Processing 1120 federal returns

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The following includes information about processing 1120 returns.

You can create multiple copies of the same input screen in UltraTax CS. When more than one input screen is used, we refer to each copy as a unit. Screen Sale, for example, is a multiple-unit input screen where you can use separate input screens for reporting each sale. The table below lists the UltraTax/1120 multiple-unit input screens and the maximum number of units available for each screen. These maximums are the number of units possible up to the per-return limit of 32,767 input screens.

For information about accessing multiple-unit input screens, see Multiple-unit input screens.

Multiple-unit screens Number of units
Screen 1098C, Contributions of Motor Vehicles, Boats, and Airplanes Unlimited
Screen 1118, Total Foreign Income, Loss and Taxes Paid Unlimited
Screen 1118CO, Foreign Tax Credit Carryover One screen per category of income
Screen 3115, Change in Accounting Method Unlimited
Screen 3115-8, Change in Depreciation or Amortization Unlimited
Screen 382, IRC 382 Net Operating Loss Unlimited
Screen 4562, Depreciation and Amortization Unlimited
Screen 4684, Casualty and Theft Losses Unlimited
Screen 4684PY, Prior Year Casualty and Theft Unlimited
Screen 4835, Farm Rental Unlimited
Screen 5471, Foreign Corporation Unlimited
Screen 5472-2, Foreign Related Party Transactions Unlimited
Screen 8082, Inconsistent Treatment or AAR Unlimited
Screen 8275, Disclosure Statements Unlimited
Screen 8283, Noncash Contributions of $5,000 or Less Unlimited
Screen 8283-2, Noncash Contributions Over $5,000 Unlimited
Screen 8594, Asset Acquisition Statement Unlimited
Screen 8609, Low-Income Housing Credit Allocation and Certification 250
Screen 8621, Passive Foreign Investment Company or Electing Fund Unlimited
Screen 8621-3, Distributions From Section 1291 Fund Unlimited
Screen 8697, Interest Computation Under Look-Back Method Unlimited
Screen 8816, Special Loss Discount and Special Estimated Tax Payments Unlimited
Screen 8824, Like-Kind Exchanges Unlimited
Screen 8824PT, Like-Kind Exchange of Section 179 Property Unlimited
Screen 8858, Foreign Disregarded Entities Unlimited
Screen 8869, Qualified Subchapter S Subsidiary Election Unlimited
Screen 8883, Asset Allocation Statement Unlimited
Screen 8886, Reportable Transaction Disclosure Statement Unlimited
Screen 8886-2, Reportable Transaction - Entities Involved in Transaction Unlimited
Screen 8910, Alternative Motor Vehicle Credit Unlimited
Screen 8911, Alternative Fuel Vehicle Refueling Property Credit Unlimited
Screen 8912, Credit to Holders of Tax Credit Bonds Unlimited
Screen 8925, Report of Employer-Owned Life Insurance Contracts Unlimited
Screen 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit Unlimited
Screen 8938-2, Statement of Specified Foreign Financial Assets, Page 2 Unlimited
Screen CODI, Deferral of COD Income Election Unlimited
Screen Ctrl-2, Additional Controlled Group Members Unlimited
Screen F, Farm Unlimited
Screen FrgnAcct, Foreign Financial Accounts - Forms 8938 and 114 (FBAR) Unlimited
Screen GBCCO, General Business Credit Carryover Unlimited
Screen GBCCO-OP, Credits from Cooperatives Unlimited
Screen InstPY, Prior Year Installment Sale 1,000*
Screen KFrgn, Foreign Transactions Unlimited
Screen K1, Form 1065 and 1041 Schedule K-1 Unlimited
Screen K1CODI, Cancellation of Debt Income From Pass-Through Entities Unlimited
Screen K1Frgn, Foreign Transactions From Pass-Through Entities Unlimited
Screen K1Sale, Sale of Section 179 Property From Pass-Through Entities Unlimited
Screen OGWell, Oil and Gas Well Information Unlimited
Screen Ponzi, Revenue Procedure 2009-20 (Ponzi) Unlimited
Screen PtrInt, Foreign Partner Interests Unlimited
Screen Rent, Rent and Royalty Properties Unlimited
Screen Sale, Sale of Business Property 1,000*
Screen SalePT, Sale of Section 179 Property 1,000
Screen TrnInc, Gross Transportation Income Unlimited
Screen UTP, Uncertain Tax Position Statement Unlimited
Screen UTPPY, Prior Year Uncertain Tax Position Statement Unlimited

* The combination of Screens Sale and InstPY can total no more than 1,000 per client.

The following states and municipalities are available for UltraTax/1120.

