Section 5 Explanation of Terms

263

his section denes the terms used in the tables, including

adjustments made in preparing the statistics and limita-

tions in the data. Explanations are designed to aid the user

with interpreting the report’s statistical content and should

not be construed as interpretations of the Internal Revenue

Code or policies of the Internal Revenue Service. Code sec-

tions cited are those in effect for the tax years covered in this

report. The tax year refers to the calendar year, unless other-

wise stated. The line references given for the terms correspond

to Form 1120, U.S. Corporation Income Tax Return, unless

otherwise indicated. In most tables, items taken from other

forms (1120-L, 1120-F, etc.) and attached schedules conform to

Form 1120 format. Although many standardizing adjustments

were made, the data presented are unaudited as reported by

taxpayers and are, therefore, subject to taxpayer errors and

misinterpretations, as well as statistical variability and any

errors that may have arisen during processing. (See “Data

Limitations and Measures of Variability,” page 13 in Section

3.) Denitions marked with the symbol Δ have been revised

for 2013 to reect changes in the law.

Accounting Periods

In some tables, the data were classied according to the ending

dates of the accounting periods covered by the corporations’

returns. Returns were generally led covering an annual ac-

counting period; most larger corporations led returns for ac-

counting periods ending in December (a calendar year period).

Some corporations led “part-year returns,” which have a

shorter accounting period (less than 1 year). Corporations

led part-year returns because of business organizations or

reorganizations, mergers, liquidations, or changes to account-

ing periods. The statistics include income and tax data from

part-year returns, but not balance sheet data. (See “Balance

Sheets.”)

Figure D in Section 1 shows the number of returns led

for each accounting period covered in this report. For a dis-

cussion of this classication, see “Time Period Employed” in

Section 1, Introduction.

Accounts Payable

[Page 5, Schedule L, Line 16(d)]

This balance sheet account consists of relatively short-

term liabilities arising from the conduct of trade or business

and not secured by promissory notes.

Additional Section 263A (Inventory) Costs

[Form 1125-A, Line 4]

This component of cost of goods sold includes certain

inventory costs capitalized by taxpayers using a simplied

method of accounting under the uniform capitalization rules

of Code section 263A. However, the statistics found here do

not follow the uniform capitalization rules with respect to sev-

eral deduction items. These rules require certain accrued ex-

penses, such as depreciation, to be capitalized. These accrued

expenses are included as current deductions whenever they

could be identied. (See “Cost of Goods Sold.”)

Additional Paid-In Capital

[Page 5, Schedule L, Line 23(d)]

This corporate balance sheet item consists of additions to

capital from sources other than earnings. These sources include

receipts from the sale of capital stock in excess of stated value,

stock redemptions or conversions, and similar transactions. The

amounts shown are after any negative amounts were deducted.

Adjustments to Shareholders’ Equity

[Page 5, Schedule L, Line 26(d)]

See “Retained Earnings, Unappropriated.”

Advertising

[Page 1, Line 22]

Code section 263(b) allowed advertising expenses as a de-

duction if they were ordinary, necessary, and bore a reasonable

relationship to the corporation’s trade or business. Under Code

section 263A, these expenses include advertising identied as

part of the cost of goods sold or capitalized, and advertising

reported separately as a business deduction. Also included

are combined advertising expenses, such as advertising and

promotion, and advertising and publicity. Excluded from the

data were the costs incurred by publishers, broadcasters, and

similar businesses in preparing advertisements for others.

These were generally treated as part of the cost of goods sold.

Section 5

Explanation of Terms

2013 Income Tax Returns Complete Report Explanation of Terms

264

Biofuel Producer Fuels Credit Δ

[Form 6478]

A credit was allowed and cellulosic biofuel production.

The alcohol mixture, alcohol, and small ethanol producer

credit expired for fuels sold or used after 2011. The cellu-

losic biofuel producer credit was extended through January

2, 2013. The credit also includes second generation cellulosic

biofuel used. The American Jobs Creation Act of 2004 re-

quires that the alternative minimum tax rules be applied to

the credit so Form 6478 is not led with Form 3800, General

Business Credit. Form 6478 now accommodates the passive

activity rules and carryback of any unused credit allowed that

previously would have been reported on Form 3800. Also, this

means that any credit carried forward from Tax Years begin-

ning before 2005, cannot be shown on Form 6478. Such “carry

forwards” must be shown on Form 3800.

Allowance for Bad Debts

[Page 5, Schedule L, Line 2b(c)]

This balance sheet account was the allowance or reserve

set aside to cover uncollectable or doubtful notes, accounts,

and loans usually shown on Form 1120 as an adjustment to

notes and accounts receivable. A few corporations, however,

reported only net receivables and thus did not show their al-

lowance for bad debts. Many banks and savings and loan as-

sociations included reserves for uncollectable mortgages and

real estate loans in the allowance for bad debts. These amounts

were transferred to this item if they were identied on support-

ing schedules during statistical processing.

The allowance for bad debts was a book account not nec-

essarily related to the deduction for bad debts allowed for tax

purposes. (See “Bad Debts.”)

Alternative Minimum Tax

[Form 4626, Line 14]

The alternative minimum tax (AMT) was designed to

ensure that a minimum amount of income tax is paid, regard-

less of the legitimate use of exclusions, deductions, and credits.

In effect, the AMT provides a second tax system by curtailing

or eliminating many of the means of reducing taxes allowed

in the regular tax system, and taxes the resulting “alterna-

tive” taxable income at a reduced rate. Small corporations (as

dened in the Form 4626 instructions) were not subject to the

AMT.

Table 23 shows the basic computation of the AMT. This

computation involves recomputing taxable income from

the regular tax by adding or subtracting items allowable in

both systems, but in different tax years or under different

rules (“adjustment items”), adding back deductions not al-

lowed under the minimum tax (“tax preference items”), and

adding or subtracting items from the corporation’s books

that had not been accounted for elsewhere (the “adjusted cur-

rent earnings” computation). A net operating loss deduction,

computed using the AMT rules for what constitutes a loss,

was allowed.

Most of the following adjustment and preference items

could be either additions or subtractions in computing alterna-

tive minimum taxable income. The few exceptions are noted.

(1) Depreciation of property placed in service after

1986. This was the difference between the acceler-

ated depreciation allowed under the regular tax rules

and the slower depreciation allowed under the AMT.

Generally, the adjustment increased AMTI in the

early years of a property’s life, and decreased it in

later years. Certain types of property were exempt

from reguring depreciation for AMT purposes.

(2) Amortization of certied pollution control facili-

ties. This was the difference between the rapid amor-

tization of pollution control facilities allowed under

the regular tax, and the deduction under the deprecia-

tion system used for the AMT.

(3) Amortization of mining exploration and devel-

opment costs. This was the difference between the

regular tax deduction allowed for these expenses and

by AMT rules, which required expenses to be capital-

ized and amortized over 10 years.

(4) Amortization of circulation expenses. This applies

to personal holding companies only and was the dif-

ference between the regular tax deduction, which

allowed these expenses, and the AMT requirement

that they be capitalized and deducted ratably over a

3-year period.

(5) Adjusted gain or loss. Because many of the differ-

ences between the regular tax and the AMT affect the

calculation of property’s basis for determining gain or

loss from its sale or exchange, gain or loss had to be

recomputed for AMT purposes. This item is the dif-

ference (positive or negative) between the two, gains

or losses.

(6) Long-term contracts. Long-term contracts, except

some home construction contracts, were required to

use the percentage-of-completion method to deter-

mine current income for the AMT. This item was the

difference between the current year’s income from

the contract under this method, and the methods al-

lowed for the regular tax.

(7) Merchant marine capital construction funds. For

the regular tax, some maritime companies were al-

lowed to deduct prots deposited in a fund for con-

structing new ships. Neither the fund nor the interest

Explanation of Terms 2013 Income Tax Returns Complete Report

265

it earned was taxed until the money was withdrawn.

This deferral was not allowed under the AMT and

any such deductions or interest had to be included in

AMTI.

(8) Section 833(b) deduction. Under this section of the

Internal Revenue Code, certain health insurers were

allowed a special deduction from regular taxable

income that was not allowed for AMT purposes and

was, therefore, added into the AMT calculation. This

item was a current-year deduction.

(9) Tax shelter farm activities. This applied only to per-

sonal service corporations with nonpassive farming

operations that were “tax shelters,” and was the differ-

ence between farm gains and losses computed under

the regular tax rules and those computed using all the

AMT accounting rules.

(10) Passive activities. This applied to closely held and

personal service corporations only and was the differ-

ence between gains and losses from passive activities

as reported for regular tax purposes and as recom-

puted using AMT accounting rules.

(11) Loss limitations. This is the difference between gains

and losses computed under the different rules of the

regular tax and AMT systems, where the at-risk and

partnership limitations applied in the regular tax.

(12) Depletion. The depletion deduction under both the

regular tax and the AMT was limited by the net

income from the depletable property if percentage

depletion was used. In addition, depletion under the

AMT was limited to a taxpayer’s basis in the property.

This item is the difference between depletion gured

under the regular tax rules and depletion limited by

AMT net income and the AMT basis limitation.

(13) Tax-exempt interest from private activity bonds.

Interest from private activity bonds issued after

August 7, 1986, used to nance private activity that

was still tax exempt under the special exceptions in

the regular tax was subject to the AMT and so was an

addition to AMTI. There are various bonds excluded

from this rule. Those bonds are dened in the instruc-

tions for Form 4626.

(14) Intangible drilling costs. Generally, some of the

intangible drilling costs for oil, gas, and geothermal

wells deductible as current expenses for the regular

tax, had to be capitalized and written off over 10 years

for the AMT. If the difference between the two sys-

tems exceeded 65 percent of the net income from the

properties, the excess was included in AMTI.

(15) Other adjustments. This item covered necessary

adjustments to allow for changes made to limitation

amounts by AMT calculations, The various allowable

entries are dened in the Form 4626 instructions.

After all adjustments and preferences had been included

in AMTI, a catchall adjustment, called the “Adjusted cur-

rent earnings (ACE) adjustment after excess” was added

to or subtracted from the income base. The ACE adjustment

took into account those items for which tax treatment offered

tax advantages, but were not otherwise included in the AMT

(such as tax-exempt interest). The “excess” (if any) was the

corporation’s total increase in AMTI from the prior year ACE

adjustment over its total reductions in AMTI from prior ACE

adjustments.

Alternative Fuel Vehicle Refueling Property

Credit Δ

[Form 8911, Page 1, Line 8]

The Alternative Fuel Vehicle Refueling Property Credit is

known as the credit for all property placed in service during

the tax year. The current year’s maximum credit per location is

$30,000. The credit covers property placed in service in 2012

and 2013. Each property’s cost must rst be reduced by any sec-

tion 179 expense deduction taken for the property. The credit

is scheduled to expire for nonhydrogen refueling properties

placed in service after 2013.

Alternative Motor Vehicle Credit Δ

[Form 8910]

The Alternative Motor Vehicle Credit was enacted by the

Energy Policy Act of 2005 and included separate credits for four

distinct categories of vehicles: 1) Qualied Hybrid Vehicles,

2) Qualied Fuel Cell Vehicles, 3) Qualied Alternative Fuel

Motor Vehicles (QAFMV), Heavy Hybrids, and 4) Advanced

Lean-Burn Technology Vehicles.

To qualify for this credit, the taxpayer should have had an

Alternative Motor Vehicle placed in service during the tax year,

and/or attributable to depreciable property, such as vehicles

used for business or investment purposes. The plug-in conver-

sion credit expired for conversions made after 2011.

Amortization

Amortization is a deduction for the recovery of the costs of

long-lived intangible assets similar to the depreciation deduc-

tion to recover the costs of tangible assets. It is also used in the

IR Code for recovering the costs of some tangible assets, usu-

ally as a tax preference for those assets. Most amortization is

calculated on a straight-line basis over recovery periods speci-

ed in the Code. Although amortization is not a line item on the

corporation income tax return, for statistical purposes, specic

types of amortization were edited from attached schedules (for

other costs or other deductions, for example) and included in

this item in the tables. Because it is not a separate line item,

2013 Income Tax Returns Complete Report Explanation of Terms

266

the statistics for this item may be less reliable than for other

deduction items.

Amortization of the following types was included in this

heading when identiable on tax returns:

(1) Section 197 intangibles. Purchased goodwill and

other “going concern” intangibles, customer-based

intangibles, licenses, franchises, and most other pur-

chased intangible assets not included elsewhere were

amortizable over a 15-year life.

(2) Pollution control facilities (section 169). Twent y

percent of the basis of depreciable property used to

reduce pollution could be written off over 5 years in-

stead of being depreciated.

(3) Bond premiums (section 171). Premiums on bonds

acquired before 1988 were amortized over the life of

the bond. For bonds acquired after 1987, the pro-rata

bond premium was an offset to the interest earned and

was not included here.

(4) Research and experimental expenditures (section

174). Taxpayers can elect to amortize their research

and experimental costs, deduct them as current

business expenses, or write them off over a 10-year

period. If they elect to amortize these costs, the tax-

payer should deduct them in equal amounts over 5

years or more.

(5) Lease acquisition costs (section 178). Such costs

could be amortized over the term of the lease.

(6) Qualified reforestation expenses (section 194).

Taxpayers can elect to amortize up to $10,000 (or

$5,000 if married and ling separately) of refores-

tation costs either paid or incurred before October

22, 2004, for qualified timber property over a

7-year period.

(7) Qualified revitalization expenditures (section

1400I). Certain capital expenditures related to a

qualied revitalization building, which is located in

an area designated as a renewal community.

(8) Business start-up expenditures (section 195). For

costs either paid or incurred before October 23, 2004,

taxpayers could elect an amortization period of 5

years or more. For costs paid or incurred after October

22, 2004, taxpayers could elect to deduct a limited

amount of start-up costs. Costs not deducted currently

could be amortized ratably over a 15-year period.

(9) Organizational expenditures of corporations

(section 248). As with business start-up expendi-

tures, for costs paid or incurred before October 23,

2004, taxpayers could elect an amortization period

of 5 years or more. For costs paid or incurred after

October 22, 2004, taxpayers could elect to deduct a

limited amount of organizational costs. Costs not de-

ducted currently could be amortized ratably over a

15-year period.

(10) Optional write-off of certain tax preferences (sec-

tion 59(e)). Taxpayers could avoid including some tax

preference items in the minimum tax by electing to

capitalize and amortize rather than deduct expenses.

These options included 3-year amortization of circu-

lation expenses (Code section 173), 10-year amortiza-

tion of research and experimental expenditures (Code

section 174), 5-year amortization of intangible drill-

ing costs (section 263) (but, see below), and 10-year

amortization of mining exploration and development

expenses (sections 616 and 617).

Amortization of intangible drilling costs was excluded

from this heading when it could be identied; instead, it was

included in “Other deductions” in the statistics.

Amount Owed at Time of Filing

[Page 1, Line 34]

See “Overpayment or Amount Owed.

Bad Debts

[Page 1, Line 15]

Bad debts occurring during the year were allowed as a

deduction under Code section 166. For most businesses, the

deduction was allowed only for debts written off as uncol-

lectable. Additions to reserves, even as the taxpayer’s normal

method of accounting for bad debts, were not deductible.

However, “small” banks with total assets of $500,000,000 or

less were allowed to deduct additions to bad debt reserves

under Code section 585 based on their own experience of bad

debt losses.

Balance Sheets

[Page 5, Schedule L]

Balance sheet data are the amounts reported by the taxpayer

(when available) as of the end of the taxpayer’s accounting year.

Taxpayers were instructed to provide data that agreed with their

books of account, but were given few other guidelines. Thus, the

statistics for balance sheets contain considerably more reporting

variability than those for income statement and tax computa-

tion items. These were the subject of more detailed instructions

and more intense scrutiny during IRS processing. Beginning

in Tax Year 2002, corporations with less than $250,000 in total

receipts, and less than $250,000 in total assets at the end of the

tax year, were not required to le Schedule L.

Since balance sheet data were from the taxpayers’ books,

they were generally governed by general accounting principles

rather than the special rules of tax accounting. Where these

Explanation of Terms 2013 Income Tax Returns Complete Report

267

rules diverged signicantly, balance sheet statistics could show

little relationship to the income statement accounts. Inventories,

accumulated depletion, depreciation, amortization, accrued

tax, other liability accounts, and other capitalized items were

often recorded on different bases for tax and book purposes.

A number of steps were taken during statistical processing

to reduce the variability due to taxpayer reporting practices.

Misreported amounts were transferred to their proper accounts;

amounts from attached schedules were edited into the Schedule

L format; and missing balance sheets were either supplied from

reference books (if possible), or statistically imputed based on

other data on the return and the company’s characteristics.

