before they are subject to the

PAL limitations. Once a deduction or loss

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