Alabama Alaska Arizona
Arkansas California California PPT
Colorado Connecticut Delaware
District of Columbia District of Columbia PPT Florida
Florida PPT Georgia Georgia PPT
Hawaii Idaho Illinois
Indiana Indiana PPT Iowa
Kansas Kentucky Kentucky Cities
Kentucky PPT Louisiana Maine
Maryland Maryland PPT Massachusetts
Michigan Michigan Cities Michigan PPT
Michigan MBT Minnesota Mississippi
Missouri Missouri Cities Montana
Nebraska Nebraska PPT New Hampshire
New Jersey New Mexico New York
New York City Nevada North Carolina
North Dakota Ohio Ohio Cities
Oklahoma Oregon Pennsylvania
Pennsylvania Cities Portland City / Multnomah County (OR) Puerto Rico
Puerto Rico Municipalities Rhode Island South Carolina
South Carolina PPT Tennessee Texas
Texas PPT Utah Vermont
Virginia Virginia PPT Wisconsin
Wisconsin PPT West Virginia

The following tax assumptions are built into UltraTax/1120.

Activity unit numbers are generally used to tie several input screens together. For instance, the information coded as 4562, Form F, Unit #1 is linked to Screen F, Unit #1.

Amortization is not included with the depreciation number on Page 1 of the return, but is included with other deductions. Amortization you enter in a business activity other than Page 1 is not included with amortization transferred to Page 1.

The following table details the source of the amounts in the first set of fields in the End of Year column in Screen L. UltraTax CS completes these fields if you enter asset information in the asset module. If there is no information in the asset module, the first fields are blank. (See Asset module overview for more information.)

Asset Source of amount in first field
Buildings and other depreciable assets The sum of the amounts entered in the Cost / Basis field of the asset module for all assets except those coded as Amortization, Units of Production, or Land in the Method field. The amounts coded as Memo in the Method field are also included when you mark the Include memo assets on balance sheet checkbox on the Other tab in the asset module.
Less accumulated depreciation The sum of the amounts entered in the Total Depreciation field of the asset module for all assets except those coded as Amortization, Units of Production, or Land in the Method field.
Depletable assets The sum of the amounts entered in the Cost / Basis field of the asset module for all assets coded Units of Production in the Method field.
Less accumulated depletion The sum of the amounts entered in the Total Depreciation field of the asset module for all assets coded Units of Production in the Method field.
Land (net of any amortization) The sum of the amounts entered in the Cost / Basis field less the amounts entered in the Total Depreciation field of the asset module for all assets coded Land in the Method field.
Intangible assets The sum of the amounts entered in the Cost / Basis field of the asset module for all assets coded Amortization in the Method field.
Less accumulated amortization The sum of the amounts entered in the Total Depreciation field in the asset module for all assets coded Amortization in the Method field.

UltraTax CS assumes that Schedule L, Balance Sheet for 1120 or 1120S is prepared on a book basis.

The following assumptions are made in the calculation of next year's tax.

  • A twelve-month business year.
  • Personal service corporation status requiring a 35-percent tax rate is the same as in the current year.

Section 1563(a) defines four types of controlled groups of corporations. In order for a corporation to be included in one of these controlled groups, the corporation must satisfy the stock ownership test for that type of group. Section 1563(b) describes which corporations are component members of a controlled group of corporations. A corporation is a component member if the corporation is not treated as an excluded member under section 1563(b)(2) and IRC Regulation 1.1563-1(b)(2)(ii).

An S Corporation is treated as an excluded member of a controlled group under IRC Regulation 1.1563-1(b)(2)(ii)(C). Therefore, an S Corporation is not a component member of a controlled group, and Schedule O - Consent Plan and Apportionment Schedule for a Controlled group, does not apply.

An S Corporation who is a member of a controlled group is not required to apportion the section 179 dollar limitations. Section 179(d)(6)(A) provides all component members of a controlled group are treated as one taxpayer when determining the limitations under section 179(b). Since an S Corporation is not a component member of a controlled group, section 179(d)(6)(A) does not apply. Therefore, an S Corporation may make a section 179 election up to the maximum election amount, even if the corporation is otherwise a member of a controlled group of corporations for purposes of section 1563(a).

For purposes of completing the Schedule O - Consent Plan and Apportionment Schedule for a Controlled Group, UltraTax CS assumes the total accumulated earnings credit of the group to be $250,000. If any component member of the group is a professional service corporation, you need to manually calculate each member's share of the accumulated earnings credit, up to a total of $150,000, and enter the amounts in Screens Ctrl and Ctrl-2.

If you enter information in Screen H in the Total exempt function income field, or in the Total expenditures made for purposes described in 90% expenditure test field, UltraTax CS automatically compares the tax before credits on Forms 1120 and 1120-H. The form that calculates the lowest tax before credits prints. To force either form to print instead of accepting the calculated result, select an option in the Force to print Form 1120 or 1120-H field in Screen H.

