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compensation may not be deductible.

deductions for expenses used to figure

cannot deduct compensation to a

This occurs when the corporation has an

the credit.

“covered employee” to the extent that the

•

agreement (golden parachute) with these

Employment credits. See Employment

compensation exceeds $1 million.

key employees to pay them these excess

credits below.

Generally, a covered employee is:

•

amounts if control of the corporation

Research credit.

The principal executive officer of the

•

changes. See section 280G and

Orphan drug credit (Form 8820).

corporation (or an individual acting in that

•

Regulations section 1.280G-1. Also see

Disabled access credit (Form 8826).

capacity) as of the end of the tax year or

•

the instructions for line 15.

Employer credit for social security and

An employee whose total

Medicare taxes paid on certain employee

compensation must be reported to

Business start-up and organizational

tips (Form 8846).

shareholders under the Securities

costs. For 2011, a corporation can elect

•

Credit for small employer pension plan

Exchange Act of 1934 because the

to deduct up to $5,000 of business

start-up costs (Form 8881).

employee is among the three highest

start-up and up to $5,000 of

•

Credit for employer-provided childcare

compensated officers for that tax year

organizational costs paid or incurred after

facilities and services (Form 8882).

(other than the principal executive officer).

October 22, 2004. Any remaining costs

•

Credit for small employer health

must be amortized ratably over a

For this purpose, compensation does

insurance premiums (Form 8941).

180-month period. The $5,000 deduction

not include the following.

•

is reduced by the amount the total

If the corporation has any of these

Income from certain employee trusts,

credits, figure the current year credit

annuity plans, or pensions.

organizational costs exceed $50,000. If

•

before figuring the deduction for

Any benefit paid to an employee that is

the total costs are $55,000 or more, the

expenses on which the credit is based. If

excluded from the employee’s income.

deduction is reduced to zero. See

the corporation capitalized any costs on

sections 195(b) and 248(a).

The deduction limit does not apply to:

which it figured the credit, it may need to

•

Time for making an election. The

Commissions based on individual

reduce the amount capitalized by the

corporation generally elects to deduct

performance,

credit attributable to these costs.

•

start-up or organizational costs by

Qualified performance-based

See the instructions for the form used

claiming the deduction on its income tax

compensation, and

•

to figure the applicable credit for more

return filed by the due date (including

Income payable under a written,

details.

extensions) for the tax year in which the

binding contract in effect on February 17,

active trade or business begins. However,

1993.

Limitations on deductions related to

for start-up or organizational costs paid or

property leased to tax-exempt entities.

The $1 million limit is reduced by

incurred before September 9, 2008, the

If a corporation leases property to a

amounts disallowed as excess parachute

corporation may be required to attach a

governmental or other tax-exempt entity,

payments under section 280G.

statement to its return to elect to deduct

the corporation cannot claim deductions

See section 162(m) and Regulations

those costs.

related to the property to the extent that

section 1.162-27. Also see Notice

they exceed the corporation’s income

If the corporation timely filed its return

2007-49, 2007-25 I.R.B. 1429.

from the lease payments. This disallowed

for the year without making an election, it

Limitations on tax benefits for

tax-exempt use loss can be carried over

can still make an election by filing an

executive compensation under the

to the next tax year and treated as a

amended return within 6 months of the

Treasury Troubled Asset Relief

deduction with respect to the property for

due date of the return (excluding

Program (TARP). The $1 million

that tax year. See section 470 for more

extensions). Clearly indicate the election

compensation limit is reduced to

details and exceptions.

on the amended return and write “Filed

$500,000 for executive remuneration and

pursuant to section 301.9100-2” at the top

Line 15. Compensation of officers.

deferred deduction executive

of the amended return. File the amended

Enter deductible officers’ compensation

remuneration paid to covered executives

return at the same address the

on line 15. See Employment credits on

by any entity that receives or has

corporation filed its original return. The

page 11 for a list of employment credits

received financial assistance under

election applies when figuring taxable

that may reduce your deduction for

TARP. The limit applies for each period in

income for the current tax year and all

officers’ compensation. Do not include

which obligations arising from financial

subsequent years.

compensation deductible elsewhere on

assistance under TARP remain

the return, such as elective contributions

The corporation can choose to forgo

outstanding. The $500,000 is reduced by

to a section 401(k) cash or deferred

the election by affirmatively electing to

any amounts disallowed as excess

arrangement, or amounts contributed

capitalize its start-up or organizational

parachute payments. See section

under a salary reduction SEP agreement

costs on its income tax return filed by the

162(m)(5) for definitions and other special

or a SIMPLE IRA plan.

due date (including extensions) for the tax

rules. Also see Notice 2008-94, 2008-44

year in which the active trade or business

Include only the deductible part of

I.R.B. 1070, for additional guidance.

begins.

each officer’s compensation on line 15.

In addition, a portion of any parachute

(See Disallowance of deduction for

payments made to a covered executive

Note. The election to either amortize or

employee compensation in excess of $1

by an applicable employer participating in

capitalize start-up costs is irrevocable and

million below). Attach a schedule for all

a Treasury troubled asset relief program

applies to all start-up costs that are

officers using the following columns:

is not deductible as compensation if the

related to the trade or business.

1. Name of officer.

payments are made because of a

Report the deductible amount of such

2. Social security number.

severance from employment during an

costs and any amortization on Schedule

3. Percentage of time devoted to

applicable tax year. For this purpose, a

A, line 31. For amortization that begins

business.

parachute payment is any payment to a

during the 2011 tax year, complete and

4. Amount of compensation.

senior executive officer for departure from

attach Form 4562, Depreciation and

a company for any reason, except for

Amortization.

The corporation determines who is an

payments for services performed or

officer under the laws of the state where it

For more details on business start-up

benefits accrued. These limits do not

is incorporated.

and organizational costs, see the

apply to a payment already treated as a

Instructions for 4562. Also see Pub. 535,

If a consolidated return is filed, each

parachute payment. See section 280G(e)

Business Expenses.

member of an affiliated group must

and Notice 2008-94.

furnish this information.

Reducing certain expenses for which

Line 16. Salaries and wages. Enter the

credits are allowable. If the corporation

Disallowance of deduction for

total salaries and wages paid for the tax

claims any of the following credits, it may

employee compensation in excess of

year. Do not include salaries and wages

need to reduce the otherwise allowable

$1 million. Publicly held corporations

deductible elsewhere on the return, such

-10-

Instructions for Form 1120-PC (2011)

Instructions For Form 1120-Pc - U.s. Property And Casualty Insurance Company Income Tax Return Page 10

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