Some balance sheets were suppressed (or not imputed)

during statistical processing. (These companies appear in

the tables in the “zero-assets” category.) With the exception

of foreign insurance companies, which are required to report

U.S. assets segregated from foreign ones, the balance sheets

of foreign corporations were excluded from the data because

it is not possible to separate U.S. assets from foreign ones.

Final returns of corporations going out of existence were not

permitted balance sheets, because they should have either had

zero assets (if liquidating) or assets included in some other

corporation’s return (if merging). And, balance sheet data were

not included from most part-year returns, because the same

company’s end-of-year data could have been subject to inclu-

sion from its complete return.

Biodiesel and Renewable Diesel Fuels Credit

[Form 8864]

The biodiesel and renewable diesel fuels credit was created

to encourage the production and use of biodiesel fuels. The

credit consists of the biodiesel credit, renewable diesel credit,

biodiesel mixture credit, renewable diesel mixture credit, and

small agri-biodiesel producer credit. The Energy Tax Incentive

Act of 2005 amended section 40A to add credits for renewable

diesel fuel sold after December 31, 2005. The Act also added

the small agri-biodiesel producer credit for tax years ending

after August 8, 2005. The credit is scheduled to expire in 2013.

The tax liability for this credit is no longer computed on Form

8864, Biodiesel and Renewable Diesel Fuels Credit. Instead it

is computed on Form 3800, General Business Credit.

Branch Prots Tax

[Form 1120-F, Page 1, Line 3]

This was an additional tax imposed under Code section

884 on after-income-tax U.S. earnings and prots of a foreign

corporation that were not invested in a U.S. trade or business.

The tax also applied to certain interest payments from income

earned in U.S. operations. The provisions were designed to

impose a tax on foreign companies’ branches similar to the

withholding tax on dividends and interest imposed on foreign-

owned subsidiaries incorporated in the U.S. Like the withhold-

ing tax, the rate was set in the law at 30 percent, but that rate

was only applicable if the U.S. had no tax treaty setting a dif-

ferent rate (which could be zero) with the companies’ home

countr y.

The branch profits tax was imposed on the “dividend

equivalent” amount of earnings and prots of a U.S. branch

of a foreign corporation that was attributable to its income ef-

fectively connected (or treated as effectively connected under

Code section 897) with a U.S. trade or business. The effectively

connected earnings and prots were: (1) reduced to reect any

reinvestment of the branch’s earnings in assets in the U.S. trade

or business (or reduce liabilities in the U.S. trade or business),

and (2) increased to reect any prior reinvested earnings con-

sidered remitted to the home ofce of the foreign corporation.

Certain earnings and prots attributable to income effec-

tively connected with a U.S. trade or business were exempt

from the branch prots tax. These tax-exempt earnings in-

cluded: (1) certain earnings under Code sections 921(d) and

926(B) of a foreign sales corporation; (2) foreign transportation

carriers (such as ships and aircraft) exempt from U.S. tax by

reciprocal exemption; (3) earnings derived from the sale of any

interest in U.S. real property holding corporations; (4) interest

income derived by a possession bank from U.S. obligations

as described in Code section 882(e); (5) earnings derived by

certain insurance companies electing to treat income as ef-

fectively connected income; and (6) foreign governments and

international organizations exempt under Code section 892.

The branch prots tax is the sum of the tax imposed on the

earnings, prots, and interest payments of the foreign corpora-

tion. The branch tax was reported on Form 1120-F, U.S. Income

Tax Return of a Foreign Corporation. The tax was included in

total income tax in the statistics. It is also shown separately for

foreign corporations with U.S. business operations in Tables

10 and 11.

Business Receipts

[Page 1, Line 1(c)]

Business receipts are the gross operating receipts of the cor-

poration reduced by the cost of returned goods and allowances.

Generally, they represent all of a corporation’s receipts except

investment and incidental income. Business receipts may also

include sales and excise taxes that were included in the sales

price of products; some corporations reported this way, while

others reported their receipts after adjustment for these taxes.

Business receipts include rents reported by real estate op-

erators and other corporations for which rent made up a signi-

cant portion of income. The latter included manufacturers that

rented their products, lessors of docks, warehouses, pipelines,

and other public utility facilities, and companies engaged in

rental services, such as providing lodging places and automo-

bile or clothing rentals.

2013 Income Tax Returns Complete Report Explanation of Terms

268

For banks and other nancial institutions whose princi-

pal income was interest, business receipts, consisting of fees,

commissions, credit card income, and other operating receipts

as principal income, was reported under that heading and in-

cluded in the statistics. Banks’ business receipts also included

prot from Federal funds transactions. If the bank reported

gross sales and purchases, the amounts were netted during sta-

tistical processing. Likewise, security dealers included prot

from security trades in business receipts. If the gross amounts

were reported, costs and sales proceeds were netted during

statistical processing. Regulated investment companies and

real estate investment trusts did not report business receipts;

all of their income was included in the investment income

categories in the statistics.

Business receipts for insurance companies consisted of

premium income. Some small property and casualty insur-

ance companies, however, could elect to be taxed only on in-

vestment income and thus would have reported no business

receipts. Other, smaller companies were exempt from tax

altogether. Property and casualty insurance companies with

premium income of $1,200,000 or less could elect (under Code

section 831(b)(2)) to be taxed on only investment income.

Companies with premiums of $600,000 or less were exempt

from tax under Code section 501(c)(15).

For all industries, business receipts excluded gains from

the sale of assets. See “Net Gain (or Loss), Noncapital Assets”

and “Net Capital Gains.”

Capital Gains Tax (1120-RIC)

[Form 1120-RIC, Page 2, Schedule J, Line 2b]

Regulated investment companies (RIC) that did not dis-

tribute all capital gains to shareholders were taxed at the regu-

lar corporate rates of 35 percent only on the undistributed

gain for nonqualied timber gain. If the RIC was in a part-

nership with a net gain, and also received a distributive share

of a qualied timber gain from the partnership for the period

before May 2009, then the RIC may be eligible for an alterna-

tive tax rate on the portion of taxable income attributable to

the qualied timber gain. This tax is a component of “Total

Income Tax Before Credits.”

Capital Stock

[Page 5, Schedule L, Line 22(d)]

This end-of-year balance sheet equity item includes

amounts shown for outstanding shares of both common and

preferred stock.

Cash

[Page 5, Schedule L, Line 1(d)]

This balance sheet asset item includes the amount of

actual money or instruments and claims that were usable and

acceptable as money on hand at the end of the taxable year,

including certicates of deposit.

Cash and Property Distributions

[Page 5, Schedule M-2, Lines 5(a) & 5(c)]

Cash distributions are distributions from the earnings and

prots of the distributing corporation, made in cash, to share-

holders outside the consolidation. Property distributions, other

than a corporation’s own stock, are distributions made to share-

holders outside the consolidation. These distributions consist of

the actual property of the distributing corporation, other than

cash or shares of the distributing corporation’s own stock.

Charitable Contributions

[Page 1, Line 19]

Contributions or gifts to charitable, religious, educational,

and similar organizations were deductible under Code section

170(c). In general, the deduction was limited to 10 percent of

taxable income computed without regard to:

(1) the deduction for contributions;

(2) special deductions for dividends received and for

dividends paid on certain preferred stock of public

utilities;

(3) any net operating loss carryback under Code section 172;

(4) any capital loss carryback to the tax year under Code

section 1212(a)(1); and

(5) the deduction of bond premium on repurchase under

Code section 249.

Charitable contributions over the 10-percent limitation could

be carried forward to the next 5 tax years; however, the carryover

was not allowed if it increased a net operating loss carryover.

A corporation could receive a larger deduction for contrib-

uting scientic property used for the care of the ill, needy or

infants, for research to an institution of higher education. These

applied to all except personal holding companies and corpora-

tions whose businesses were the performance of services, and

for contributions of computer technology and equipment to

schools (under section 170(e)). Regulated investment companies

and real estate investment trusts did not report contributions.

Contributions made by S corporations were passed through to

the shareholders to be deducted on the shareholders’ returns.

The amount shown in the statistics includes contributions

identied as part of cost of goods sold or capitalized under

section 263A. It also includes contributions reported as a busi-

ness deduction.

Compensation of Ofcers

[Page 1, Line 12]

Salaries, wages, stock bonuses, bonds, and other forms

of compensation were included in this deduction item if they

Explanation of Terms 2013 Income Tax Returns Complete Report

269

were identied as having been paid to ofcers for personal

services rendered. It did not include qualied deferred com-

pensation, such as contributions to a 401(k) plan or a salary

reduction agreement, which were included in the statistics for

pensions and prot-sharing plans. The item included amounts

reported as a part of cost of goods sold or capitalized under

section 263A.

The deductible compensation of certain ofcers of publicly

held corporations was limited under Code section 162(m) to

$1,000,000 or less. However, the limit did not apply to com-

missions or other compensation based on performance, or if the

ofcer worked under a binding contract in effect on February

17, 1993.

Consolidated Returns

Consolidated income tax returns contained combined nan-

cial data for two or more corporations. All corporations on the

return had to meet the following requirements: (1) a common

parent corporation owned at least 80 percent of the voting

power of all classes of stock, and at least 80 percent of each

class of nonvoting stock (except stock which was limited and

preferred as to dividends) of at least one member of the group,

and (2) these same proportions of stock of each group member

were owned within the group.

Corporations electing to le consolidated returns in one

year had to also le consolidated returns in subsequent years,

with certain exceptions. The consolidated ling privilege

could be granted to all afliated domestic corporations con-

nected through stock ownership with a common parent cor-

poration except: (1) regulated investment companies (RICs);

(2) real estate investment trusts (REITs) that did not consoli-

date with qualied REIT subsidiaries; (3) corporations desig-

nated tax-exempt under Code section 501; (4) Interest Charge

Domestic International Sales Corporations (IC-DISCs), and

(5) S Corporations.

Under Code section 1504(c), life insurance companies

could le consolidated returns with other life insurance compa-

nies without restriction. Also, a nonlife insurance parent could

include a life insurance subsidiary subject to certain restric-

tions (e.g., the insurance company must have been a member

of the controlled group for at least 5 years).

A consolidated return led by the common parent com-

pany was treated as a unit and each statistical classication

was determined on the basis of the combined data of the af-

liated group. Therefore, ling changes to or from a con-

solidated return basis affected year-to-year comparability of

certain statistics, including data classied by industry and

size of total assets. Data on consolidated returns are shown

in Table 19.

Constructive Taxable Income from Related

Foreign Corporations

This item was the sum of (1) includable income from controlled

foreign corporations (CFC) and (2) foreign dividend gross-up.

Includable income was the income of U.S.-owned foreign cor-

porations that was taxable to their U.S. shareholders under Code

sections 951-964 (“Subpart F”). Foreign dividend gross-up was

an amount equal to the foreign tax deemed paid by the foreign

corporation that U.S. shareholders could claim as a foreign tax

credit. A CFC was one in which more than 50 percent of the

voting stock was controlled by U.S. persons, including domestic

corporations, with ownership of at least 10 percent of the voting

stock. Any U.S. shareholder owning 10 percent or more of the

stock was required to include a share of the includable income

and dividend gross-up in taxable income.

Data from foreign dividend gross-up and includable income

from controlled foreign corporations were combined into con-

structive taxable income from related foreign corporations. These

components are presented separately in Table 20. Neither includ-

able income from controlled foreign corporations nor foreign

dividend gross-up was included in the statistics for Total Receipts.

Includable Income

[Page 2, Schedule C, Line 14(a)]

Generally, the earnings and prots of a controlled for-

eign corporation (CFC) were subject to U.S. taxation only

when the income was actually distributed to U.S. sharehold-

ers or repatriated to the United States. The Subpart F provi-

sions of the Code created an exception to this general rule by

requiring that some types of foreign income be included in

the income of the U.S. shareholders even if not distributed.

The types of income involved are either passive investment

income, income from sources thought especially easy to shift

between tax jurisdictions, or income from sources contrary

to public policy.

Includable income consisted of:

(1) Subpart F income, dened below;

(2) any previously excluded Subpart F income which had

been invested in qualied assets in less developed

countries, and which was either withdrawn from those

countries or repatriated to the U.S. shareholders and

therefore became taxable;

(3) any previously excluded Subpart F income which had

been withdrawn from foreign base company shipping

operations;

(4) any increase in Controlled Foreign Corporation earn-

ings due to investment in U.S. property; and

(5) factoring income, or income that arose from the sale

or transfer of a receivable.

2013 Income Tax Returns Complete Report Explanation of Terms

270

Subpart F income, dened in Code section 952, included:

(1) income from issuing (or reinsuring) an insurance or

annuity contract that would otherwise be taxed under

Subchapter L of the IR code if that income had been

from a domestic insurance company;

(2) “foreign base company income,” which included

several types of income derived from passive invest-

ments or from transactions outside the CFC’s country

of incorporation;

(3) income from participation in international boycotts

not sanctioned by the United States;

(4) illegal bribes, kickbacks, or other payments to a gov-

ernment ofcial; and

(5) income derived from any foreign country during

any period for which a foreign tax credit would be

denied for taxes paid to those countries, as described

in Code section 901(j) (i.e., a government that was

not recognized by the United States, with which the

United States severed or did not conduct diplomatic

relations, or which provided support for international

terrorism).

Foreign Dividend Income Resulting from

Foreign Taxes Deemed Paid

[Page 2, Schedule C, Line 15(a)]

This item, also called “foreign dividend gross-up,” was con-

structive taxable income to corporations that claimed a foreign

tax credit. A U.S. corporation could claim a foreign tax credit

for a share of the foreign taxes actually paid by its related for-

eign corporations, including its controlled foreign corporations.

The U.S. corporation’s share of the foreign taxes depended on

the ratio of the dividends and includable income it received to

the total earnings and prots of the related foreign corporation.

The foreign taxes were treated as deemed paid by the U.S. cor-

poration. In order to receive credit against U.S. tax, the foreign

taxes deemed paid needed to be included in the corporation’s

worldwide income as well. They were included in income as

an increase to foreign dividends, called a dividend gross-up.

The dividend gross-up was the equivalent amount of the foreign

taxes deemed paid by the U.S. corporation.

Controlled Plan and Apportionment

Schedule for a Controlled Group

[Schedule O]

This schedule was required to be completed by members

of a Controlled Group beginning in Tax Year 2006. Controlled

Group members were required to report the apportionment of

taxable income, income tax, and certain tax benets between

group members, as well as identifying the type of controlled

group to which they belong. Group types identied in the in-

structions are Parent-subsidiary, Brother-sister, and combined

groups. Life insurance companies in a group of their own were

separately identied, but as part of a life, non-life group, they

were identied as one of the other groups. This form was also

used for indicating the group member’s consent to the adoption

of a new apportionment plan, the amendment or termination

of an existing plan, whether they already have a plan in effect,

and even if they are not planning to adopt an apportionment

plan. This schedule was required to be led by all corporations

in each year that they are a member of a controlled group.

Controlled group members were entitled to one $50,000, one

$25,000, and one $9,925,000 taxable income bracket amount

(in that order). Additional income tax was apportioned at a

5-percent rate, up to $11,750, if the taxable income of the group

was over $100,000, and at a 3-percent rate, up to $100,000, if

the taxable income of the group was over $15 million.

Corporation’s Own Stock Distributions

[Page 5, Schedule M-2, Line 5(b)]

Distributions of a corporation’s own stock were distri-

butions made to shareholders outside the consolidation that

consisted of shares of the distributing corporation’s own stock,

in lieu of cash or other property.

Cost of Goods Sold

[Form 1125-A, Line 8]

Cost of goods sold represented the costs incurred by the

corporation in producing the goods or providing the services

that generated the corporation’s business receipts. Included

were costs of materials used in manufacturing, costs of goods

purchased for resale, direct labor, and a share of overhead

expenses, such as rent, utilities, supplies, maintenance, and

repairs. (Overhead expenses, however, were not included in

these statistics as the taxpayers reported them; see “Uniform

Capitalization Rules” below.)

The basic cost of goods sold calculation, shown in Form

1125-A, consisted of adding beginning inventory to the cur-

rent-year purchases, labor, additional inventory costs (section

263a), and other costs and subtracting ending inventory. Each

of the individual items included in cost of goods sold is shown

separately in Table 2.

Cost of goods sold was imputed for those companies en-

gaged in manufacturing or trade activities that reported gross

receipts, but not the cost of goods sold. This was done by using

the attachments for “Other Deductions.” For other nonnance

industries, a cost was imputed only for companies that re-

ported gross receipts and included inventories on the balance

sheet.

Generally, returns of corporations in the nance sector

were not expected to have cost of goods sold unless they

Explanation of Terms 2013 Income Tax Returns Complete Report

271

were consolidated returns including nonnance subsidiar-

ies. Security dealers sometimes reported the cost of securi-

ties traded on their own accounts as cost of goods sold (and

reported the gross sales proceeds as business receipts). Such

amounts were netted during statistical processing, with the net

gain reported as receipts and cost of goods made zero. The

same handling was given to bank returns reporting gross re-

ceipts and costs from Federal funds transactions.