The information entered in UltraTax CS to calculate Form 4562 is assumed to be related to exempt function income and is not reported on Form 1120-H. If this is not the case, enter the amount related to non-exempt function income in the Depreciation field in Screen H.

The information entered in UltraTax CS to calculate Form 4797 and Schedule D is assumed to be related to non-exempt function income and is reported on Form 1120-H. To report a different amount for either, enter the amount (or zero) related to non-exempt function income in the appropriate force field in Screen H.

UltraTax CS uses the current client's data to calculate the Correct Amount column (column C) on Form 1120X. Therefore, enter only the amounts from the original return that are different from the client's current data in the appropriate fields in Screen Amend.

UltraTax CS assumes that all producers are small producers. Therefore, no disallowance of percentage depletion occurs with larger producers.

Two tests exist for Personal Service Corporations (PSCs). The broader category requires taxpayers to mark a checkbox on Page 1 of the return. The narrower definition requires a flat-tax calculation. Both PSC fields are in Screen 1120.

Per IRC 1368(c), UltraTax CS automatically limits Schedule M-2 distributions to the amount of the Accumulated Adjustment Account (AAA). If you want UltraTax CS to allow the distributions to reduce AAA to less than zero for the current client, enter 1 in the Allow distributions to reduce AAA below zero field in Screen Ms.

For all new and converted clients added to UltraTax CS, you can select the option to allow distributions to reduce AAA below zero in the Setup > 1120 Corporation > Federal tab > New Client Options dialog > Return Presentation tab.

When limiting nondividend distributions to AAA, the excess distributions are netted against the following balances in their respective order: Undistributed previously taxed income, Other adjustments account, and Retained Earnings - Unappropriated (up to the balance remaining after dividend distributions).

UltraTax CS transfers items entered in the Book expenses not deducted statement dialog for Schedule M-1 in Screen Ms to Schedule K, Nondeductible expenses, when code K is entered in the Sch K column. If Schedule M-3 is required, any adjustments you enter in the Nondeductible expenses field in Screen M3S-2 transfer to Schedule K, Nondeductible expenses.

The Shareholder's Distributive Share From Pass Through Entities Report prints information entered in Screens K1, K1-2, K1-3, K1-4, K1-5, and K1Frgn, adjusted for basis limitations, for an unlimited number of pass-through entities for which the S Corporation received a Schedule K-1 (Form 1065).

Per Rev. Rul. 2008-42, premiums paid by the S Corporation on an employer-owned life insurance contract that the corporation owns, and in which the corporation is a beneficiary, do not reduce the S Corporation's Accumulated Adjustment Account. Similarly, the life insurance proceeds received by an S Corporation on the death of an individual who was employed by the S Corporation within the last 12 months or who is a director or highly compensated employee, do not increase its Accumulated Adjustment Account.

Although the Revenue Ruling does not explain this reasoning, it would seem that even though no deduction is allowed for premiums paid on any life insurance policy where the taxpayer is directly or indirectly the beneficiary, the nondeductible expense does not reduce the S Corporation's Accumulated Adjustment Account because the expense is related to tax-exempt income.

Therefore, UltraTax CS assumes amounts entered in the Officer life insurance premiums field in Screen Ms should transfer to Schedule M-2, Other Adjustments Account - Other reductions. Also, amounts entered in the Cash surrender value-Officer life field in Screen Ms should transfer to Schedule M-2, Other Adjustments Account - Other additions.

If you want UltraTax CS to transfer amounts entered in the Officer life insurance premiums field to Schedule M-2, Accumulated Adjustments Account - Other reductions, enter code A in the Schedule M-2 code field. Also, if you want UltraTax CS to transfer amounts entered in the Cash surrender value-Officer life field to Schedule M-2, Accumulated Adjustments Account - Other additions, enter code A in the Schedule M-2 code field.

If you do not want UltraTax CS to automatically transfer these amounts to Schedule M-2, do not enter amounts in the Officer life insurance premiums and Cash surrender value-Officer life fields in Screen Ms. Instead, enter the amounts in the Book expenses not deducted and Income on books not on return statement dialogs in Screen Ms, respectively. Also, do not enter a Sch M-2 code for the amounts in the statement dialog.

UltraTax CS transfers items entered in the Income on books not on return statement dialog for Schedule M-1 in Screen Ms to Schedule K, Other tax-exempt income, when code K is entered in the Sch K column. If Schedule M-3 is required, any adjustments you enter in the Other tax-exempt income field in Screen M3S-2 will transfer to Schedule K, Other tax-exempt income.

No section 179 amount is included in the depreciation number on Page 1 of the return for S Corporations. The section 179 is separately stated on Schedule K for S Corporations.

