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deferred arrangement, or amounts

The RIC may have an inclusion amount

Interest and carrying charges on

contributed under a salary reduction SEP

if:

straddles. Generally, these amounts must

agreement or a SIMPLE IRA plan.

be capitalized. See section 263(g).

And the

Include only the deductible part of

Special rules apply to:

•

vehicle’s

officers’ compensation on Schedule E.

Interest on which no tax is imposed (see

FMV on the

Complete Schedule E, columns (a) through

section 163(j)).

first day of

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(e), for all officers. The RIC determines who

Original issue discount on certain

the lease

is an officer under the laws of the state

high-yield discount obligations (see section

The lease term began:

exceeded:

where incorporated.

163(e)(5)(c) to figure the disqualified

After 12/31/04 but before 1/1/06 . . .

$15,200

portion).

Disallowance of deduction for

employee compensation in excess of $1

Line 14. Depreciation. Include on line 14

After 12/31/03 but before 1/1/05 . . .

$17,500

million. Publicly held corporations may not

the part of the cost that the RIC elected to

After 12/31/02 but before 1/1/04 . . .

$18,000

deduct compensation to a “covered

expense under section 179 for certain

After 12/31/98 but before 1/1/03 . . .

$15,500

employee” to the extent that the

property placed in service during tax year

If the lease term began before January 1, 1999, see Pub.

compensation exceeds $1 million.

463, Travel, Entertainment, Gift, and Car Expenses, to

2005 or carried over from 2004. See Form

find out if the RIC has an inclusion amount. The inclusion

Generally, a covered employee is:

4562 and its instructions to figure the

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amount for lease terms beginning in 2006 will be

The chief executive officer of the RIC (or

amount of depreciation to enter on this line.

published in the Internal Revenue Bulletin in early 2006.

an individual acting in that capacity) as of

Line 22. Other Deductions

the end of the tax year; or

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Penalties or fines paid to any

An employee whose total compensation

See Pub. 463 for instructions on figuring

government agency or

must be reported to shareholders under the

the inclusion amount.

instrumentality because of a violation

Securities Exchange Act of 1934 because

CAUTION

Line 12. Taxes and Licenses. Enter taxes

of a law are not deductible. See Chapter 13,

the employee is among the four highest

paid or accrued during the tax year, but do

Other Expenses, in Publication 535 for

compensated officers for that tax year (other

not include the following:

additional information.

than the chief executive officer).

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Federal income taxes (except for the tax

Attach a schedule, listing by type and

For this purpose, compensation does not

imposed on net recognized built-in gain

amount, all allowable deductions that are

include:

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allocable to ordinary income).

not specifically deductible elsewhere on the

Income from certain employee trusts,

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Foreign or U.S. possession income taxes

return. Generally, a deduction may not be

annuity plans, or pensions.

•

if a foreign tax credit is claimed, or if the RIC

taken for any amount that is allocable to

Any benefit paid to an employee that is

made an election under section 853.

tax-exempt income. See section 265(b) for

excluded from the employee’s income.

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Excise taxes imposed under section 4982

exceptions.

The deduction limit does not apply to:

on undistributed RIC income.

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Examples of other deductions include:

Commissions based on individual

Taxes not imposed on the RIC.

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Amortization. See Form 4562.

performance;

Taxes, including state or local sales

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Certain business start-up and

Qualified performance-based

taxes, that are paid or incurred in connection

organizational costs that the RIC elects to

compensation; and

with an acquisition or disposition of property

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amortize or deduct.

Income payable under a written, binding

(these taxes must be treated as a part of the

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Reforestation costs. The RIC can elect to

contract in effect on February 17, 1993.

cost of the acquired property or, in the case

deduct up to $10,000 of qualified

The $1-million limit is reduced by

of a disposition, as a reduction in the

reforestation expenses paid or incurred for

amounts disallowed as excess parachute

amount realized on the disposition).

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each qualifying timber property. The RIC

payments under section 280G. For details,

Taxes assessed against local benefits

can elect to amortize over 84 months any

see section 162(m) and Regulations section

that increase the value of the property

amount not deducted.

1.162-27.

assessed (such as for paving, etc.).

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Supplies used and consumed in the

Taxes deducted elsewhere on the return.

Line 10. Salaries and Wages. Enter the

business.

amount of salaries and wages paid for the

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See section 164(d) for apportionment of

Utilities.

tax year, reduced by the amount claimed on:

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taxes on real property between seller and

Ordinary losses from trade or business

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Form 5884, Work opportunity credit,

purchaser.

activities of a partnership (from Schedule

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Form 5884-A, Credits for Employers

K-1 (Form 1065 or 1065-B)). Do not offset

Affected by Hurricane Katrina, Rita, or

Line 13. Interest

ordinary income against ordinary losses.

Wilma,

Instead, include the income on line 7. Show

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Interest expense cannot be used to

Form 8844, Empowerment zone and

the partnership’s name, address, and EIN

offset interest income.

renewal community employment credit,

on a separate statement attached to this

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Form 8845, Indian employment credit,

CAUTION

return. If the amount is from more than one

and

partnership, identify the amount from each

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The deduction for interest is limited when

Form 8861, Welfare-to-work credit.

partnership.

the RIC is a policyholder or beneficiary with

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See the instructions for these forms for

Deduction for clean-fuel vehicle and

respect to a life insurance, endowment, or

more information. Do not include salaries

certain refueling property placed in service

annuity contract issued after June 8, 1997.

and wages deductible elsewhere on the

before January 1, 2006. See Pub. 535.

For details, see section 264(f). Attach a

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return, such as elective contributions to a

Any extraterritorial income exclusion (from

statement showing the computation of the

section 401(k) cash or deferred

Form 8873, line 54).

deduction.

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arrangement, or amounts contributed under

Any net negative section 481(a)

a salary reduction SEP agreement or a

The RIC must make an interest allocation

adjustment.

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SIMPLE IRA plan.

if the proceeds of a loan were used for more

Energy efficient commercial building

than one purpose (for example, to purchase

deduction for certain property placed in

If the RIC provided taxable fringe

a portfolio investment and to acquire an

service after December 31, 2005. See

benefits to its employees, such as

interest in a passive activity). See

section 179D.

personal use of a car, do not deduct

CAUTION

Temporary Regulations section 1.163-8T for

Charitable contributions. Enter

as wages any amounts deducted elsewhere.

the interest allocation rules.

contributions or gifts actually paid within the

Line 11. Rents. If the RIC rented or leased

tax year to or for the use of charitable and

a vehicle, enter the total annual rent or lease

The following interest is not deductible:

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governmental organizations described in

expense paid or incurred during the year.

Interest on indebtedness incurred or

section 170(c) and any unused contributions

Also, complete Part V of Form 4562,

continued to purchase or carry obligations if

carried over from prior years.

Depreciation and Amortization. If the RIC

the interest is wholly exempt from income

leased a vehicle for a term of 30 days or

tax. For exceptions, see section 265(b).

RICs reporting taxable income on the

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more, the deduction for the vehicle lease

For cash basis taxpayers, prepaid interest

accrual method may elect to treat as paid

expense may have to be reduced by an

allocable to years following the current tax

during the tax year any contributions paid by

amount called the inclusion amount.

year.

the 15th day of the 3rd month after the end

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Instructions For Form 1120-Ric - U.s. Income Tax Return For Regulated Investment Companies - 2005 Page 7

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