Insurance companies were made to conform to Form 1120

format using premium income as gross business receipts and

showing benets paid as cost of goods sold. For most life insur-

ance companies, cost of goods sold was equal to death benets.

For other insurance companies, it was equal to losses incurred.

These items are shown separately in Table 26.

Uniform Capitalization Rules

A taxpayer reporting of cost of goods sold was governed by

the “uniform capitalization rules” of Code section 263A. Most

companies producing goods for sale were required to capital-

ize inventory costs under the uniform capitalization rules.

Corporations subject to the rules were required to capitalize

direct costs and an allocable portion of most indirect costs that

related to the goods produced or acquired for resale. Some of

the indirect costs that were required to be allocated to capital

accounts were administration expenses, taxes, depreciation,

insurance costs, compensation of ofcers, and contributions to

pension, stock bonus, prot sharing, and deferred compensa-

tion plans. Special rules were provided for the capitalization

of interest expense paid or incurred in the course of produc-

tion. The rules did not apply to personal property acquired for

resale for corporations with annual average gross receipts of

$10,000,000 or less. Special rules were provided for farmers

and for timber property.

For statistical purposes, many components of cost of goods

sold were moved to the equivalent deduction item. For this

reason, these appear in the tables as current deductions rather

than components of cost of goods sold. Expenses for adver-

tising, amortization, bad debts, compensation of ofcers, and

contributions to charitable organizations, employee benet

programs, and pension plans were transferred to their respec-

tive deduction categories when identied on the attachments

for cost of goods sold. Also transferred were depletion, de-

preciation, interest, rent of buildings or real estate, and taxes.

Intangible drilling costs were removed from cost of goods sold

and included in other deductions.

In this report, therefore, cost of goods sold appears smaller,

and many deduction accounts larger, than reported by taxpay-

ers. However, those listed above were the only accounts af-

fected. Inventories were not adjusted; net income or decit and

taxable income were not affected.

Cost of Labor

[Form 1125-A, Line 3]

This component of cost of goods sold included the por-

tions of the company’s payroll representing direct labor

costs, and some indirect costs allocated to inventory under

the uniform capitalization rules. Some labor costs were re-

ported in other accounts, such as Other Costs. (See “Cost of

Goods Sold.”)

Cost of Treasury Stock

[Page 5, Schedule L, Line 27(d)]

This item was the total value of issued common or pre-

ferred stock that had been reacquired and was held at the end of

the accounting year by issuing corporations. The stock, which

was available for resale or cancellation, may have been pur-

chased by the corporation or acquired through donation or as

settlement of a debt. Treasury stock was a part of capital stock

outstanding; it did not include unissued capital stock.

Credit by Reciprocal

[Form 1120-PC, Page 1, Line 14(h)]

See “Reciprocal Tax.”

Credit for Employer-Provided Child Care

Facilities and Services

[Form 8882]

The purpose of this credit is to encourage more businesses

to provide child care services for their employees. The amount

of the credit for a given tax year is the sum of 25 percent of the

qualied childcare expenditures and 10 percent of the qualied

resource and referral expenditures. The maximum amount of

credit allowed in any given year is $150,000. The credit is part

of and subject to the limitations and carryover rules of the gen-

eral business credit. The components of the general business

credit are shown separately in Table 21.

Credit for Employer Social Security and

Medicare Taxes Paid on Certain Employee Tips

[Form 8846]

Food and beverage establishments that paid the employer’s

social security and Medicare tax on employee tip income in

excess of the minimum wage were allowed to receive a refund

of the excess in the form of a credit against income tax. This

credit was a component of the “General Business Credit” and

was subject to the limitations and carryover provisions dis-

cussed under that heading. The components of the general busi-

ness credit are shown separately in Table 21.

Credit for Federal Tax Paid on Fuels

[Page 3, Schedule J, Line 19b]

Code section 34 allowed a credit in full or in stated amounts

for excise taxes on:

2013 Income Tax Returns Complete Report Explanation of Terms

272

(1) gasoline used on farms for farming purposes (Code

section 6420);

(2) gasoline used for nonhighway purposes or by local

transit systems (Code section 6421); and

(3) fuel not used for taxable purposes (Code section

6427), such as on the sale of fuel when tax was im-

posed under section 4041(a) or (e), and the purchaser

used such fuel other than for the use for which it sold

or resold such fuel.

This credit was also used to claim the credit for purchase

of qualied diesel-powered highway vehicles.

Credit for Small Employer Health Insurance

Premiums

[Form 8941]

The purpose of this credit is to encourage small businesses

to offer health coverage to their employees. This form is used

to gure the credit for tax years beginning after 2009. Small

businesses that paid a total percentage of 35 percent in premi-

ums, employed fewer than 25 full-time employees, and paid

less than $50,000 on average in annual wages per full-time

employee during the tax year are eligible to claim this credit.

The credit for small employer health insurance premiums was

established due to the Affordable Care Act of 2009 and is

claimed as a part of the General Business Credit, Form 3800.

Credit for Small Employer Pension Plan

Startup Costs

[Form 8881]

The purpose of this credit is to encourage small businesses

to establish and maintain retirement savings accounts for their

employees. The credit equals 50 percent of the startup costs

incurred to create or maintain a new employee retirement

plan. The credit is limited to $500 in any tax year and may

be claimed for qualied costs incurred in each of the 3 years

beginning with the tax year in which the plan becomes effec-

tive. The credit is part of and subject to the limitations and

carryover rules of the general business credit. The components

of the general business credit are shown separately in Table 21.

Credit for Tax Paid on Undistributed Capital

Gains

[Page 3, Schedule J, Part II, Line 19a]

Regulated investment companies (RIC) and real estate

investment trusts (REIT) were required to pay tax on amounts

of undistributed net long-term capital gain less net short-term

capital loss at the regular corporate tax rate of 35 percent.

Stockholder corporations, for their part, were required to in-

clude in the computation of their long-term capital gains any

such gains designated by the parent as undistributed dividends.

The stockholder corporations were then deemed to have paid

the tax on the undistributed long-term capital gain dividends

and were allowed a credit for the tax they were deemed to

have paid.

Credit to 2013 Estimated Tax

[Page 1, Line 36a]

This item was the amount of the taxpayer’s 2012 overpay-

ment applied to the rm’s estimated tax for the 2013 Tax Year.

See also “Overpayment or Amount Owed.”

Credit to Holders of Tax Credit Bonds

[Page 3, Schedule J, line 5e]

Form 8912, Credit to Holders of Tax Credit Bonds, is used

to claim credit for the following tax credit bonds: clean renew-

able energy bond (CREB); new clean renewable energy bond

(NCREB); qualied energy conservation bond (QECB); quali-

ed zone academy bond (QZAB); qualied school construc-

tion bond (QSCB), and build America bond (BAB). Holders of

qualied zone academy bonds now also use Form 8912. The

Energy Improvement and Extension Act of 2008 added the new

clean renewable energy bonds and the qualied energy conser-

vation bonds. The Tax Extenders and Alternative Minimum

Tax Relief Act of 2008 added the Midwestern tax credit bonds.

The Food, Conservative, and Energy Act of 2008 added the

qualied forestry conservative bonds. The American Recovery

and Reinvestment Tax Act of 2009 added the qualied school

construction bonds and build America bonds.

Death Benets

[Form 1120-L, Page 1, Line 9]

See “Cost of Goods Sold.”

Decit

See “Net Income (or Decit).”

Depletable Assets and Accumulated

Depletion

[Page 5, Schedule L, Lines 11a and b]

Depletable assets represented, in general, the gross end-

of-year value of mineral property, oil and gas wells, other

natural deposits, standing timber, intangible development

and drilling costs capitalized, and leases and leaseholds, each

subject to depletion. Accumulated depletion represented the

cumulative adjustment to these assets shown on the corpora-

tion’s books of account.

The value of depletable assets and accumulated depletion

may not be closely related to the current year depletion deduc-

tion. The depletable assets and accumulated depletion balance

sheet accounts reected book values; the depletion deduction

reected the amount claimed for tax purposes.

Depletion

[Page 1, Line 21]

This deduction was allowed for the exhaustion of mines,

oil and gas wells, other natural deposits, and timber. The Code

Explanation of Terms 2013 Income Tax Returns Complete Report

273

provided two methods for computing the deduction: (1) cost

depletion, in which a share of the cost of acquiring or develop-

ing a property was written off each year; and (2) percentage

depletion, which involved simply deducting a xed percentage

of the gross income from the property each year. For standing

timber, depletion was computed on the basis of cost. In the case

of most natural deposits, the depletion was computed either on

a cost or percentage basis. For oil and gas wells, however, per-

centage depletion was allowed only to “independent” produc-

ers (producing less than 50,000 barrels of oil or an equivalent

amount of gas a day) and then only for the rst 1,000 barrels

produced each day. All other oil and gas producers were re-

quired to use cost depletion.

Generally, for gas and oil wells, the gross income was the

actual sales price, or representative market or eld price, if the

gas or oil were later converted or manufactured prior to sale.

For other natural deposits, gross income was dened to include

income from mining or extraction and certain treatment pro-

cesses. Percentage rates for each type of natural deposit were

listed in Code section 613 and ranged from 5 to 25 percent of

gross income. However, percentage depletion generally could

not exceed 50 percent of the taxable income from the property

computed without the depletion deduction.

The depletion deduction for natural deposits other than oil

and gas could also have been limited by provisions designed to

recapture previously deducted mine exploration and develop-

ment costs. These capital expenditures were deductible when

incurred, but had to be recaptured if the mine became produc-

tive or was sold. One method taxpayers could elect to recapture

these deductions was to forego percentage depletion deductions

on the mine until recapture was complete.

The statistics for depletion also did not include amounts

shown by the corporation as a deduction in computing net gain

or loss from sale of depletable assets under sections 631(a) or

1231. Regulated investment companies and real estate invest-

ment trusts did not report depletion.

The amounts shown in the statistics included any identi-

able depletion reported as part of the cost of goods sold or capi-

talized under Code section 263A. Amortization of intangible

drilling costs was not included in the statistics for depletion,

but was included in “Other Deductions.”

Depreciable Assets and Accumulated

Depreciation

[Page 5, Schedule L, Lines 10a and b]

Depreciable assets from the corporation’s end-of-year bal-

ance sheet were the book value of tangible property subject to

depreciation (such as buildings and equipment with a useful life

of 1 year or more). This item could include fully depreciated

assets still in use and partially completed assets for which no

deduction was yet allowed if the corporation reported them as

depreciable on its balance sheet. The amounts shown as accu-

mulated depreciation represented the portion of the assets that

were written off in the current year and all prior years.

In general, depreciable assets were the gross amounts

before adjustment for accumulated depreciation. Some cor-

porations reported only the net amount of depreciable assets

after deducting accumulated depreciation. Certain insurance

companies were included among the corporations which re-

ported only a net amount of depreciable assets. Life insurance

companies and some property and casualty insurance com-

panies reported their balance sheet information in the format

required by State insurance regulations. This format usually

provided for the reporting of only net depreciable assets and

only the home and branch ofce buildings and equipment were

included. Other real estate holdings of these corporations were

reported as “Other Investments.”

The statistics for depreciable assets excluded depletable

and intangible assets, which were reported in their respective

items, and accumulated amortization.

Generally, the value of depreciable assets and accumulated

depreciation were not closely related to the current-year de-

preciation deduction. The depreciable assets and accumulated

depreciation balance sheet accounts reected book values; the

depreciation deduction reected the amount claimed in the cur-

rent year for tax purposes.

Depreciation

[Page 1, Line 20]

Depreciation is a method of recovering the cost of invest-

ments in tangible assets that lose value as they are used to

produce income. The depreciation deduction allowed under

Code sections 167 and 168 approximated this loss in value by

prescribing the rates at which various types of assets could be

depreciated and the period over which the investment could be

recovered. The depreciation rules in effect for property placed

in service in 2013 were basically the same as those enacted in

1986; however, the tax depreciation rules were changed many

times over the years, and some assets were still in use in 2013

that were originally placed in service under prior-year rules.

So the depreciation claimed on 2013 returns included in these

statistics could have represented amounts computed by several

different sets of rules.

In 2013, the basic depreciation system was the “Modied

Accelerated Cost Recovery System,” or MACRS, that provided

two systems for computing the depreciation deduction. The

“General Depreciation System,” or GDS, specied recovery

periods of 3, 5, 7, or 10 years for livestock, fruit trees, most

machinery, equipment, and tangible personal property, and

prescribed the 200-percent declining balance method of de-

termining the amount to be written off each year. Public utility

property, water transportation equipment, and farm buildings

2013 Income Tax Returns Complete Report Explanation of Terms

274

were placed in the 15-year, 20-year, or 25-year category and

were to be depreciated by the 150-percent declining balance

method. Buildings were to be depreciated by the straight-line

method and over recovery periods of 27.5 years for residential

buildings, 31.5 years for nonresidential buildings placed in

service before May 13, 1993, and 39 years for nonresidential

buildings placed in service after May 12, 1993. Railroad road-

beds and tunnels were prescribed a recovery period of 50 years

and the straight-line depreciation method.

MACRS also provided for an “Alternative Depreciation

System,” or ADS, that was less accelerated than GDS and thus

could help avoid the alternative minimum tax. Under ADS,

the recovery period was generally based on the old “class

life” system, which was a set of lives prescribed by IRS and

based on studies of actual asset lives. The depreciation method

was straight-line. Some types of property could only be de-

preciated using ADS. These were (1) tangible property used

predominantly outside the U.S., (2) tax-exempt property, (3)

property nanced by tax-exempt bonds, (4) imported property

covered by a Presidential order, or (5) farm property placed in

service in a year in which the taxpayer had elected to expense

preproduction period costs under section 263A.

Also included here were amounts the corporation

elected to expense under section 179. For 2013, the maxi-

mum deduction was $500,000 ($535,000 for qualied enter-

prise zone businesses, renewal community businesses and

qualied Liberty Zone property). In 2003, the denition

of section 179 property was expanded to include computer

software.

Amounts for special depreciation allowance and other de-

preciation were also included in this item. Beginning in 2001,

certain qualied property placed in service after September

10, 2001, could have an additional 30 percent special depre-

ciation allowance. Qualied property acquired and placed

in service after May 5, 2003, and before January 1, 2005,

may have an additional 50-percent depreciation allowance.

Qualied property for the 30-percent or 50-percent special

allowance includes, but is not limited to, tangible property

depreciated under MACRS with a 20-year-or-less recovery

period and computer software. But, it is important to note that

the 30-percent and 50-percent special depreciation allowances

will not apply to most property placed in service after 2004.

This item included amounts of depreciation reported as a

part of cost of goods sold or capitalized under section 263A.

Disabled Access Credit

[Form 8826]

The credit was allowed to small businesses that incurred

expenses to make their business accessible to disabled indi-

viduals. An eligible small business was one with either gross

receipts (less returns and allowances) of less than $1 million

for the preceding tax year or not more than 30 full-time em-

ployees in the preceding tax year.

An eligible expenditure was one paid or incurred by an

eligible small business to comply with the requirements of

the Americans with Disabilities Act of 1990. Expenditures in-

cluded: (1) removing architectural, communication, physical,

or transportation barriers; (2) providing qualied interpreters

or other methods of delivering materials to individuals with

hearing impairments; (3) providing qualied readers, taped

texts, or other methods of delivering materials to individuals

with visual impairments; (4) acquiring or modifying equip-

ment or devices for individuals with disabilities; or (5) provid-

ing other similar services, modications, materials or equip-

ment. The amount of the credit was 50 percent of the amount

of the eligible expenditures for a year that exceeded $250 but

did not exceed $10,000.

The disabled access credit was claimed as one of the com-

ponents of the general business credit. For a discussion of the

income tax limitations and carryback and carryforward pro-

visions of the credit, see “General Business Credit,” in this

section. The components of the general business credit are

shown separately in Table 21.

Dividends Received from Domestic

Corporations

Dividends received from domestic corporations was a statistic

computed from amounts reported on Schedule C. The amounts

making up this statistic are shown in detail in Table 20 and

represent most distributions from the earnings and prots

of companies incorporated in the United States. Dividends

received from domestic corporations were generally those

used in computing the special deduction from net income for

dividends received. This is discussed under “Statutory Special

Deductions” in this section.

Deductible dividends from Interest Charge Domestic

International Sales Corporations (IC-DISCs) and from former

Domestic International Sales Corporations (DISCs) were in-

cluded as domestic dividends received. Dividends from foreign

sales corporation’s (FSCs) and foreign subsidiaries were in-

cluded under “Dividends Received from Foreign Corporations.”

Dividend distributions among member corporations elect-

ing to le a consolidated return were eliminated from the sta-

tistics as part of the consolidated reporting of tax accounts. For

tax purposes, dividends reported on these returns represented

amounts outside the tax-dened afliated group.