Per the Form 4797 instructions, UltraTax CS does not complete Form 4797, 4684, or 8824 for S Corporations that dispose of property for which a section 179 expense deduction was previously taken. Instead, UltraTax CS separately states the dispositions in a worksheet attached to the shareholder's Schedule K-1.

UltraTax CS assumes that S Corporation total taxes for estimate and Form 2220 calculations include the current-year built-in gains tax, the prior-year excess net passive income tax entered in Screen Pen, and the current-year investment credit recapture tax.

UltraTax CS assumes that Schedule K, Tax-exempt interest income, is equal to Schedule M-1, Tax-exempt interest. If Schedule M-3 is required, UltraTax CS assumes that Schedule K, Tax-exempt interest income, is equal to Form 8916-A Tax exempt interest income per the Income statement.

Pass through losses reported on Schedule K-1 from a pass-through entity are subject to the following limitations in this order: (1) basis limitations, (2) at-risk limitations, and (3) passive-loss rules. Each limitation is needed to determine the allowable amount of loss for the next limitation.

UltraTax/1120 calculates and suspends losses based on basis information for both C and S Corporations, and calculates and suspends at-risk limitations and passive-loss rules for closely held C Corporations and personal service corporations.

UltraTax CS does not automatically transfer the following Schedule M-1 or M-3 book / tax differences to Schedule M-2:

  • Depreciation
  • Depletion (other than oil and gas)
  • Amortization
  • Organization, or start-up expense deduction
  • 4797 gain or loss
  • Tax accrual adjustment
  • Rounding adjustment

If you want UltraTax CS to include these adjustments in Schedule M-2 for S Corporations, enter code A, O, or R in the Carry book / tax difference to Schedule M-2 field in Screen Ms.

If you want UltraTax CS to transfer the Schedule M-1 differences to the same Schedule M-2 account for all S Corporation clients, clear the Carry book / tax differences to Schedule M-2 field, and select the desired account in the Setup > 1120 Corporation > Federal tab > Other Return Options dialog > Return Presentation tab.

UltraTax CS assumes that the client has 12 months in the tax year when calculating next year's estimates.

The following list outlines the capacities of UltraTax/1120.

  • Accommodates 1,000 installment sales and automatic depreciation recaptures for each client.
  • Handles multiples of the following: Contribution of Motor Vehicles, Boats, and Airplanes worksheet, Low-income housing credit properties; Rent and royalty properties; Section 179 Disposal Worksheet; Section 179 Like-Kind Exchange Worksheet; Section 382 NOL Carryover Worksheet for both regular tax and AMT; Schedule F; Schedule O and Forms 851, 1118, 1120-F Schedule P, Schedule UTP, 1120-F Schedule V, 1122, 2439, 3115, 4506, 4506-T, 4562, 4684, 4797, 4835, 5471, 5472, 5713 Schedule A, 5713 Schedule B, 6252, 8082, 8275, 8275-R, 8283, 843, 8594, 8609, 8609 Schedule A, 8611, 8621, 8697, 8816, 8824, 8825, 8833, 8858, 8869, 8873, 8883, 8886, 8910, 8912, 8936, 926, FinCEN 114, and T (Timber).
  • Transfers depreciation and amortization from Form 4562 to the relevant forms for all business activities.
  • Accommodates an unlimited number of tax preparers.
  • Handles dollar amounts less than $999,999,999,999.
  • Allows up to 32,767 input screens per return.
  • Handles up to 32,000 assets in the integrated asset module.
  • Dynamically allocates client data as needed to minimize disk space requirements.
  • Accommodates 30,000 active clients at the same time.
  • Allows up to 65,500 statements.
  • Accommodates up to 200 passive activities.
  • Allows up to 24 changes in shareholder ownership.
  • Allows up to 400 shareholders.

The following user tips pertain to using UltraTax/1120.

If you enter book depreciation in the asset module, these amounts transfer to the Depreciation fields in the Amounts from Asset Module column in Screens Mc and Ms. The total book depreciation from assets other than those entered in the Cost of Goods Sold asset module in the Income & Deductions folder will transfer to the Depreciation - other than cost of goods sold field in Screens Mc and Ms. The book depreciation from assets entered in the Cost of Goods Sold asset module will transfer to the Depreciation - cost of goods sold field. If you want UltraTax CS to use a value other than the one that appears in these fields, enter the desired value (or zero) in the Depreciation fields in the Force column in Screens Mc and Ms.

Note: If the Book column is not used in the asset module, data will not transfer to the Depreciation fields in the Amounts from Asset Module column in Screens Mc and Ms. UltraTax/1120 defaults book depreciation to be the same as tax depreciation.

