Drake Software User's Manual Supplement: S Corporations (1120S)

Rental ActivitiesDrake Software User’s Manual Supplement: S CorporationsImportantNote aboutthe AAAA corporation can make distributions greater than the amount on line 6 of the M-2, butthose distributions could be taxable to the shareholders. Enter distributions on theDIST screen; this way, the amounts flow automatically to Schedules M-2 and K-1 butare limited based on the rules described previously. (For more information on theDIST screen, see “Entering Distributions” on page 26.)Line 7 is limited to the lesser of the amount for line 7 or the positive amount from line6. If line 6 is negative, line 7 is then limited to the positive amount on line 1. If line 1and line 6 are both negative, line 7 is completely disallowed on the Schedule M-2.Distributions are entered on the DIST screen to be reported to the shareholders,regardless of the Schedule M-2 limitation.The AAA cannot be negative as a result ofdistributions, but it can be negative if it arises from losses.Column B, Other Adjustments AccountUse Column B to enter any amounts you want printed in the corresponding column inthe printed return. Officer life insurance and applicable tax-exempt income flows toSchedule M-2, Column B (“Other adjustments account”), line 5. All other amounts(such as expenses) must be entered manually on the M2 screen.Column C, Undistributed Taxable Income Previously TaxedRental ActivitiesThe total of Column C cannot be negative. This column is active in an 1120S only ifthe entity was ever a “C” corporation (thus having earnings and profit (E&P)) or if itwas a pre-1983 S corporation. By design, Drake does not allow negative numbers inColumn C.If a corporation becomes an S corporation and has net operating losses (NOLs), theNOL is not generated for the return because it cannot be carried to an 1120S (the IRSdoes not want the NOL to be used by the shareholders to offset income); it either runsout within the years allowable for the NOL by statute or is used if the S corporationterminates its “S” status within those years.Income and expenses for rental real estate properties appear on Form 8825, RentalReal Estate Income and Expenses of a Partnership or an S Corporation. To makeentries in Drake, use the 8825 screen.If there are multiple 8825 properties, press PAGE DOWN for a new 8825 screen. Useone screen per rental property. If a return has more than one 8825 screen, the program28 Tax Year 2010