If portfolio stock was wholly or partially nanced by debt,

no dividend-received deduction was allowed on the debt--

nanced portion of the stock. There was a separate line item

and a separate deduction calculation for dividends on debt-

nanced portfolio stock. This amount was included as part

Explanation of Terms 2013 Income Tax Returns Complete Report

275

of domestic dividends even though it also represented debt-

nanced stock of foreign corporations.

Dividends or other distributions other than those detailed

in Table 20 were included in “Other Receipts.”

Dividends received by S corporations were passed through

to shareholders and reported on Form 1120S, Schedule K-1,

Shareholders’ Shares of Income, Credits, Deductions, etc. and

are not included in the statistics for this item in the Basic Tables

section. These statistics are presented in the 1120S Basic Tables

section as “Dividend Income” under “Portfolio Income (less

decit) Distributed to Shareholders.”

Dividends Received from Foreign

Corporations

These were dividends paid from the earnings and prots of

companies incorporated in foreign countries.

Dividends received from foreign corporations out of U.S.

source earnings and prots or from Foreign Sales Corporations

(FSCs) were usually eligible for the dividends received deduc-

tion, described in “Statutory Special Deductions,” below. Not

eligible were dividends out of foreign earnings and prots

and certain gains from the sale, exchange, or redemption of

Controlled Foreign Corporation stock.

Because foreign dividend gross-up and includable income

from controlled foreign corporations were not actual receipts,

for statistical purposes they were excluded from dividends

received. Both were combined and presented in the statis-

tics as “Constructive Taxable Income from Related Foreign

Corporations,” discussed above.

Dividends received from foreign corporations by S corpo-

rations were not included in these statistics.

Domestic Production Activities Deduction

[Page 1, Line 25]

The Domestic Production Deduction (DPD) was added

as part of the American Jobs Creation Act and is available

for tax years beginning after December 31, 2004. By keep-

ing manufacturing and software development activities in the

United States, exporters may claim a deduction for a percent

of their income from qualied exports. The provision, which

can be found under Code section 199, was largely written to

satisfy WTO objections to Extraterritorial Income (ETI) and

Foreign Sales Corporation provisions. The credit is gured on

Form 8903.

Effectively Connected Income (ECI)

Deduction

[Form 1120-F, Page 3, Line 26]

Home ofce deductions allocated and apportioned to ef-

fectively connected income from Schedule H.

Employee Benet Programs

[Page 1, Line 24]

Contributions made by employers to employee plans,

such as death benets, insurance, health, accident, sickness,

and other welfare plans were deductible under Code sections

419 and 419A. Generally, such programs were not an inciden-

tal part of a pension, prot sharing, or other-funded deferred

compensation plan. Deductions for a welfare benet fund

were limited to the qualied cost of the fund for the taxable

year, as described under Code section 419. Direct payments

for employees’ welfare were not included as employee ben-

ets; only payments into a fund for employee benets were

included.

Included in the statistics for this item were amounts identi-

ed as part of the cost of goods sold, or capitalized under sec-

tion 263A. Regulated investment companies and real estate in-

vestment trusts do not report employee benets. Some mining

companies could have reported an amount for a combination

of welfare/retirement plans. When identied, the combined

amount was included in the statistics for contributions to em-

ployee benet plans.

Empowerment Zone Employment Credit Δ

[Form 8844, line 4]

Although the EZE credit was a component of the gen-

eral business credit, it had a special tax liability limitation.

A qualied zone employee was any employee who performed

substantially all of the services for an employer within an

empowerment zone in the employer’s trade or business, and

had his or her principal residence within that empowerment

zone while performing those services. Both full and part-

time employees could be qualied zone employees. Qualied

zone wages were any wages paid or incurred for services

performed by a qualied zone employee. Although a qualied

zone employee could earn any amount of wages, only the rst

$15,000 of qualied zone wages paid or incurred was taken

into account for the credit. The $15,000 limit was reduced

by the amount of wages paid or incurred during the year that

was used in guring the work opportunity credit for that em-

ployee. With certain exceptions, amounts paid or incurred

by an employer for the education or training of the employee

were treated as wages paid to an employee. In general, any

individual employed for less than 90 days was not a qualied

zone employee. However, there were exceptions to this for an

employee who was terminated because of misconduct, who

became disabled, or who was acquired by another empower-

ment zone corporation and who continued to be employed by

that corporation.

Estimated Tax Penalty

See “Overpayment or Amount Owed.”

Excess Net Passive Income Tax

[Form 1120S, Page 1, Line 22a]

2013 Income Tax Returns Complete Report Explanation of Terms

276

A Subchapter S corporation that had accumulated earn-

ings and prots from a prior subchapter C status and also had

net passive income greater than 25 percent of its gross receipts

was taxed on the excess (net of related expenses) at the regular

corporate tax rate. Passive investment income, in general, was

gross receipts derived from rents, royalties, dividends, inter-

est, annuities, or the sales or exchanges of stock or securities.

Foreign Dividend Income Resulting from

Foreign Taxes Deemed Paid

[Page 2, Schedule C, Line 15(a)]

See “Constructive Taxable Income from Related Foreign

Corporations.”

Foreign Tax Credit

[Page 3, Schedule J, Line 5a]

Code section 901 allowed a credit against U.S. income

tax for income taxes paid to foreign countries or U.S. posses-

sions. The credit could be claimed by domestic corporations,

except S corporations, and by foreign corporations engaged

in trade or business in the United States for foreign taxes paid

on income effectively connected with the U.S. business. The

U.S. income tax that could be reduced by the credit excluded

the recapture taxes and the personal holding company tax. The

credit was not allowed for S corporations because their income

was primarily taxed through their shareholders; any creditable

foreign taxes were also passed through to their shareholders.

Regulated investment companies could elect under Code sec-

tion 853 to allow their shareholders to claim any credit for the

foreign taxes paid. However, if the election was not made, the

regulated investment company could claim the tax credit.

The foreign tax credit was subject to a limitation that

prevented the corporations from using foreign tax credits to

reduce U.S. tax liability on U.S.-sourced income. The credit

was limited to a percentage of total U.S. income tax equal to

the ratio of taxable income from foreign sources to worldwide

taxable income. Previously this limitation was computed sepa-

rately for foreign taxes paid or accrued with respect to nine

categories of income. In 2006 the categories changed to four.

These are (1) Passive Income; (2) General Category Income;

(3) Section 901 (j) Income (Sanction Country Income); and (4)

Income Re-sourced by Treaty. Foreign taxes in excess of the

limitation for any 1 year could be carried back 1 year (2 years

for credits arising in a tax year beginning before October 23,

2004) and forward 10 years (5 years for credits that can be car-

ried forward to any tax year ending before October 23, 2004).

The carryover periods (1 year back and 10 years forward) were

modied by the American Jobs Creation Act of 2004.

A corporation that claimed (or passed through) the for-

eign tax credit could not also claim a business deduction for

the same foreign taxes paid. The credit could be reduced for

taxes paid on foreign income from operations involving par-

ticipation or cooperation with an international boycott. The

foreign tax credit was not allowed for taxes paid to certain

foreign countries whose government was not recognized by

the United States, with which the United States severed or did

not conduct diplomatic relations, or which supported interna-

tional terrorism.

General Business Credit

[Form 3800, Line 38]

The general business credit consisted of a combination of

several individual credits* of which the following are edited

by SOI: investment credit (Form 3468), research credit (Form

6765), low-income housing credit (Form 8586), disabled

access credit (Form 8826), renewable electricity production

credit (Form 8835), Indian employment credit (Form 8845),

orphan drug credit (Form 8820), new markets credit (Form

8874), credit for small employer pension plan startup costs

(Form 8881), credit for employer-provided child care facili-

ties and services (Form 8882), biodiesel fuels credit (Form

8864), low sulfur diesel fuel production credit (Form 8896),

alternative motor vehicle credit (Form 8910), alternative fuel

vehicle refueling property credit (Form 8911), qualied plug-

in electric drive motor vehicle credit (Form 8936), qualied

plug-in electric vehicle credit (Form 8834, Part I), investment

credit (Form 3468), work opportunity credit (Form 5884),

alcohol and cellulosic biofuel fuels credit (Form 6478), low-

income housing credit (Form 8586, Part II), renewable elec-

tricity, rened coal, and Indian coal production credit (Form

8835), credit for employer social security and Medicare taxes

paid on certain employee tips (Form 8846), credit for small

employer health insurance premiums (Form 8941), and the

empowerment zone employment credit (Form 8844). If a cor-

poration claimed more than one of these credits, reported a

carryforward, had credits from a passive activity, or had the

Trans-Alaska pipeline liability fund credit, or had the general

credits from an electing large partnership (Schedule K-1, Form

1065-B), Form 3800 was to be led with the income tax return.

The separate components of the general business credit are

shown in Table 21.

*The following general business credit forms are not

edited: Forms 8900, 8906, 8907, 8908, 8909, 8923, 8931, 8932,

8933, 5884-A and 5884-B. However, the current-year amount

is displayed on the appropriate line of Form 3800 and included

in the “credit allowed for the current year” (line 32).

The purpose of the general business credit was to pro-

vide a uniform limitation on the amount that could be used

to reduce tax liability and to establish uniform rules for car-

rybacks and carryforwards. Each of the credits was computed

separately. Total credits became the general business credit for

the purpose of applying the maximum tax liability rules and

the carryback and carryforward rules.

Except for the investment credits, S corporations com-

puted these credits at the corporate level; the credits were then

Explanation of Terms 2013 Income Tax Returns Complete Report

277

passed through to the shareholders. For the investment credits,

the S corporation reported the basis in the qualifying property

to each shareholder. The shareholders themselves computed

the credits. However, S corporations that were previously C

corporations could use business credit carryforwards from

their C-corporation status to reduce tax on their net recognized

built-in gains.

According to Code section 38(c), the general business

credit shall not exceed the excess of the taxpayer’s net income

tax over the greater of (1) the tentative income tax, or (2) 25

percent of so much of the taxpayer’s net regular tax liability as

it exceeds $25,000.

When the credit exceeded the limitation in any year, the

excess became an unused business credit that could be carried

back 1 year and forward 20 years. (For tax years beginning

before December 31, 1997, the carryback period was 3 years

and 15 years forward). Carryforwards of the general business

credit from prior years are shown separately in Table 21.

Income Subject to Tax

[Page 1, Line 30]

This was generally the amount of income subject to tax

at the corporate level. For most corporations, income subject

to tax consisted of net income minus the “Statutory Special

Deductions” described in this section. However, there were cer-

tain exceptions. S corporations were usually not taxable at the

corporate level and so did not have income subject to tax. Some,

however, had a limited tax liability on capital gains and so were

included in the statistics for this item. Likewise, regulated in-

vestment companies and real estate investment trusts generally

passed their net income on to be taxed at the shareholder level;

but any taxable amounts not distributed were included in income

subject to tax. Because insurance companies were permitted

to use reserve accounting for tax purposes, insurance income

subject to tax was based on changes in reserve accounts; life

insurance companies could also have been allowed an additional

special deduction (discussed in “Statutory Special Deductions”).

Consolidated returns that contain life insurance subsidiaries

were not allowed to offset all of the life insurance subsidiary’s

gains by losses from nonlife companies, so it was possible for

such a consolidated return to show no net income but still have

a positive amount of income subject to tax.

Income Tax

[Page 3, Schedule J, Line 2]

Income tax was the amount of a corporation’s total tax

liability calculated at the regular corporate tax rates in Code

section 11 (or substitutes for section 11).

The rates of tax on taxable incomes below $18,333,333 were

graduated (with some exceptions). Corporations other than mem-

bers of a controlled group or personal service corporations used

the following tax rate schedule. If taxable income is:

Over: But not

over:

Tax is: Of the

amount over:

$0 $50,000 15% $0

50,000 75,000 $7,5 00 +2 5% 50,000

75,000 100,000 13,750 +34% 75,000

100,000 335,000 22,250 +39% 100,000

335,000 10,000,000 113,90 0 +3 4% 335,000

10,000,000 15,000,000 3,400,000 +35% 10,000,000

15,000,000 18,333,333 5,150,000 +38% 15,000,000

18,333,333 ------------ 35% 0

The 39-percent and 38-percent rates were imposed to

phase out the benets of the lower brackets for high-income

corporations.

Beginning with the 2006 Tax Year, members of controlled

groups were required to complete the new Schedule O, Consent

Plan and Apportionment Schedule for a Controlled Group, to

delineate the shared apportionment of their tax liability. See

“Consent Plan and Apportionment Schedule for a Controlled

Group” in this section for details. Personal service corporations

(qualied under section 448 to use cash accounting) were taxed

at a at 35 percent on all of their taxable income.

Most income of S corporations was taxed only at the share-

holder level. However, for S corporations that had once been C

corporations, the corporate income tax was imposed on certain

long-term capital gains, recognized built-in gains, and excess

net passive income. The taxes paid on capital gains or recog-

nized built-in gains by S corporations were included in the

corporate statistics as “Income Tax.”

The taxes paid on excess net passive income were excluded

from “Income Tax” but were included in “Total Income Tax.”

A small number of corporations without net income had

an income tax liability. These were corporations reporting all

or part of their income under special life insurance rules, in-

cluding consolidated returns ling a life insurance subsidiary.

See also, “Total Income Tax Before Credits” and “Total

Income Tax After Credits.”

Indian Employment Credit

[Form 8845]

This component of the general business credit was for

employing members of American Indian tribes on Indian

2013 Income Tax Returns Complete Report Explanation of Terms

278

reservations. The credit was equal to 20 percent of the excess

of wages and health benets for such employees over the

amount paid such employees in 1993, limited to $20,000 per

employee.

For the income tax limitations and carryback and carry-

forward provisions that apply, see “General Business Credit”

in this section.

Intangible Assets and Accumulated

Amortization

[Page 5, Schedule L, Line 13a(c)]

Intangible assets represented the total gross value of

goodwill, contracts, formulas, licenses, patents, registered

trademarks, franchises, covenants not to compete, and similar

assets that were amortizable for tax purposes. Thus, specic

intangible asset items were included in this category only if

amortization (or depreciation) actually had been taken against

them.

The amounts shown as accumulated amortization repre-

sent the portion of these intangible assets that were written

off in the current year as well as in prior years. In general,

intangible assets were the gross amounts before adjustments

for amounts of accumulated amortization. Some corporations,

however, reported only the net amount of intangible assets

after adjusting for amortization charges.

Interest

[Page 1, Line 5]

Taxable interest, a component of total receipts, included

interest on U.S. government obligations, loans, notes, mort-

gages, nonexempt private activity bonds, corporate bonds,

bank deposits, and tax refunds. The statistics also included

dividends from savings and loans and mutual savings banks,

federal funds sold, nance charges, and sinking funds. The in-

terest received was reduced by the amortizable bond premium

under Code section 171.

Interest received from tax-exempt State or munici-

pal bonds and ESOP loans was not included in this item.

Corporations were not allowed to offset any interest expense

against interest income. However, if the corporation reported

only a net amount, this gure was used in the statistics. See

also, “Interest Paid.”

Interest received by S corporations was passed through

to shareholders and reported on Form 1120S, Schedule K-1,

Shareholders’ Shares of Income, Credits, Deductions, etc.,

and are not included in the statistics for this item in the Basic

Tables section. These statistics are presented in the 1120S

Basic Tables section as “Interest Income” under “Portfolio

Income (less decit) Distributed to Shareholders.”

Interest on Government Obligations: State

and Local

[Page 5, Schedule M-1, Line 7, and Page 2, Form 8916-A, Part

II, Line 1, column (c), or Page 3, Form 1120, Schedule K, Line

9, or Page 3, Form 1120S, Schedule K, Line 16a]

The interest received from certain government obligations

was not subject to U.S. income tax. These tax-exempt obliga-

tions included those issued by States, municipalities, and other

local governments, the District of Columbia, and U.S. posses-

sions, including Puerto Rico.

For statistical presentation, this interest was included in

total receipts. However, it was not included in net income (less

decit) or income subject to tax.

Interest Paid

[Page 1, Line 18]

These amounts consisted of interest paid by corporations

on all business indebtedness. For banking and savings insti-

tutions, the statistics also included interest paid on deposits

and withdrawable shares. For mutual savings banks, building

and loan associations, and cooperative banks, interest paid

included amounts paid or credited to the accounts of deposi-

tors as dividends, interest, or earnings under Code section 591.

Interest identied as part of the cost of goods sold or capital-

ized under section 263A was excluded from cost of goods sold

and included in the statistics as interest paid.