If you enter book amortization in the asset module, that amount transfers to the Amortization field in the Amounts from Asset Module column in Screens Mc and Ms. If you want UltraTax CS to use a value other than the one that appears in this field, enter the desired value (or zero) in the Amortization field in the Force column in Screens Mc and Ms.

Note: If the Book column is not used in the asset module, data will not transfer to the Amortization field in the Amounts from Asset Module column in Screens Mc and Ms. UltraTax/1120 defaults book amortization to be the same as tax amortization.

If you enter a book 4797 gain or loss in the asset module, that amount transfers to the 4797 gain (loss) field in the Amounts from Asset Module column in Screens Mc and Ms. If you want UltraTax CS to use a value other than the one that appears in this field, enter the desired value (or zero) in the 4797 gain (loss) field in the Force column in Screens Mc and Ms.

Note: If the Book column is not used in the asset module, data will not transfer to the 4797 gain (loss) field in the Amounts from Asset Module column in Screens Mc and Ms. UltraTax/1120 defaults the book gain or loss on disposal of the asset to be the same as the tax gain or loss.

If you enter a book organization or start-up expense deduction in the asset module, that amount transfers to the Organization or start-up expense deduction field in the Amounts from Asset Module column in Screens Mc and Ms. If you want UltraTax CS to use a value other than the one that appears in this field, enter the desired value (or zero) in the Organization or start-up expense deduction field in the Force column in Screens Mc and Ms.

Note: If the Book column is not used in the asset module, data will not transfer to the Organization or start-up expense deduction field in the Amounts from Asset Module column in Screens Mc and Ms. UltraTax/1120 defaults book organization or start-up expense deductions to be the same as tax organization or start-up expense deductions.

If you enter book section 179 expense in the asset module, that amount transfers to the Section 179 expense field in the Amounts from Asset Module column in Screen Ms. If you want UltraTax CS to use a value other than the one that appears in this field, enter the desired value (or zero) in the Section 179 expense field in the Force column in Screen Ms.

Note: If the Book column is not used in the asset module, data will not transfer to the Section 179 expense field in the Amounts from Asset Module column in Screen Ms. UltraTax/1120 defaults book section 179 expense to be the same as tax section 179 expense.

For C Corporations, if all Depreciation fields in Screen Mc are blank, UltraTax CS defaults book depreciation to the total tax depreciation calculated for the tax return. Similarly, if tax depreciation (including section 179 expense) is not entered in Screen 4562, UltraTax CS defaults tax depreciation to the amounts entered in the Depreciation fields in Screen Mc.

UltraTax CS calculates a Schedule M-1 book / tax depreciation adjustment only if the depreciation - book values in Screen Mc are different from the tax depreciation and section 179 amounts entered in Screen 4562.

In summary, if all of the Depreciation fields are blank or if tax depreciation is not entered, UltraTax CS does not calculate a Schedule M-1 adjustment.

S Corporations only

For S Corporations, if all Depreciation fields in Screen Ms are blank, UltraTax CS defaults book depreciation to the total tax depreciation calculated for the tax return. Similarly, if tax depreciation (excluding section 179 expense) is not entered in Screen 4562, UltraTax CS defaults tax depreciation to the amounts entered in the Depreciation fields in Screen Ms.

UltraTax CS does default a blank Section 179 expense field in Screen Ms to the Schedule K section 179 tax amount. However, if section 179 expense is not entered in Screen 4562, UltraTax CS does not default tax 179 expense to the amount in the Section 179 expense field in Screen Ms.

UltraTax CS calculates a Schedule M-1 adjustment for the combined book / tax difference for regular depreciation and section 179. It compares the combined book amounts, including default values, to the combined tax amounts, and makes an adjustment for any difference.

UltraTax CS properly calculates next year's estimates for large corporations based on the amount entered in the Expected liability for next year if large corporation (C Corp) field in Screen Est.

If the client is not part of a controlled group, it is considered a large corporation if the client has taxable income (excluding NOL and capital loss carrybacks and carryovers) of $1,000,000 or more for any of the three tax years immediately preceding the current tax year. Enter the prior-year information in the Taxable income for the past three years (C Corp); 2016 (Force), 2015, and 2014 fields in Screen Est.

Note: If the Taxable income for the past three years (C Corp) 2016 (Force) field is blank, UltraTax CS defaults to the taxable income (excluding NOL and capital loss carrybacks and carryovers) determined by using the client's current data.

Per the form instructions, UltraTax CS automatically limits the net operating loss deduction on Form 1120, Page 1, to current-year taxable income after special deductions.

  • UltraTax CS allows you to allocate a portion of the Page 1 depreciation to Form 1125-A, Cost of Goods Sold. In Screen A, enter a percent in the Percentage field or enter an amount in the Amount field.
  • If you enter depreciation in Screen 4562,
    • UltraTax CS multiplies the percentage entered in the Percentage field by the depreciation coded for Page 1 in Screen 4562. The result is then added to any depreciation already coded in Screen 4562 for Cost of Goods Sold and is reflected on Form 1125-A as either Additional Section 263A costs or Other costs, depending on the option selected in the Type of cost field in Screen A.
    • UltraTax CS deducts the amount entered in the Amount field from any depreciation already coded in Screen 4562 for Page 1. It is then added to any depreciation already coded in Screen 4562 for Cost of Goods Sold and is reflected on Form 1125-A as either Additional Section 263A costs or Other costs, depending on the option selected in the Type of cost field in Screen A.

The data entered for compensation of officers is required to print only if total receipts are $500,000 or more. Mark the Complete Form 1125-E when receipts are less than $500,000 checkbox in the Setup > 1120 Corporation > Federal tab > Other Return Options > Return Presentation tab to force UltraTax CS to complete Form 1125-E, even if receipts are less than $500,000.

UltraTax CS does not calculate Schedule L unless total receipts for the tax year and the year-end total assets are equal to or greater than $250,000. If you want UltraTax CS to calculate Schedule L when receipts for the tax year and total year-end assets are less than $250,000, mark the Complete Schedule L when receipts and assets are less than $250,000 checkbox in the Setup > 1120 Corporation > Federal tab > Other Return Options > Return Presentation tab. This option applies to all 1120, 1120-C, and 1120S clients. Schedule L is always completed for 1120-F, 1120-IC-DISC, 1120-PC, 1120-REIT, and 1120-SF filers.

To set this option on a client-by-client basis, mark the Complete Schedule L when not required field in Screen L. This field is not available if you marked the respective setup screen checkbox.

UltraTax CS does not calculate Schedules M-1 and M-2 for C Corporations or Cooperative Associations and Schedule M-1 for S Corporations unless total receipts for the tax year and total assets at the end of the year are equal to or greater than $250,000. If you want UltraTax CS to calculate Schedules M-1 and M-2 when total receipts for the tax year and total year-end assets are less than $250,000, mark the Complete Schedule M-1 and C Corporation Schedule M-2 when receipts and assets are less than $250,000 checkbox in the Setup > 1120 Corporation > Federal tab > Other Return Options > Return Presentation tab. This option applies to all 1120, 1120-C, and 1120S clients; however, the threshold for 1120-F, 1120-PC, and 1120-REIT filers is $25,000.

To set this option on a client-by-client basis for C Corporations, mark the Complete Schedules M-1 and M-2 when not required field in Screen Mc; for S Corporations, mark the Complete Schedule M-1 when not required field in Screen Ms. These fields are not available if you marked the respective setup screen checkbox.

Note: S Corporations with accumulated E&P must maintain the accumulated adjustments account (AAA) to determine the tax effect of distributions made by the S Corporation. An S Corporation without accumulated E&P is not required to maintain the AAA, but Form 1120S instructions recommend that all S Corporations maintain the AAA. If the S Corporation is not required to maintain the AAA and you want to suppress the printing of the S Corporation Schedule M-2, mark the Suppress printing of Schedule M-2 field in Screen Ms in the Balance Sheet folder.

UltraTax CS automatically prints Schedule M-3 if the total assets at the end of the year equal or exceed $10 million. If the total assets are less than $50 million, the corporation is not required to file Schedule M-3, Schedule B (Form 1120), or Form 8916-A. If you want UltraTax CS to print Schedule M-1 in lieu of Schedule M-3 when total assets are less than $50 million, mark the Complete Schedule M-1 in lieu of Schedule M-3, Parts II and III… checkbox in the Setup > 1120 Corporation > Federal tab > Other Return Options > Return Presentation tab.

To set this option on a client-by-client basis, mark the Complete Schedule M-1 in lieu of Schedule M-3, Parts II and III field in Screen M3, M3S, or M3F in the Balance Sheet folder. These fields are not available if you marked the respective setup screen checkbox.

Per Regulation 1.179-2(c)(3)(ii), UltraTax CS defines section 179 business income for S Corporations as the sum of net ordinary income (loss), net other rental income (loss), net royalty income (loss), net section 1231 gain (loss), and shareholder employee wages.

UltraTax CS transfers the shareholder’s demographic information to the statement dialog for the Officer’s compensation field on Screen Inc when you mark the Shareholder is an officer checkbox in the View > Shareholder Information > Other tab. Enter the shareholder’s wages in this statement dialog. UltraTax CS includes the wages of the designated shareholders in the section 179 business income calculation. If not all the shareholders are officers of the S Corporation, enter the total shareholder employee wages in the Total shareholder employee wages (S Corp/Force) field in Screen OthAsset.