Inventories

[Page 5, Schedule L, Line 3(d)]

These were the corporations’ end-of-year inventories as

reported on their balance sheets. Inventories included such

items as nished goods, partially nished goods (work in

progress), new materials and supplies acquired for sale, mer-

chandise on hand or in transit, and growing crops reported as

assets by agricultural concerns. Inventories reported on bal-

ance sheets were book accounts and would not necessarily

have corresponded to those reported for tax purposes in cost

of goods sold.

Inventories reported on the returns of companies in nan-

cial industries were transferred during statistical processing

to other balance sheet accounts (unless reported on a consoli-

dated return with nonnancial subsidiaries). For security bro-

kers and dealers, commodity brokers and dealers, and holding

and other investment companies (except bank holding compa-

nies), inventories were included in “Other Investments.” For

the rest of the “Finance and Insurance” and “Management

of Holding Companies” sectors, inventories were included in

“Other Current Assets.” Inventories shown in the statistics for

the “Finance and Insurance” and “Management of Holding

Companies” sectors were those reported by consolidated -

nancial companies with diversied nonnancial subsidiaries.

See also “Inventory, End of Year.”

Inventory, End of Year

[Form 1125-A, Line 7]

These were ending inventories as calculated for tax pur-

poses. Inventories included the portion of its raw materials and

merchandise purchased for resale and not sold during the year.

Statistical adjustments made to the current-year components

of cost of goods sold were not carried over into the capitalized

inventory accounts, which were shown as reported by taxpay-

ers (except for necessary corrections).

See “Cost of Goods Sold.”

Investment Credit

[Form 3468]

This credit was composed of ve separate, unrelated cred-

its: the rehabilitation investment credit, the energy credit, the

qualifying advanced coal project credit, qualifying gasication

project credit, and qualifying advanced energy project credits.

The energy credit was allowed for equipment that used

solar, geothermal, qualied fuel cell, and qualied micro-tur-

bine property to generate electricity, heat or cool a building or

provide heat for a process.

The qualifying advanced coal project credit was allowed

on investments in qualifying advanced coal projects. This proj-

ect must be located in the United States and should be used to

power a new electric generation unit or to ret to repower an

existing electric generation unit.

The qualifying gasication project credit was allowed

on qualied investments that employ gasication technology,

carried out by an eligible entity. This credit was not allowed

on any investments already claimed under the qualifying ad-

vanced coal project credit.

The qualifying advanced energy project credit is a

credit based off a project that re-equips, expands, or estab-

lishes a manufacturing facility for the production of property,

fuel cells, and electric. The property must be used to produce

energy from the sun, wind, geothermal deposits, or other re-

newable resources.

The rehabilitation tax credit offsets the cost of rehabili-

tating a certied historic structure or the rehabilitation costs for

any nonresidential building originally placed in service before

1936. The rehabilitation had to be “substantial” and meet strict

criteria for how much of the original structure was retained.

The rehabilitation of historic structures had to be approved by

an appropriate State or Federal ofcial.

The investment credit was subject to recapture if the prop-

erty was sold or converted to other uses. For S corporations,

the investment credit was computed at the shareholder, not the

corporate, level. The S corporation reported the basis in the

qualifying property to each shareholder for this purpose.

For a discussion of the income tax limitations and carry-

back and carryforward provisions of the credit, see “General

Business Credit” in this section. The components of the general

business credit were shown separately in Table 21.

Investments in Government Obligations

[Page 5, Schedule L, Line 4(d)]

This balance sheet asset item comprised U.S. obligations,

including those of instrumentalities of the Federal Government.

State and local government obligations, the interest on which

was excluded from gross income under section 103(a), were

included in “Tax-Exempt Securities.”

Some property and casualty insurance companies included

investments in government obligations within other investments

on the income tax return, Form 1120-PC. When identied, the

amounts were included in the statistics for investments in gov-

ernment obligations and excluded from other investments.

Land

[Page 5, Schedule L, Line 12(d)]

Land, which was reported as a separate capital asset on

the balance sheet, may be understated in this report because

it could not always be identied. Some corporations may have

included land as part of depreciable or depletable assets or in-

cluded it in other investments. Whenever corporations included

and identied land as part of depreciable assets, the amount

was reclassied as land, but land improvements remained as

depreciable assets.

Loans from Shareholders

[Page 5, Schedule L, Line 19(d)]

This balance sheet liability item was regarded as long term

in duration and included loans to the company from holders of

the company’s stock.

Loans to Shareholders

[Page 5, Schedule L, Line 7(d)]

This balance sheet asset item was regarded as long term

in duration and included loans to persons who held stock in

the corporation.

Losses Incurred

[Form 1120-PC, Schedule A, Line 26]

See “Cost of Goods Sold.”

2013 Income Tax Returns Complete Report Explanation of Terms

280

Low-Income Housing Credit

[Form 8586]

The low-income housing credit was a credit for the acqui-

sition of housing units rented to low-income persons allowed

over 10 years. The annual credit was designed so that the tax-

payer taking it received over the 10 years the present value of

70 percent of the basis of the low-income units in a residential

building (30 percent in the case of certain federally subsidized

new buildings or rehabilitated existing buildings).

The low-income housing credit could only be claimed if

allocated to a residential rental project by a State housing au-

thority and if it met the strict requirements for rental to low-

income renters. If the project was sold or ceased to qualify in

the rst 15 years, the owner was required to repay a portion

of the credit previously taken.

Part I is used to calculate the credit for buildings placed

in service before January 1, 2008.

Part II is used to calculate the credit for buildings placed

in service after 2007. The taxpayer can enter the current year

LIHC from the 8609-A and also make adjustments to car-

ryforwards and carrybacks of the LIHC credit. The Part II

portion serves the same function as the lines on other general

business credit forms whose credit is not subject to alternative

minimum tax limitations.

The low-income housing credit was claimed as one of the

components of the general business credit. For a discussion of

the income tax limitations and carryback and carryforward

provisions of the credit, see “General Business Credit.” The

components of the general business credit are shown sepa-

rately in Table 21.

Low Sulfur Diesel Fuel Production Credit

[Form 8896]

Qualied small business reners may claim a credit for

qualied expenditures to produce low sulfur diesel fuel (Code

section 45H). Beginning in 2006, taxpayers that were not

partnerships, S corporations, or cooperatives were allowed to

claim this credit directly on Form 3800, eliminating the need

for those taxpayers to le Form 8896. The tax liability for

this credit is not computed on Form 8896, instead it is com-

puted as part of the General Business Credit on Form 3800.

The Low Sulfur Diesel Fuel credit was claimed as one of the

components of the general business credit. For a discussion of

the income tax limitations and carryback and carryforward

provisions of the credit, see “General Business Credit” in this

section. The components of the general business credit are

shown separately in Table 21.

Mortgage and Real Estate Loans

[Page 5, Schedule L, Line 8(d)]

In general, mortgage and real estate loans were the total

amount a corporation loaned on a long-term basis, accepting

mortgages, deeds of trust, land contracts, or other liens on real

estate as security.

Because the return form did not provide a separate place

for reporting any reserve for uncollectable mortgage and real

estate loan accounts, such reserves may have been included

in the allowance for bad debts, shown in this report as an

adjustment to notes and accounts receivable. If a corporation

reported an uncollectable mortgage and real estate loan re-

serve on a separate schedule, that amount was moved during

statistical processing to allowance for bad debts.

Mortgages, Notes, and Bonds Payable

[Page 5, Schedule L, Lines 17(d) and 20(d)]

Mortgages, notes, and bonds payable were separated on

the balance sheet according to the length of time to maturity

of the obligations. The length of time to maturity was based on

the date of the balance sheet rather than on the date of issue of

the obligations. Accordingly, long-term obligations maturing

within the coming year were reportable with short-term obli-

gations as having a maturity of less than 1 year. Deposits and

withdrawable shares may have been reported in mortgages,

notes, and bonds payable by banks and savings institutions.

When identied, such amounts were transferred to “Other

Current Liabilities.”

Net Capital Gains

[Schedule D, Lines 16 and 17]

In the tables in this report, capital gains net of capital

losses were presented divided into two data items: “Net Short-

Term Capital Gain Reduced by Net Long-Term Capital Loss”

and “Net Long-Term Capital Gain Reduced by Net Short-Term

Capital Loss.” A gain or loss from the sale or exchange of

capital assets was short term if the assets had been held for

1 year or less and long term if they had been held for longer

than 1 year. The distinction between long-term and short-term

assets was maintained in the Code and in the reporting forms

even though it did not affect tax liability.

For corporations, capital losses were generally deduct-

ible only from capital gains, so only net gains were included

in the statistics. Excess net losses could be carried back as

short-term losses to be applied against the net capital gains of

the 3 preceding years; any losses remaining after carryback

were carried over the 5 succeeding years. A net capital loss

for a regulated investment company could be carried forward

8 years instead of 5 years. If the unused capital loss carry-

over was not eliminated within the prescribed span of years,

it could not be taken. Regardless of origin, all carrybacks and

carryovers were treated as short-term capital losses for car-

ryback and carryover purposes.

Explanation of Terms 2013 Income Tax Returns Complete Report

281

In general, capital assets for tax purposes meant property

regarded or treated as an investment, such as stocks and bonds.

Code section 1221 dened the capital assets as all property held

by the corporation except:

(1) stock in trade or other property included in inventory

or held mainly for sale to customers;

(2) notes and accounts receivable acquired in the ordinary

course of business;

(3) depreciable or real property used in the trade or

business;

(4) copyrights, literary, musical, or artistic compositions,

or similar properties not acquired by purchase;

(5) publications of the United States Government not ac-

quired by purchase;

(6) certain commodities derivative nancial instruments

held by a dealer;

(7) certain hedging transactions entered into in the normal

course of trade or business; and

(8) supplies regularly used in the trade or business.

Gains from constructive ownership transactions entered

into after July 11, 1999, that involved any equity interest in

passthrough entities such as partnerships, S corporations,

trusts, regulated investment companies, and real estate invest-

ment trusts that would otherwise be treated as capital gains

could be treated instead as ordinary income. Constructive

ownership transactions included gains from notional princi-

pal contracts with the right to receive substantially all of the

investment yield of an equity interest and the obligation to re-

imburse substantially all of any decline in value of the inter-

est; a forward or futures contract to acquire an equity interest;

and the holding of a call option and writing of a put option at

substantially the same strike price and maturity date. A net

underlying long-term capital gain had to be established by

computing a net capital gain as though the asset were acquired

at its fair market value when the transaction was opened and

sold at its fair market value when the transaction was closed. If

not established, the net underlying long-term capital gain was

treated as zero. Any long-term capital gain that exceeded the

net underlying long-term capital gain was treated as ordinary

income. Gains from constructive ownership transactions that

were marked to market were excluded from this provision to

be treated as ordinary income.

Although depreciable and real property used in the trade

or business was dened as not a capital asset, gain on such

property held for more than 1 year could be treated as long-

term capital gain. See “Net Gain (or Loss), Noncapital Assets”

below.

The capital gains of S corporations were passed through

to their shareholders and not included in the corporations’ or-

dinary income (loss) from trade or business activities but were

reported on Form 1120S, Schedule K-1, Shareholders’ Shares

of Income, Credits, Deductions, etc. These statistics are pre-

sented in the 1120S Basic Tables Section as “Net Short-Term

Capital Gain (less loss)” and “Net Long-Term Capital Gain

(less loss)” under “Portfolio Income (less decit) Distributed

to Shareholders.”

Net Gain (or Loss), Noncapital Assets

[Page 1, Line 9]

This item includes all losses from the sale or exchange of

noncapital assets, but only those gains that were not treated as

long-term capital gains. Noncapital assets included property

used in a trade or business plus certain other transactions given

special treatment by statute. After December 16, 1999, non-

capital assets were expanded to also include certain nancial

assets such as:

(1) certain commodities derivative nancial instruments

held, acquired, or entered into by commodities deriva-

tives dealers;

(2) any hedging transaction clearly identied as a hedging

transaction before the close of the day on which it was

acquired, originated, or entered into; and

(3) supplies regularly used or consumed in the ordinary

course of a trade or business.

A commodities derivative nancial instrument is a commodi-

ties contract or other nancial instrument with respect to com-

modities, for which the value or settlement price is calculated or

determined by reference to a specied index as dened in Code

section 1221(b). A commodities derivative dealer is an entity

which regularly offers to enter into, assume, offset, assign, or ter-

minate positions in commodities derivative nancial instruments

with customers in the ordinary course of a trade or business. A

hedging transaction is any transaction entered into in the normal

course of a trade or business primarily to manage one of the fol-

lowing: 1) risk of price changes or currency uctuations involving

ordinary property held (or to be held) and 2) risk of interest rate or

price changes, or currency uctuations, involving borrowed funds

or ordinary obligations incurred (or to be incurred).

Rules governing the computation of a net gain or loss

from noncapital assets were provided under Code section 1231.

Transactions treated under these special provisions included:

2013 Income Tax Returns Complete Report Explanation of Terms

282

(1) the sale or exchange of real or depreciable property

used in a trade or business;

(2) the cutting or disposal of timber treated as a sale or

exchange under Code sections 631(a) and (b);

(3) the disposal of coal or iron ore treated as a sale under

Code section 631(c);

(4) the sale or exchange of livestock (excluding poultry)

used in a trade or business for draft, breeding, dairy,

or sporting purposes, if held for at least 12 months (24

months for horses and cattle);

(5) the sale or exchange of unharvested crops sold with

the land; and

(6) the involuntary conversion of property or capital

assets due to partial or total destruction, theft, sei-

zure, requisition, or condemnation.

Long-term gains from section 1231 transactions were

treated as long-term capital gains for tax purposes and were

included in “Net Capital Gains” in these statistics. Losses

under section 1231 were treated as ordinary losses, i.e., fully

deductible from ordinary income. Amounts treated as long-

term gains were reduced by a number of provisions designed

to recapture (as ordinary income) previous benets. These

provisions included: sections 1245 and 1250, recapturing

some depreciation taken previously; section 1252, recaptur-

ing conservation and land clearing expenses upon the sale of

some farmland; section 1254, recapturing certain depletion,

intangible drilling, and mine development expenses; and sec-

tion 1255, recapturing some crop-sharing payments if a farm

is sold within 20 years of receiving the payments.

Statutory provisions allow that recognition of a gain or

loss may be postponed under certain circumstances. The post-

ponement of gain recognition accounts for some differences

in tax versus book income. This difference is not presented

in these statistics.

Gains and losses resulting from involuntary conversions,

due mostly to casualty and theft, received special treatment.

Such losses were to be included in the computation of net

gain or loss, noncapital assets. However, some corporations

reported them in other deductions, in which case, the losses

were included in the statistics for other deductions. No attempt

was made to recompute the net gain or loss from noncapital

assets or the carryover of losses subject to recapture rules for

such returns.

Although this item was a part of corporate-level income

for S corporations, the portion of gain treated as long-

term capital gain under section 1231 was not a part of the

corporations’ ordinary income (loss) from trade or business

activities but rather was reported on Form 1120S, Schedule

K-1, Shareholders’ Shares of Income, Credits, Deductions, etc.

Net Income (or Decit)

[Page 1, Line 28]

This was net prot or loss from taxable sources of income re-

duced by allowable deductions. It differed from “Total Receipts

Less Total Deductions” because it included “Constructive

Taxable Income from Related Foreign Corporations” and ex-

cluded “Interest on Government Obligations: State and Local.”

Net income generally differed from “Income Subject to Tax”

by the “Statutory Special Deductions” allowed corporations.

More information can be found under all these headings in

this section.

Net income included income from the trade or business

activities of S corporations, including ordinary gain from the

sale of business property. Although the income was taxable

to the shareholders, it was used for the statistics as a mea-

sure of corporate business activity for these companies. For

tax purposes, net income for S corporations excluded passive

income, which was passed through to the shareholders and

reported on Form 1120S, Schedule K-1, Shareholders’ Share

of Income, Credits, Deductions, etc. Statistics on these items

are presented in the 1120S Basic Tables as “Net income (less

decit) from a trade or business.” Although certain long-term

capital gains were taxable to S corporations before the gains

were passed through to the shareholders, these gains were ex-

cluded from net income.

The statistics for net income (or decit) also included the

“effectively connected income” of foreign corporations oper-

ating in the United States. Generally, income was considered

effectively connected if the foreign corporation conducted a

trade or business in the United States and the income was at-

tributable to that business.

Property and casualty insurance companies with pre-

mium income of $1,200,000 or less could elect to compute

income tax on their taxable investment income only, deduct-

ing only expenses related to that income. Therefore, the sta-

tistics for net income included only net investment income

for those companies. (Such a company with premiums of

$600,000 or less was exempt from tax and so does not appear

in these statistics.)

Net Long-Term Capital Gain Reduced by Net

Short-Term Capital Loss

See “Net Capital Gains.”

Net Operating Loss Deduction

See “Statutory Special Deductions.”

Explanation of Terms 2013 Income Tax Returns Complete Report

283

Net Short-Term Capital Gain Reduced by Net

Long-Term Capital Loss

See “Net Capital Gains.”