If the net income (loss) from rental real estate activities should be included in the 179 business income for the S Corporation, mark the Include net income or loss in calculation… field in Screen Rent or 4835.

To override the business taxable income amount, enter an amount in the Section 179: Business income limitation (Force) field in Screen OthAsset.

Items entered in Screen KSep in the Schedule K folder do not automatically transfer to the Shareholder Basis Worksheets. If you want UltraTax CS to include these amounts in the shareholder basis calculation, enter a code in the Basis fields in Screen KSep.

Schedule M-1 reconciles net income (loss) per books to Schedule K, Income (loss). The gain or loss on disposal of assets for which a section 179 expense was previously taken is not a part of the Schedule K, Income (loss) calculation. Per the Form 4797 instructions, S Corporations that dispose of property for which a section 179 expense deduction was previously passed through to the shareholder, should not complete Form 4797, 4684, 6252, or 8824 with respect to these types of dispositions. Instead, the disposals are separately stated in a worksheet attached to the shareholder's Schedule K-1. Therefore, even when book and tax depreciation are equal, UltraTax CS creates a Schedule M-1 adjustment equal to the amount of the book gain or loss on the disposal of the assets for which a section 179 expense deduction was previously taken. If you do not want this Schedule M-1 adjustment to appear, enter the amount of the gain or loss reported on the tax return in the 4797 gain (loss) field in Screen Ms and adjust the Net income per books field as necessary.

UltraTax CS automatically calculates and transfers several items to printed statements. To view these items prior to print time, press CTRL+F to switch to form view and then click the Stmts tab for either C or S Corporation and view the Forced Statement Items Worksheets.

UltraTax CS automatically transfers Schedule K income and Schedule M-1 tax-exempt interest income to Other additions on Schedule M-2. You do not have to manually enter this information in the statement dialogs. The items that are automatically transferred to Schedule M-2 are not visible in the data-entry statement dialogs for Schedule M-2 in Screen Ms, but the items are printed in the statement and are included in the amounts displayed on the forms. To view these items prior to print time, press CTRL+F to switch to form view. Click the Stmts folder and then click the P6 tab. The following table lists the items that are transferred to the AAA Other additions and OAA Other additions fields.

Items that transfer to AAA / OAA Other additions fields

AAA: Net Rental Real Estate Income (Loss) (if positive)
Other Net Rental Income (Loss) (if positive)
Interest Income
Dividend Income
Royalty Income
Short Term Capital Gain (Loss) (if positive)
Long Term Capital Gain (Loss) from Schedule K, line 8a (if positive)
Net Section 1231 Gain (Loss) (if positive)
Other Income (Loss) (if positive)
Gain on Sale of Section 179 Assets
Gain on Like-Kind Exchange of Section 179 Assets
OAA: Tax-exempt Interest
Officer Life Cash Surrender Value

If you entered Schedule M-1 adjustments in the statement dialog for the Income on books not on return or Return deductions not on books field, you can code the adjustments to transfer them to the Other additions statement dialogs in the Schedule M-2 section. To do this, press CTRL+E from the Income on books not on return or Return deductions not on books field to access either of the statement dialogs. Enter a code in the Sch M-2 field for each item you want transferred to Schedule M-2. The code tells UltraTax CS how to handle the adjustment. The following table lists the available codes and their destinations.

Code Destination of adjustment amount
D Does not transfer to Schedule M-2 (default)
A Transfers the amount to AAA Other additions
O Transfers the amount to OAA Other additions
R Transfers the amount to REU Other additions

The Carry book / tax difference to Schedule M-2 field is available in the Schedule M-1 section in Screen Ms for coding the book / tax differences for depreciation, depletion (other than oil and gas), amortization, organization or start-up expense deduction, 4797 gain or loss, tax accrual adjustment, and the Schedule M-1 rounding adjustment. If the book amount is less than the tax amount for these items, the difference goes to other additions for the account you specify.

If you want UltraTax CS to transfer the Schedule M-1 differences to the same Schedule M-2 account for all S Corporation clients, clear the Sch M-2 column in the Income on books not on return and Return deductions not on books statement dialogs, and select the desired account in the Setup > 1120 Corporation > Federal tab > Other Return Options dialog > Return Presentation tab.

The adjustments coded for UltraTax CS to transfer to Schedule M-2 are not visible in the Schedule M-2 data-entry statement dialogs, but they are printed on the Schedule M-2 statements and included in the amounts displayed on the form.

The type codes do not affect the printed Schedule M-1 statements.

UltraTax CS automatically transfers Schedule K losses and expense items, Schedule M-1 disallowed meals and entertainment, and employment credit wages to other reductions on Schedule M-2. You do not have to manually enter this information in the statement dialogs. The items that are automatically transferred to Schedule M-2 are not visible in the data-entry statement dialogs for Schedule M-2 in Screen Ms, but the items are printed in the statements and are included in the amounts displayed on the forms. To view these items prior to print time, press CTRL+F to switch to form view. Click the Stmts folder and then click the P7 tab. The following table lists the items that are transferred to the AAA Other reductions and OAA Other reductions fields.

Items that transfer to AAA / OAA Other reductions fields

AAA Net Rental Real Estate Income (Loss) (if negative)
Other Net Rental Income (Loss) (if negative)
Short Term Capital Gain (Loss) (if negative)
Long Term Capital Gain (Loss) from Schedule K, line 8a (if negative)
Net Section 1231 Gain (Loss) (if negative)
Other Income (Loss) (if negative)
Section 179 Deduction
Charitable Contributions
Investment Interest Expense
Section 59(e)(2) Expenditures
Other Deductions
Total Foreign Taxes
Oil / Gas Depletion
Disallowed Meals and Entertainment Expense
Employment Credit Wages
Conservation Expenses from Screens F and 4835
Employer Tip Credit Reduction
Research Credit
Capitalized Research Credit
Disabled Access Credit
Biofuel Producer Credit
Loss on Sale of Section 179 Assets
Biodiesel Fuel Credit
Tax Credit Bonds
Orphan Drug Credit
Capitalized Orphan Drug Credit
Employer Pension Plan Credit
Employer Childcare Credit
Employer Health Insurance Credit
Low Sulfur Diesel Fuel Credit
Energy Efficient Home Credit
Fines and Penalties
OAA Expenses attributable to tax-exempt income
Officer Life Insurance Premiums

If you entered Schedule M-1 adjustments in the statement dialog for the Taxable income not on books or Book expenses not deducted field, you can code these adjustments to transfer them to the Other reductions statement dialogs in the Schedule M-2 section. To do this, press CTRL+E from the Taxable income not on books or Book expenses not deducted field to access either of the statement dialogs. Enter a code in the Sch M-2 field for each item you want UltraTax CS to transfer to Schedule M-2. The code tells UltraTax CS how to handle the adjustment. The following table lists the available type codes and their destinations.

Code Destination of adjustment amount
D Does not transfer to Schedule M-2 (default)
A Transfers the amount to AAA Other reductions
O Transfers the amount to OAA Other reductions
R Transfers the amount to REU Other reductions

The Carry book / tax difference to Schedule M-2 field is available in the Schedule M-1 section in Screen Ms for coding the book / tax differences for depreciation, depletion (other than oil and gas), amortization, organization or start-up expense deduction, 4797 gain or loss, tax accrual adjustment, and the Schedule M-1 rounding adjustment. If the book amount is greater than the tax amount for these items, the difference goes to other reductions for the account you specify.

If you want UltraTax CS to transfer the Schedule M-1 differences to the same Schedule M-2 account for all S Corporation clients, clear the Sch M-2 column in the Taxable income not on books and Book expenses not deducted statement dialogs, and select the desired account in the Setup > 1120 Corporation > Federal tab > Other Return Options dialog > Return Presentation tab.

The adjustments coded for UltraTax CS to transfer to Schedule M-2 are not visible in the Schedule M-2 data-entry statement dialogs, but they are printed in the Schedule M-2 statements and included in the amounts displayed on the form.

The codes do not affect the printed Schedule M-1 statements.

You need to enter the beginning balances for Schedule L manually only when you enter data for a new client or when you use UltraTax CS to prepare returns for the first time. Thereafter, UltraTax CS proformas the prior year's tax data to automatically create the beginning balances. When you retrieve general ledger balances from your UltraTax CS integration with other applications, you may elect whether to obtain the Schedule L ending balances from the current or prior year's general ledger.

When you transfer general ledger balances from your CS Professional Suite accounting applications that integrate with UltraTax CS, transfer current-year balances if you have not yet closed out the client's fiscal year, and transfer prior-year balances if you have already closed out the client's fiscal year.

For 1120S clients: UltraTax CS automatically calculates the end-of-the-year retained earnings and transfers the earnings from Schedule M-2 to Schedule L. If you do not want UltraTax CS to complete this action, you should assign tax codes to the retained earnings accounts for use on Schedule L.

Inventory account balance

Normally, UltraTax CS transfers an account balance to one location in UltraTax CS. However, the inventory account balance is an exception; this balance may be transferred to two locations in UltraTax CS. If you assign the Form 1125-A tax code number to the inventory account, the balance is transferred to both Form 1125-A and the Schedule L balance sheet. If you want UltraTax CS to transfer the inventory balance to Schedule L only and not to Form 1125-A, assign the Schedule L tax code number to the inventory account.

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