Net Worth

Net worth represented the shareholders’ equity in the corpora-

tion (total assets minus the claims of creditors). In the statistics,

net worth comprised the net sum of the following items:

(1) capital stock;

(2) additional paid-in capital;

(3) retained earnings, appropriated;

(4) retained earnings, unappropriated;

(5) adjustments to shareholders’ equity;

(6) less the cost of treasury stock.

New Markets Credit

[Form 8874]

The New Markets tax credit has been created to increase

investments in low-income communities. The credit was

equal to 5 percent of the investment in a qualied commu-

nity development entity for the rst 3 allowance dates and 6

percent of the investment for the next 4 allowance dates. The

total credit available was equal to 39 percent of the invest-

ment over 7 years.

The New Markets tax credit is a part of and subject to the

limitations and carryover rules of the general business credit.

The credit may not be carried back to tax years ending before

January 1, 2001. Any unused credit at the end of the carryfor-

ward period will be allowed as a deduction in the following tax

year. The components of the general business credit are shown

separately in Table 21.

Nonconventional Source Fuel Credit

[Form 3800, Page3, Line 1o]

The amount of the Nonconventional Source Fuel Credit is

gured on Form 8907. This credit is allowed for the production

of qualied fuel that was sold by a taxpayer to an unrelated

person during the tax year. In general, the amount of the credit

is $3 (adjusted for ination) per barrel of oil-equivalent fuel,

and production must occur within the U.S. or a U.S. Possession.

Qualied fuels include the following if sold before 2008:

(1) Gas produced from biomass; and

(2) Liquid, gaseous, or solid synthetic fuels produced

from coal.

It also includes coke and coke gas (if sold after December

31, 2005) produced in a facility where the original use began

with the taxpayer and is not produced from petroleum-based

products.

For tax years after December 31, 2005, the Energy Tax

Incentive Act of 2005 made the nonconventional source fuel

credit part of the general business credit, and will be subject

to the limitation and carryforward rules of the general busi-

ness credit.

Notes and Accounts Receivable

[Page 5, Schedule L, Line 2a(c)]

In general, notes and accounts receivable were the gross

amounts arising from business sales or services to customers

on credit during the ordinary course of trade or business. These

current assets would normally be converted to cash within 1

year. This category included commercial paper, charge ac-

counts, current intercompany receivables, property improve-

ment loans, and trade acceptances. Current nontrade receiv-

ables were generally included in other current assets.

Certain savings and loan associations reported loans and

mortgages as notes and accounts receivable. When identi-

ed, such mortgage loans were included in the statistics for

mortgage and real estate loans, rather than notes and accounts

receivable.

The gross amount of the receivables and the corresponding

adjustment account, allowance for bad debts, were reported on

the balance sheets of most corporation income tax forms. For

an explanation of the adjustment account, see “Allowance for

Bad Debts.” Some corporations, however, reported only the net

amount of the accounts receivable.

Number of Returns

This was a count of the returns led by active corporations

on one of Form 1120-series returns. It included ordinary for-

prot C corporations ling Form 1120 or its simplied version,

S corporations electing to be taxed through their sharehold-

ers ling Form 1120S, foreign corporations with U.S.-source

income ling Form 1120-F, life insurance companies ling

Form 1120-L, property and casualty insurance companies

ling Form 1120-PC, Real Estate Investment Trusts ling Form

1120-REIT, and Regulated Investment Companies ling Form

1120-RIC. It did not include nonprot corporations, exempt

farmers’ cooperatives, and many other incorporated organiza-

tions that did not le corporation income tax returns. It also

did not include the returns of inactive corporations, dened as

those reporting no item of income or deductions.

See Section 3, Description of the Sample and Limitations

of the Data.

2013 Income Tax Returns Complete Report Explanation of Terms

284

Consolidated groups could le a single return covering

many corporations, so the number of returns was not a count

of the number of active corporations.

See “Consolidated Returns.”

Orphan Drug Credit

[Form 8820]

This was a credit for 50 percent of the costs of testing

drugs to be used for treating rare diseases, dened as those

affecting fewer than 200,000 people or those occurring so

infrequently that developing a drug to treat them would not

be economical. This had been one of the “sunset” provisions

(regularly reviewed and extended), but the Taxpayer Relief Act

of 1997 made it a permanent part of the tax law.

The orphan drug credit was claimed as one of the com-

ponents of the general business credit. For a discussion of the

income tax limitations and carryback and carryforward provi-

sions of the credit, see “General Business Credit.” The com-

ponents of the general business credit are shown separately

in Table 21.

Other Assets

[Page 5, Schedule L, Line 14(d)]

In general, other assets comprised noncurrent assets,

which were not allocable to a specic account on the balance

sheet, and certain assets not identied as current or noncur-

rent. Both tangible and intangible assets were included in

this category. Also included were assets such as: deposits on

contracts, interest discounts, and guaranty deposits, when re-

ported as noncurrent assets.

Other assets of life insurance companies included the

market value of real estate and that portion of stock and bond

holdings in excess of book value. For statistical purposes, neg-

ative balance sheet asset accounts have been moved to, and

included in, the computation of other assets. This procedure

was adopted to address the increased usage of negative items

being reported on corporate balance sheets. This process may

cause other assets to become negative in certain situations.

When identied on the tax return, assets held for investment

were not included in other assets.

Other Costs

[Form 1125-A, Line 5]

See “Cost of Goods Sold.”

Other Credits and Payments

[Form 1120-PC, Page 1, Line 14i]

See “Overpayment or Amount Owed.”

Other Current Assets

[Page 5, Schedule L, Line 6(d)]

Other current assets included assets not allocable to a spe-

cic current account listed on the balance sheet of the tax form

and assets reported as short term, but without identication of

a specic current account.

Marketable securities, prepaid expenses (unless reported

as long term), nontrade receivables, coupons and dividends re-

ceivable, and similar items were included in this asset account.

Deposits were included here for banks and deposit institutions.

Also included were amounts in excess of billings for contract

work in progress reported as current by construction corporations.

When reported by certain nonconsolidated nancial com-

panies, inventories were included in the statistics for other

current assets, rather than for inventories. Those nonconsoli-

dated nancial companies included banks, credit agencies,

insurance companies, insurance agents, brokers, real estate

operators, lessors, and condominium management and co-

operative housing associations. Inventories were included in

other current assets if reported by bank holding companies,

whether consolidated or nonconsolidated. However, if consoli-

dated with nonnancial subsidiaries, then inventories were not

moved to other current assets to the extent they were attribut-

able to the nonnance subsidiaries.

Some property and casualty insurance companies in-

cluded investments in government obligations and tax-exempt

securities with other current assets on the income tax return,

Form 1120-PC. When identied, the amounts were included

in the statistics for investments in government obligations and

tax-exempt securities and excluded from other current assets.

Other Current Liabilities

[Page 5, Schedule L, Line 18(d)]

Other current liabilities included certain amounts due and

payable within the coming year. The account was comprised of

accrued expenses, as well as current payables not arising from the

purchase of goods and services. Examples of other current liabili-

ties were taxes accrued or payable, accrued employee accounts

such as for payrolls and contributions to benet plans, dividends

payable, overdrafts, accrued interest or rent, and deposits and

withdrawable shares of banking and savings institutions, if not

reported as long-term by the corporation. For construction cor-

porations, amounts for uncompleted contracts or jobs in progress

were included in this item, if reported as current.

Other Deductions

[Page 1, Line 26]

Other deductions comprised: (1) business expenses which

were not allocable to a specic deduction item on the tax

return, or which were not included elsewhere on the tax return,

and (2) certain amounts which were given special treatment

in the course of statistical processing. It also included adjust-

ments reported as deductions.

Explanation of Terms 2013 Income Tax Returns Complete Report

285

The rst category included such items as administrative,

general, and selling expenses; commissions (unless reported

as cost of goods or salaries and wages); delivery, freight, and

shipping expenses; sales discounts; travel and entertainment

expenses; utility expenses not reported as part of the cost of

goods sold; and similar items. For meal and entertainment ex-

penses, generally only 50 percent was deductible.

The second category included intangible drilling costs,

direct pensions (paid by a company to an individual but not to

pension plans), employee welfare (but not payments to welfare

or benet plans), moving expenses (for employees), partnership

net losses, and patronage dividends paid. Also included were

itemized business deductions and other deductions unique to

life and property and casualty insurance companies.

Losses from involuntary conversions which were reported

as ordinary losses on Form 4797, Supplemental Schedule of

Gains and Losses, were included in the statistics for “Net Gain

(or Loss), Noncapital Assets.” However, some taxpayers re-

ported such amounts as deduction items; if so, they were in-

cluded in the statistics for “Other Deductions.” Also included

were net foreign currency losses for regulated investment com-

panies, life insurance increases in reserves, and policyholder

dividends paid by insurance companies on participating poli-

cies (after certain adjustments).

The statistics for other deductions excluded amounts for

amortization and from specied policy acquisition expenses of

life insurance companies (IR Code section 848) (except amor-

tization of intangible drilling costs), which were moved during

statistical processing to “Amortization.”

Other Investments

[Page 5, Schedule L, Line 9(d)]

This category generally included long-term nongovern-

ment investments and certain investments for which no dis-

tinction could be made as to their current or long-term nature.

Examples of nongovernment investments included stocks,

bonds, loans to subsidiaries, treasury stock reported as assets,

and other types of nancial securities.

Real estate not reported as a xed asset could also be

included. In certain instances, land and buildings owned by

real estate operators (except lessors of real property other than

buildings) were reported as other investments. Certain insur-

ance carriers also included their real estate holdings (other than

their home and branch ofce buildings) in this asset category.

When inventories were reported by companies in certain

nancial industries, the amounts were included in the statistics

for other investments and excluded from inventories. For secu-

rity brokers and dealers, commodity brokers, dealers, and ex-

changes, and holding and other investment companies (except

bank holding companies), inventories were included in other

investments unless the return was consolidated and included

nonnance subsidiaries. Inventories attributable to the non-

nance subsidiaries were not moved to other investments.

The statistics may be somewhat overstated by amounts that

should have been reported for treasury stock. When treasury

stock held for resale or for future distribution was reported as

an asset, rather than as an offset to capital stock, the treasury

stock was included in the statistics for other investments.

Some property and casualty insurance companies included

investments in government obligations and tax-exempt securi-

ties in other investments on the income tax return, Form 1120-

PC. When identied, these amounts were transferred to the

appropriate accounts.

Other Liabilities

[Page 5, Schedule L, Line 21(d)]

Other liabilities were obligations which were not allocable

to a specic account on the balance sheet and which were either

noncurrent accounts, in general not due within 1 year, or ac-

counts which could not be identied as either current or long

term. The excess of reserves for amortization, depreciation,

and depletion over the respective asset accounts was included

in this balance sheet account.

Examples of other liabilities were deferred or unearned

income not reported as part of a current account, provisions

for future or deferred taxes based on the effects of either accel-

erated depreciation or possible income tax adjustments, and

principal amounts of employee and similar funds. Accounts

and notes payable, borrowed securities, commissions, inter-

company accounts, loans, overdrafts, and unearned income

were also included. For statistical purposes, negative balance

sheet liability accounts have been moved to, and included in,

the computation of other liabilities. This procedure was ad-

opted to address the increased usage of negative items being

reported on corporate balance sheets. This process may cause

other liabilities to become negative in certain situations.

Other Receipts

[Page 1, Line 10]

Other receipts included amounts not reported elsewhere

on the return form. These included income from minor opera-

tions; cash discounts; income from claims, license rights, judg-

ments, and joint ventures; net amount earned under operating

agreements; prot from commissaries; prot on prior-years’

collections (installment basis); prot on the purchase of a cor-

poration’s own bonds; recoveries of losses and bad debts previ-

ously claimed for tax purposes; refunds for the cancellation of

contracts; auto lease inclusion income; and income from sales

of scrap, salvage, or waste.

Unidentied and certain dividends received were also re-

garded as “other receipts.” For example, those from Federal

2013 Income Tax Returns Complete Report Explanation of Terms

286

Reserve and Federal Home Loan Banks and the following

special classes of corporations: corporations deriving a large

percent of their gross income from sources within a U.S.

possession, when they did not provide detailed attachments;

tax-exempt charitable, educational, religious, scientic and

literary organizations, and mutual and cooperative societ-

ies including farmers’ cooperatives. Also included were any

adjustment items reported by corporations and listed in other

income, payments with respect to security loans, foreign cur-

rency gains for regulated investment companies, and life in-

surance decreases in reserves. See also “Business Receipts.”

Overpayment or Amount Owed

[Page 1, Line 35]

All corporations with more than minimal tax liability

were required to have settled their liability by the time their

returns were due for their accounting year, within specied

tolerances. They were required to estimate their liability

at the beginning of their tax year and make payments on

this estimated tax liability at least quarterly. If estimated

tax payments were less than nal tax liability for the year,

within the allowed tolerances, the corporation was assessed

a penalty. The corporation could count as tax payments its

“Credit for Tax Paid on Undistributed Capital Gains,” “Credit

for Federal Tax on Fuels,” and “Refundable Credits” (see

these headings, above). A property and casualty insurance

company could also claim a credit for taxes paid by a re-

ciprocal (see “Reciprocal Tax”) and for certain other pay-

ments and credits it could have been required to make. A

corporation that requested an extension of time to le its tax

return was required to pay any nal estimated tax liability

not already covered (see “Tax Deposited with Form 7004”).

When the corporation nally led its return for the year,

it would seldom have paid exactly the nal liability; most

corporations would have had either an overpayment or an

amount owed.

Estimated tax payments were required of any corpora-

tion expecting to owe a tax liability of $500 or more for the

year. The payments had to be made quarterly, on the fteenth

day of the fourth, sixth, ninth, and twelfth months of the

company’s accounting year. If the total payments for the year

were greater than the liability shown on the return, the over-

payment could be either refunded or applied to next year’s

estimated tax liability. If a corporation realized before it led

its return that it had overpaid, and the overpayment was at

least $500 and at least 10 percent of tax liability for the year,

it could apply for an immediate refund of the excess payment.

The application had to be made within 2-1/2 months of the

close of its taxable year.

If a corporation had $500 or more of tax liability on the

due date of its return and had not made quarterly estimated

tax payments of at least 25 percent (each quarter) of the li-

ability shown on its return or 25 percent of the tax it paid in

the previous year, it was liable for a penalty for underpayment

of estimated tax. This penalty, which was calculated at the

current interest rate prescribed by IRS, became a part of the

amount owed when the corporation led its return. However,

the penalty did not apply if there was a legitimate reason for

the underpayment.

Foreign insurance companies with effectively connected

income (as led on Form 1042-S) may have reported U.S.

income tax paid or withheld at source, which would be consid-

ered in their tax liability computation. These amounts are in-

cluded in “Overpayment or Amount Owed.” The components

of the tax payment schedule are shown in Tables 18 and 20.

Overpayments Less Refund

[Page 3, Line 12]

These were the net estimated tax payments, after deduct-

ing any amount previously refunded, remaining to be credited

when the corporation’s tax return was led. See “Overpayment

or Amount Owed.”

Passive Activity Credits

[Form 3800, Lines 2 and 3]

The General Business Credit that could be claimed by

personal service corporations and closely held corporations

was subject to an additional limitation if the component cred-

its were generated in a passive activity. The total amount of

such credits and the amount allowed in 2013 are shown in

the computation of the general business credit in Table 21.

Passive activities generally included trade or business activi-

ties in which the corporation did not materially participate for

the tax year and, with exceptions, rental activities regardless

of the corporation’s participation.

Penalty for Underpayment of Estimated Tax

[Page 1, Line 33]

See “Overpayment or Amount Owed.”

Pension, Prot-Sharing, Stock Bonus, and

Annuity Plans

[Page 1, Line 23]

This deduction was the current year’s deductible contribu-

tions to qualied pension, prot-sharing, or other funded de-

ferred compensation plans. Contributions made by employers

to these plans were deductible under Code section 404 subject

to limits on contributions for owners, ofcers, and highly paid

employees. For dened-benet plans, contributions were also

limited based on actuarial computations of the amount neces-

sary to fund the promised benets.

The statistics included amounts from “Cost of Goods

Sold” and “Other Deductions” identied as pensions (unless

clearly direct pensions), annuity plans, 401(k) plans, prot-

sharing plans, retirement plans, and stock bonus plans. Any

amounts identied as part of cost of goods sold or capitalized

Explanation of Terms 2013 Income Tax Returns Complete Report

287

under section 263A were excluded from cost of goods sold and

included in these statistics. The combined amount for compa-

nies other than mining companies that reported an amount for

a combination of welfare/retirement plans was included in the

statistics for contributions to pension and prot-sharing plans.

This item was not reported for regulated investment com-

panies and real estate investment trusts.

Portfolio Income (Less Decit)

Portfolio income (less decit) is interest, dividends, annuities

and royalties, as well as gain or loss from the disposition of

income-producing or investment property that is not derived

in the ordinary course of trade or business.

Prior Year Minimum Tax Credit

[Form 8827, Line 8]

Corporations received a credit against their regular income

tax liability for alternative minimum taxes paid in prior years

to prevent double taxation of the same income. The minimum

tax was imposed on income for which tax liability was only

deferred under the regular tax; when the deferral ended and

the income became taxable under the regular tax, credit was

given for the taxes already paid on that income. The minimum

tax credit thus acted as a mechanism to coordinate the two tax

systems. The credit was limited to the excess of regular tax

after credits over the current year tentative minimum tax. Any

unused portion of the prior year minimum tax credit could

be carried forward indenitely to reduce the regular tax. The

credit was not designed to reduce any minimum tax liability.

There were no carryback provisions for this tax credit.

See also, “Alternative Minimum Tax.”

Purchases

[Form 1125-A, line 2]

This is the total of items purchased during the year for

resale or to become a part of goods manufactured or prepared

for sale. See “Cost of Goods Sold.”

Qualied Electric Vehicle Credit

[Form 8834, Line 7]

A qualied electric vehicle was a vehicle manufactured

primarily for use on public roads, having at least four wheels,

and powered primarily by an electric motor drawing cur-

rent from rechargeable batteries, fuel cells, or other portable

sources of electrical current. In addition, the original use of

the vehicle must begin with the taxpayer, acquired for tax-

payer’s own use, and not for resale. A credit can be claimed

for certain two- or three–wheeled vehicles acquired after 2011

on Form 8936. The credit was equal to the lesser of $2,500 or

10 percent of the cost of the vehicle (after reduction by any

Section 179 deduction) for vehicles placed in service after

February 17, 2009, and before January 1, 2012. The basis of

each vehicle must be reduced by the amount of the credit.

Vehicles qualifying for this credit were not eligible for the

deduction for clean-fuel vehicles under Section 179A. If the

vehicle no longer qualies for the credit within 3 years of

the date placed in service, part or all of the credit must be

recaptured.

Qualied Plug-In and Electric Drive Motor

Vehicle Credit Δ

[Form 8936, Line13]

A qualied plug-in electric drive motor vehicle was a new

vehicle having at least four wheels, with a gross vehicle weight

of less than 14,000 pounds and powered primarily by an elec-

tric motor drawing electricity from a rechargeable battery that

has a capacity of not less than 4 kilowatt hours. A credit can

be claimed for certain two- or three-wheeled vehicles acquired

after 2011 and before 2014. In addition, the original use of the

vehicle must begin with the taxpayer, acquired for taxpayer’s

own use, and not for resale. The credit was equal to the al-

lowable credit for the year, make, and model of the vehicle

multiplied by the percentage of business use for each vehicle.

The basis of each vehicle must be reduced by the amount of the

credit. If the vehicle no longer qualies for the credit within

3 years of the date placed in service, part or all of the credit

must be recaptured.

Reciprocal Tax

[Form 1120PC, Page 1, Line 5]

A property and casualty insurance company with recip-

rocal or interinsurance arrangements with another entity (an

”attorney-in-fact”) could elect to allocate to the other entity

deductions equal to those actually claimed by the other entity

for the allocated insurance. In effect, this caused the net income

from the transaction to be taxable to both entities, but since

both might not have been taxable at the same rate, Code section

835 taxed the income to the insurance company at the highest

corporate rate and allowed the company to take a credit for any

taxes paid by the other entity. The “Reciprocal Tax” and the

“Credit by Reciprocal” were included in “Total Income Tax

After Credits” in the general tables and were shown separately

in Table 20.

Refundable Credits

[Page 3, Schedule J, Line 19c]

These credits are from Form 8827, line 8c. Form 8827,

line 8c, is the refundable amount for a corporation electing to

accelerate the minimum tax credit.

Renewable Electricity Production Credit

[Form 8835]

Form 8835 was used to claim the renewable electricity,

rened coal, and Indian coal production credit. This credit is

allowed only for the sale of electricity, rened coal, or Indian

coal produced in the United States (or U.S. possessions) from

qualied energy resources at a qualied facility. The credit in-

cludes the following qualifying resources and facilities for the

2013 Income Tax Returns Complete Report Explanation of Terms

288

production of electricity: wind, closed-loop biomass (generally

organic plants grown for the sole purpose of being used to

generate electricity), poultry waste, open-loop biomass (agri-

cultural livestock waste nutrients and solid wood waste mate-

rials), geothermal energy, solar energy, small irrigation power,

municipal solid waste, and qualied hydropower production.

The credit period for electricity produced from renewable

energy sources could be claimed over a 5- or 10-year period,

depending on the facility.

The renewable electricity production credit was included

in the general business credit shown in the tables. For a dis-

cussion of the income tax limitations and carryback and car-

ryforward provisions of the credit, see “General Business

Credit.” The components of the general business credit are

shown separately in Table 21.

Rent Paid on Business Property

[Page 1, Line 16]

This deduction consisted of rents paid for the use of land,

buildings or structures, and rents paid for leased roads, and

work equipment for railroad companies. Also included in rents

paid was the leasing of vehicles. Auto lease inclusion income,

required by law to offset this deduction for businesses that

lease luxury automobiles, was reported in other receipts. Some

corporations reported taxes paid and other specic expenses

with rents paid. When identied, those items were included

in the statistics for the respective deductions and excluded

from rents paid.

Rent identied as part of the cost of goods sold, or capi-

talized under section 263A, was excluded from cost of goods

sold and included in the statistics as rent paid on business

property.

Gross Rents

[Page 1, Line 6]

These were the gross amounts received for the use or oc-

cupancy of property by corporations whose principal activities

did not involve operating rental properties. Expenses related to

rental property, such as depreciation, repairs, interest paid, and

taxes paid, were not deducted directly from the rental income,

but were reported as business deductions.

When rents were a signicant portion of a corporation’s

operating income, they were included in the statistics for busi-

ness receipts rather than in rents. These corporations included

some manufacturers and public utility companies, as well as

businesses whose principal operating income was expected to

be rents, such as hotels, motels, and other lodging places. For

real estate operators, rental income was included in business

receipts if the expense schedule indicated that the owner oper-

ated the building rather than leased it. No rent was reported

for regulated investment companies (RICs). S corporations

reported income from rents on Form 1120S, Schedule K-1,

Shareholders’ Shares of Income, Credits, Deductions, etc.

and are not included in the statistics for this item in the Basic

Tables section. These statistics are presented in the 1120S

Basic Tables section.

Repairs

[Page 1, Line 14]

Repairs reported as an ordinary and necessary business

expense were the costs of maintenance and incidental repairs

that did not add to the value or appreciably prolong the life

of the property. Expenditures for permanent improvements,

which increased the basis of the property, were required to

be capitalized and depreciated rather than deducted currently.

Regulated investment companies did not report repairs.

Research Activities Credit

[Form 6765]

The research activities tax credit is a credit for qualied

research expenses and basic research payments to universi-

ties and other qualied organizations. The research credit is a

credit taken upon expenses paid or incurred for qualied re-

search as dened by section 174 of the Internal Revenue Code.

The methods to calculate the credit are the Regular Credit and

Alternative Simplied Credit.

Research is limited to research undertaken to discover

information that is technological in nature and useful in the de-

velopment of a new or improved business component. The re-

search had to be conducted within the United States and could

not involve the social sciences, arts, or humanities. Research

funded by another person, a grant, or a government agency

was also ineligible for the credit. For qualied clinical testing

expenses relating to drugs for certain rare diseases, taxpayers

can elect to claim the credit using Form 8820, Orphan Drug

Credit.

For a discussion of the income tax limitations and carry-

back and carryforward provisions of the credit, see “General

Business Credit.” The components of the general business

credit are shown separately in Table 21.

Retained Earnings, Appropriated

[Page 5, Schedule L, Line 24(d)]

Earnings set aside for specic purposes and not avail-

able for distribution to shareholders were included under this

heading. Included were guaranty funds (for certain nance

companies), reserves for plant expansion, bond retirements,

contingencies for extraordinary losses, and general loss re-

serves. Also included was the total amount of all reserves not

dened as valuation reserves or reserves included in other li-

abilities. Specically excluded were the reserves for bad debts,

depreciation, depletion, and amortization, which were shown

separately in this report. Unrealized appreciation was included

in retained earnings unappropriated. Unrealized prots were

included in other liabilities. Unearned income, if not current,

Explanation of Terms 2013 Income Tax Returns Complete Report

289

was also included in other liabilities. Any amount of retained

earnings not identied as appropriated or unappropriated was

considered unappropriated for purposes of these statistics.

Retained Earnings, Unappropriated

[Page 5, Schedule L, Line 25(d)]

Retained earnings, unappropriated, consisted of the re-

tained earnings and prots of the corporation less any re-

serves (these reserves were shown in the statistics as Retained

Earnings, Appropriated). Dividends and distributions to share-

holders were paid from this account. These accumulated earn-

ings included income from normal and discontinued opera-

tions, extraordinary gains or losses, and prior period adjust-

ments. Also included were undistributed or undivided earnings

(income or prots), and earned surplus. For railroads, unap-

propriated retained earnings included additions to property and

funded debt retired through income and surplus. The statistics

presented here are net amounts after reduction for negative

amounts reported and include adjustments to shareholders

equity reported by the taxpayer.

Adjustments reported by the taxpayers primarily consisted

of unrealized gains and losses from securities held “available

for sale.” Also included in adjustments, guarantees of employee

stock ownership plan debt, and compensation related to em-

ployee stock award plans.

Returns of Active Corporations

These returns were the basis for all nancial statistics presented

in the report. They comprised the vast majority of the returns

led, and were dened for the statistics as returns of corpora-

tions reporting any income or deduction items, including tax-

exempt interest. Although corporations in existence during

any portion of the taxable year were required to le a return

whether or not they had income and deductions (Code section

6012(a)(2)), inactive corporations’ returns were excluded from

the statistics. See Section 3, Description of the Sample and

Limitations of the Data.

Returns With Net Income

See “Net Income (or Decit).”

Royalties

[Page 1, Line 7]

Royalties were gross payments received, generally on an

agreed percentage basis, for the use of property rights before

taking deductions for depletion, taxes, etc. Included were

amounts received from such properties as copyrights, patents,

and trademarks; and from natural resources such as timber, min-

eral mines, and oil wells. Expenses relating to royalties, depletion

or taxes, were not deducted directly from this income, but were

reported among the various business deductions from total gross

income. No royalties were included in the statistics for regu-

lated investment companies and real estate investment trusts.

S corporations reported this item on the Form 1120S, Schedule

K-1, Shareholders’ Shares of Income, Credits, Deductions, etc.

and are not included in the statistics for this item in the Basic

Tables section. These statistics are presented in the 1120S Basic

Tables section as “Royalty Income (less loss)” under “Portfolio

Income (less decit) Distributed to Shareholders.”

Excluded from the statistics were certain royalties re-

ceived under a lease agreement on timber, coal deposits, and

domestic iron ore deposits, that were allowed special tax

treatment. Under elective provisions of Code section 631, the

net gain or loss on such royalties was included in the computa-

tion of net gain or loss on sales or exchanges of certain busi-

ness property under Code section 1231. If the overall result of

this computation was a net gain, it was treated as a long-term

capital gain. If the overall result was a net loss, it was fully

deductible in the current year as an ordinary noncapital loss.

See also, the discussions of “Net Capital Gains” and “Net

Gain (or Loss), Noncapital Assets.”

S Corporation Returns

Form 1120S, U.S. Income Tax Return for an S Corporation,

was led by corporations electing to be taxed through their

shareholders under Internal Revenue Code section 13612.

These companies reported corporate income and deductions

from their conduct of trade or business, but generally al-

located any income or loss to their shareholders to be taxed

only at the individual level. Portfolio income (loss), net

rental real estate income (loss), net income (loss) from other

rental activities, and other income (loss) were not included

in net income (loss) from ordinary trade or business but were

allocated to shareholders to be reported on their returns.

Only corporate-level income of S corporations are included

in the Basic Tables section of this report. S corporation trade

or business income and deductions are included in the general

tables and also shown separately in 1120S Basic Tables 7 and

8. Data on rental and investment income allocated to sharehold-

ers is presented in 1120S Basic Tables 1 through 6 and is also

available in the Corporation Source Book (Publication 1053).

Subchapter S of the Internal Revenue Code, from which

these corporations take their name, provided a set of restrictive

criteria which a company had to meet in order to qualify. For

tax years beginning after 2004, S corporations had to meet the

following criteria:

(1) no more than 100 shareholders;

(2) only individuals as shareholders (with an exception

for estates and trusts, including charitable remainder

trusts);

(3) no nonresident alien shareholders; and

(4) only one class of stock.

2013 Income Tax Returns Complete Report Explanation of Terms

290

For tax years beginning after 1997, certain tax-exempt

organizations can be S corporation shareholders. These are

qualied pension, prot-sharing, and stock bonus plans; chari-

table organzations; and Code section 501(c)(3) organizations.

Corporations that were ineligible to be treated as S cor-

porations were:

(1) banks or similar nancial institutions using the re-

serve method of accounting for bad debts under sec-

tion 585;

(2) life insurance companies;

(3) corporations electing to take the U.S. possessions tax

credit;

(4) Interest-Charge Domestic International Sales

Corporations (IC-DISC) or former DISCs; and

(5) afliated group members eligible for inclusion on a

consolidated return.

The Small Business Job Protection Act of 1996 provided

signicant reform for S corporations. This legislation con-

tained 17 provisions relating to S corporations. For more in-

formation on the impact of this legislation on S corporations

see Wittman, Susan, “S Corporation Returns, 1997,” Statistics

of Income Bulletin, Spring 2000, Volume 19, Number 4.

Some S corporations were subject to certain special taxes

at the corporate level. See “Excess Net Passive Income Tax”

and “Income Tax” in this section.

Salaries and Wages

[Page 1, Line 13]

Salaries and wages included the amount paid for the tax

year, less any amounts paid for the work opportunity credit,

empowerment zone employment credit, Indian employment

credit, or welfare-to-work credit. Also included were ex-

penses, such as bonuses, directors’ fees, wages, payroll, and

salaries listed in the other deductions schedule. Excluded were

items deductible elsewhere on the return, such as contributions

to a 401(k) plan, amounts contributed under a salary reduction

agreement, or amounts included in the cost of goods sold. Also

excluded was compensation of ofcers since it was listed as a

separate deduction item on the return.

Section 857(b)(5) Tax

[Form 1120-REIT, Page 3, Schedule J, Line 2(c)]

Real estate investment trusts were required to derive at

least 95 percent of their income from portfolio investments

(dividends, interest, capital gains) and real estate and at least

75 percent of their income from real estate investments (rents,

interest on mortgage bonds, sales of rental or foreclosure

property). If these limits were not met, the shortfall was sub-

ject to a special tax under Code section 857(b)(5). This tax is a

component of “Total Income Tax Before Credits” and is shown

separately in Table 20.

Size of Business Receipts

Returns for nonnance industries were classied by size of

gross receipts from sales and operations. Returns of indus-

tries within the “Finance and Insurance” and “Management

Holding Companies” sectors were classied by size of total

receipts (the sum of business receipts and investment income).

See also, “Business Receipts” and “Total Receipts.”

Statutory Special Deductions

[Page 1, line 29c]

Statutory special deductions in the tables was the sum of

the deductions for net operating loss carryovers from prior

years and the special deductions for dividends and other cor-

porate attributes allowed by the Code. These deductions were

in addition to ordinary and necessary business deductions and

were shown in the statistics as deductions from net income. In

general, net income less statutory special deductions equaled

income subject to tax. The following components of “Statutory

Special Deductions” are shown separately in Table 20.

Net operating loss deduction. This deduction was the

result of prior-year net operating losses. For large and mid-

sized corporations, net operating losses (NOLs) could have

been carried back to reduce any taxes paid in the 3 years pre-

vious to the loss year (2 years for NOLs incurred in tax years

beginning after August 5, 1997), and any remaining amounts

carried forward for 15 years (20 years for NOLs incurred in

tax years beginning after August 5, 1997). A new provision

added in the American Recovery and Reinvestment Act of

2009 allows small businesses to carry back losses incurred

in 2008 up to 5 prior years. Amounts carried back, however,

would not have appeared on the returns used for the statistics

in this report. This item represents amounts carried forward

from previous years and applied to reduce taxable income in

the current year.

∆Total special deductions was the sum of the following

deductions:

(1) Dividends received deduction. This deduction was

based on the type of stock owned and the extent of

ownership. Generally, dividends from other domestic

members of a company’s afliated group were de-

ducted 100 percent, those from other domestic com-

panies owned 20 percent or more were allowed an

80-percent deduction, and those owned less than 20

percent were allowed a 70-percent deduction. These

percentages were reduced if the stock was debt -

nanced or if it was preferred stock of public utilities

that were allowed a deduction for dividends paid. In

Explanation of Terms 2013 Income Tax Returns Complete Report

291

the case of life insurance companies, the dividend re-

ceived deduction (other than the 100-percent deduc-

tion) was further reduced by the share of the com-

pany’s investment income attributed to policyholders.

A deduction for dividends received from a foreign cor-

poration was allowed if the foreign corporation had

been engaged in a trade or business within the United

States for at least 3 years and if at least 50 percent of its

gross income was effectively connected U.S. trade or

business income. The deduction was allowed only for

dividends attributable to income earned in the United

States, and only if the U.S. corporation owned at least

10 percent of the stock of the foreign corporation.

The total dividends received deduction was further

limited based on net income. Generally, the 70- and

80-percent deductions could not exceed 70 and 80

percent of net income less the 100-percent deduc-

tions for dividends received from afliated groups,

foreign sales corporations, and small business invest-

ment companies. This limitation did not apply if the

corporation had a net operating loss (even if the loss

was caused by the dividends received deduction).

The various categories of stock ownership and the

percentages that were deductible are shown on Form

1120, Schedule C (reproduced in Section 6). See also,

“Dividends Received from Domestic Corporations”

and “Dividends Received from Foreign Corporations”

in this section.

(2) Deduction for dividends paid on certain public util-

ity stock. This special deduction was for dividends

paid on preferred stock issued by regulated telephone,

electric, gas, or water companies before October 1,

1942, or issued to replace such stock. Companies were

allowed to deduct 40 percent of the smaller of such

dividends or taxable income computed without this

deduction.

(3) Deduction for dividends paid (Forms 1120-RIC

and 1120-REIT). Regulated investment companies

(RICs) and real estate investment trusts (REITs) were

required to distribute virtually all (90 percent for both

return types) of their taxable income to their share-

holders in the form of dividends to qualify for their

special status. Their taxable income was reduced by

the dividends they paid (which were taxable to the

recipients), and they generally paid no corporate tax.

This special deduction represented those required

distributions.

(4) Section 857(b)(2)(E) deduction (Form 1120 -REIT).

This deduction was equivalent to the tax imposed

on real estate investment trusts (REITs) that failed

to meet the restrictions imposed on their sources of

income. Generally, at least 75 percent of their income

had to come from real estate investments and at least

95 percent from investment sources of all kinds. A tax

of 100 percent was imposed on the net income attribut-

able to the greater of the amounts by which the trust

failed to meet the 75- or 95-percent income test, and

a deduction was allowed to prevent the same income

from being taxed under the income tax.

(5) Section 806(a) small life insurance company de-

duction. This item is included in “Statutory Special

Deductions, Total,” but is not shown separately in

Table 20.

Tax Deposited with Form 7004

[Page 3, Schedule J, Line 16]

This is the amount of the corporation’s estimated tax li-

ability deposited with the ling of Form 7004, Application for

Automatic Extension of Time to File Certain Business Income

Tax, Information, and Other Returns, as reported on the corpo-

ration’s income tax return for the year. The automatic extension

of time to le a corporate tax return was 6 months, and any

remaining tax liability was required to be paid with the request

for an extension. See “Overpayment or Amount Owed.”

Tax-Exempt Securities

[Page 5, Schedule L, Line 5(d)]

This balance sheet asset item comprised: (1) State and

local government obligations, the interest on which was ex-

cludable from gross income under section 103(a); and (2) stock

in a mutual fund or other regulated investment company that

distributed exempt-interest dividends during the tax year of

the corporation. Examples included bond anticipation notes,

project notes, Public Housing Authority bonds, and State and

local revenue bonds.

Tax from Section I and Tax from Section II

[Form 1120-F, Page 1, Lines 1 and 2]

Foreign corporations with income effectively connected to

a trade or business conducted in the U.S. were taxable at U.S.

corporation income tax rates on that income, but they could

also have been taxable on income not “effectively connected”

with a U.S. trade or business (generally, portfolio investment

and certain transportation income) just as nonresident foreign

corporations were. On Form 1120-F, the tax on income not

effectively connected with a U.S. trade or business was called

“Tax from Section I” and the tax on effectively connected

income was called “Tax from Section II.” Only the “Tax from

Section II” is included as a component of “Income Tax” and

“Total Income Tax” in the general tables in this report. It is

also shown as a separate item in the tables devoted to foreign

corporations, Tables 10 and 11.

2013 Income Tax Returns Complete Report Explanation of Terms

292

“Tax from Section II” included income tax calculated at

the U.S. corporate tax rates on effectively connected income,

recapture taxes, and the alternative minimum tax. It was re-

duced by the foreign tax credit, nonconventional source fuel

credit, qualied electric vehicle credit, general business credit,

and credit for prior-year minimum tax.

The “Tax from Section I” from returns that also had ef-

fectively connected income is shown as a separate item in

Tables 10 and 11, but is excluded from all other tables in the

report. (Returns of foreign corporations that had no income

effectively connected with a U.S. trade or business were ex-

cluded from the statistical sample.)

Tax on Net Income from Foreclosure

Property

[Form 1120-REIT, Page 3, Schedule J, Line 2(b)]

Real estate investment trusts that met the income require-

ments to qualify as REITs (see “Section 857(b)(5) Tax”) were

generally taxable at the shareholder rather than at the corporate

level. An exception was sales of certain property they had ac-

quired by foreclosure; the REIT could elect to be taxed at the

top corporate rate of 35 percent on any gain from such transac-

tions. This tax is included as a component of “Total Income Tax”

(before and after credits) and is shown separately in Table 20.

Tax on Net Income from Prohibited

Transactions

[Form 1120-REIT, Page 3, Schedule J, Line 2(d)]

Real estate investment trusts were forbidden to engage in

real estate development or sales (except in the course of their

rental or nancing business). Any prot made in such transac-

tions was subject to a 100-percent tax. This tax is included as

a component of “Total Income Tax” (before and after credits)

and is shown separately in Table 20.

Tax Refund

[Page 1, Line 36]

See “Overpayment or Amount Owed.”

Tax Year

Tax year (income year) in this publication refers to the year

covering accounting periods ending July 2013 through June

2014. The corporation returns included a span of over 23

months between the rst-included accounting period, which

began on August 1, 2012, and closed on July 31, 2013, and

the end of the last-included accounting period, which began

on July 1, 2013, and closed on June 30, 2014. Therefore, this

report shows income received or expenses incurred during

any or all of the months in the 23-month span. This span, in

effect denes the tax year in such a way that the noncalendar

year ended accounting periods are centered by the calendar

year ended accounting period. The calendar year made up

91 percent of the number of returns for Tax Year 2013. (See

“Introduction” in Section I.)

Taxable Income

[Page 1, Line 30]

This line item from Form 1120 is called “Income Subject

to Tax” in this report.

Taxes Paid

[Page 1, Line 17]

Taxes paid included the amounts reported as an ordi-

nary and necessary business deduction as well as identiable

amounts reported in the cost of goods sold schedules or capital-

ized under section 263A. Included among the deductible taxes

were ordinary State and local taxes paid or accrued during

the year; Social Security and payroll taxes; unemployment

insurance taxes; excise taxes, import and tariff duties; and

business, license, and privilege taxes. Income and prot taxes

paid to foreign countries or U.S. possessions were also deduct-

ible unless claimed as a credit against income tax. However,

S corporations excluded any foreign taxes from the deduction

for taxes paid, instead allocating them to their shareholders

(who might either deduct them or take a foreign tax credit for

them). Regulated investment companies also had to exclude

those foreign taxes from the deduction for taxes when they

elected under Code section 853 to allow their shareholders to

claim a foreign tax credit (or a deduction) for the foreign taxes

paid. See also “Foreign Tax Credit.”

Taxes not deductible generally included Federal income

and excess prots taxes, gift taxes, taxes assessed against local

benets, taxes not imposed on the corporation, and certain

other taxes, including State or local taxes that were paid or

incurred in connection with an acquisition or disposition of

property. Taxes related to the acquisition of property were to

be treated as part of the cost of the property, while taxes related

to the disposition of property were to be treated as a reduction

in the amount realized from the disposition.

Some corporations included sales, excise, and related

taxes, which were part of the sales price of their products, as

receipts. When this occurred, an equal and offsetting amount

was usually included in the cost of goods sold or as part of the

separate deduction for taxes paid. When included in the cost

of goods sold, these taxes were included in the statistics for

taxes paid when they could be identied.

Tentative Minimum Tax

[Form 4626, Line 12]

The tentative minimum tax was determined by applying a

20-percent tax rate to the alternative minimum taxable income

after applying the reduction for the alternative tax NOLD and

the income exemption. The tentative minimum tax could be

reduced by an AMT foreign tax credit and carryover of unused

empowerment zone credit. The foreign tax credit was com-

puted under the AMT system and could not become part of

that credit allowed under the regular tax system. The carryover

of empowerment zone credit could reduce up to 25 percent of

Explanation of Terms 2013 Income Tax Returns Complete Report

293

the tentative minimum tax remaining after applying the AMT

foreign tax credit.

The alternative minimum tax was the amount by which the

remaining tentative minimum tax exceeded the regular tax after

reduction by the foreign tax credit under the regular system.

Total Assets and Total Liabilities

[Page 5, Schedule L, Lines 15(d) and 28(d)]

Total assets and total liabilities were those reported in the

end-of-year balance sheet in the corporations’ books of account.

Total assets were net amounts after reduction by accumulated

depreciation, accumulated amortization, accumulated deple-

tion, and the reserve for bad debts. If these reserve accounts

were reported as liabilities, they were treated as reductions

from the asset accounts to which they related and total assets

and liabilities were adjusted accordingly.

When used in this report, the term total liabilities included

both the claims of creditors and shareholders’ equity (see also

“Net Worth”). In addition, total liabilities were net amounts

after reduction by the cost of treasury stock. See also “Balance

Sheets” in this section.

Total Deductions

As presented in this publication, total deductions comprised: (1)

the cost of goods sold; (2) the ordinary and necessary business

deductions from gross income; and (3) net loss from sales of

noncapital assets. Components of total deductions were shown

in the income statement segment of various tables throughout

this report. See also “Total Receipts.”

Total Income Tax After Credits

[Page 3, Schedule J, Line 21]

Income tax after credits in the statistics equals “Total

Income Tax Before Credits” less the sum of the “Foreign Tax

Credit,” “Qualied Electric Vehicle Credit,” “General Business

Credit,” “Prior Year Minimum Tax Credit,” and the “Credit to

Holders of Tax Credit Bonds.” Many of these items are dis-

cussed under their own headings.

Total Income Tax Before Credits

Total income tax before credits was the sum of the

following taxes:

(1) income tax;

(2) personal holding company tax;

(3) recapture and other taxes;

(4) alternative minimum tax:

(5) excess net passive income tax;

(6) capital gains tax of regulated investment companies;

(7) tax on net income from foreclosure property;

(8) tax on net income from prohibited transactions;

(9) branch tax of foreign corporations;

(10) reciprocal tax;

(11) Code section 856 tax (includes 856(c)(7) and 856(g)(5)); and

(12) Code section 857 tax (includes 857(b)(5) and 857(b)(7)(A)).

Other tax and interest amounts were either included in or sub-

tracted from the total income tax. Amounts included were tax and

interest on a nonqualied withdrawal from a capital construction

fund (section 7518), interest due on deferred gain (section 1260(b),

interest on deferred tax attributable to installment sales of certain

timeshares and residential lots (section 453(l)(3)), certain non-

dealer installment obligations (section 453A(c)), interest due under

the look-back method, and deferred tax due upon the termination

of a section 1294 election for shareholders in qualied electing

funds. Amounts subtracted were deferred tax on the corporation’s

share of the undistributed earnings of a qualied electing fund,

recapture of new markets credit, recapture of employer-provided

childcare facilities and services credit, and deferred LIFO recap-

ture tax (Code section 1363(d)). These amounts were included in

the statistics as adjustments to total income tax.

Total Income Tax (S Corporations)

Total income tax for S corporations (1120S Basic Tables 7 and

8) was the sum of the following taxes, each discussed under

its own heading:

(1) income tax;

(2) income tax adjustments;

(3) excess net passive income tax;

(4) recapture taxes; and

(5) adjustments to total tax.

Total Net Income (Less Decit) (S

Corporations)

Since the Tax Reform Act of 1986, total net income (less de-

cit) is dened as the sum of: ordinary income (loss), ordinary

dividends, interest income, royalty income, net income (loss)

from rental real estate activities, net income (loss) from other

rental activities, total net long-term capital gain (loss), and net

short-term capital gain (loss). Prior to 1987, S corporation net

income (less decit) included most of the components of total

net income (less decit) above. The sum of the above compo-

nents is a comprehensive measure of S corporation prots and

losses that enables comparisons to be made with years prior

to 1987.

2013 Income Tax Returns Complete Report Explanation of Terms

294

Total Receipts

Total receipts equal the sum of the following items, each dis-

cussed under its own heading:

(1) business receipts;

(2) interest;

(3) interest on Government obligations: State and local;

(4) rents;

(5) royalties;

(6) net capital gains (excluding long-term gains from

regulated investment companies);

(7) net gain, noncapital assets;

(8) dividends received from domestic corporations;

(9) dividends received from foreign corporations (exclud-

ing certain taxable income from related foreign cor-

porations only constructively received), and

(10) other receipts.

Total receipts for S corporations equal the sum of the fol-

lowing items, each discussed under its own heading:

(1) business receipts;

(2) interest on Government obligations: State and local;

(3) net gain, noncapital assets, and

(4) other receipts.

S corporations reported receipts for interest, rents, royal-

ties, net capital gains, and dividends on Form 1120S, Schedule

K-1, Shareholders’ Shares of Income, Credits, Deductions, etc.

These are not included in the statistics for this item in the Basic

Tables section. Instead, they are presented in the 1120S Basic

Tables section.

Total Receipts Less Total Deductions

This item differed from net income (less decit) for tax pur-

poses in that it included nontaxable interest on State and local

Government obligations and excluded constructive taxable

income from related foreign corporations.

Total Special Deductions

[Page 1, line 29c]

See “Statutory Special Deductions.”

U.S. Government Obligations

[Page 5, Schedule L, Line 4(d)]

See “Investments in Government Obligations.”

U.S. Tax Paid or Withheld at Source

[Form 1120-F, Page 1, Line 5i]

Foreign corporations with income related to a U.S. busi-

ness activity (i.e., effectively connected income) often had U.S.

income tax withheld at the source for portfolio or transporta-

tion income not effectively connected to their U.S. operations.

Also withheld was certain effectively connected income, such

as gains from the disposition of U.S. real property reported on

Form 8288-A or income allocable to foreign partners reported

on Form 8805. This withholding is shown separately for effec-

tively connected income and noneffectively connected income

in Tables 10 and 11.

U.S. taxes paid or withheld by resident foreign corpora-

tions on income effectively connected to a U.S. trade or busi-

ness are included in the statistics for “Overpayment or Amount

Owed.” Taxes withheld at the source on effectively connected

income for foreign insurance companies are not included in

Tables 10 and 11, but are included in “Overpayment or Amount

Owed.” Taxes withheld at the source on noneffectively con-

nected income are only included as a separate item in Tables

10 and 11.

Work Opportunity Credit

[Form 5884]

This credit is the successor to the jobs credit allowed in

prior years. It was allowed to taxpayers who hired individuals

from certain targeted groups to work at least 120 hours during

the year. These groups were:

(1) members of families receiving benets under the

Temporary Assistance to Needy Families (TANF)

program;

(2) certain disabled veterans in families receiving food

stamps;

(3) newly released, economically disadvantaged

ex-felons;

(4) high-risk youth, ages 18–24, from disadvantaged areas;

(5) vocational rehabilitation referrals;

(6) qualied summer youth, ages 16–17, from disadvan-

taged areas;

(7) youth, ages 18–24, from families receiving food

stamps and SSI hired after September 30, 1997;

(8) recipients of supplemental security income;

Explanation of Terms 2013 Income Tax Returns Complete Report

295

(9) Hurricane Katrina employees, and

(10) ARRA of 2009 added disconnected youth who begin

work after 2008 and before 2011.

Only the rst $6,000 ($3,000 for qualied summer youth)

of qualied rst-year wages paid or incurred for each employee

during the tax year is taken into account. The credit was limited

to 25 percent if the employee worked at least 120 hours, but

less than 400 hours, and 40 percent if the employee worked 400

hours or more during the year.

The work opportunity credit was claimed as one of the

components of the general business credit. For a discussion

of the income tax limitations and carryback and carryforward

provisions of the credit, see “General Business Credit.” The

components of the general business credit are shown separately

in Table 21.

Zero-Assets

See “Balance Sheets.”