What’s New

Increase in penalty for failure to file. For tax returns required to be filed in 2026, the minimum penalty for failure to file a return that is more than 60 days late has increased to the smaller of the tax due or $525. See Penalty for late filing of return , later.

Gain from the sale or exchange of qualified farmland prop- erty to qualified farmers. P.L. 119-21, commonly known as the One Big Beautiful Bill Act, added new section 1062 regarding the gain from the sale or exchange of qualified farmland property to qualified farmers. Section 1062 allows taxpayers to elect to pay the net income tax attributable to the gain from the sale or exchange of qualified farmland property to qualified farmers in four equal annual installments. This election is available for sales and exchanges of qualified farmland property to a qualified farmer in tax years beginning after July 4, 2025. For more information, see section 1062 and new Form 1062, Deferral of Tax on Gain From the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, when it is available.

To report the section 1062 applicable net tax liability and the installment due in the first tax year, two lines were added on Form 1120-F. Report the full amount of section 1062 applicable net tax liability on Form 1120-F, page 1, line 5k. Report the first installment due in tax year 2025 on Form 1120-F, page 1, line 4b. For more information, see the instructions for line 5k and line 4b, later.

Relief from additions to tax for underpayment of estimated income tax by taxpayers making an election under section 1062. The IRS will waive a portion of the penalty imposed under section 6655 for failure to make estimated tax payments attributable to a qualified sale or exchange of qualified farmland to qualified farmers for which an election under section 1062(a) is properly made. Taxpayers that elect under section 1062 to defer payment of tax may calculate required estimated tax payments using the guidance in Notice 2026-3. See Notice 2026-3, 2026-02 I.R.B. 307, available at IRS.gov/irb/ 2026-02_IRB#NOT-2026-3 .

Extension of relief from additions to tax for underpayments applicable to the corporate alternative minimum tax (CAMT). For tax year 2025, the IRS will continue to waive the penalty imposed under section 6655 for failure to make estimated tax payments attributable to a CAMT liability. See Notice 2025-27, 2025-26 I.R.B. 1611, available at IRS.gov/irb/ 2025-26_IRB#NOT-2025-27 . Also, see the instructions for line 6, later.

Electronic payments. If the corporation has access to U.S. banking services or electronic payment systems, it should use direct deposit for any refunds and pay electronically for any payments, whenever possible.

Direct deposit. Direct deposit fields have been added on page 1 of Form 1120-F (see lines 9c, 9d, and 9e). If there is an overpayment on line 8a, see the instructions for lines 8b, and 9a through 9e, later.

Making a payment. If there is a balance due on line 7, go to IRS.gov/Payments for information on how to make a payment. See Payment of Tax Due and the instructions for line 7, later, for more details.

Domestic research and experimental expenditures. P.L. 119-21, adds new section 174A to the Internal Revenue Code. Section 174A(a) allows corporations to deduct amounts paid or incurred for domestic research and experimental expenditures in tax years beginning after December 31, 2024. Alternatively, under section 174A(c), a corporation may elect to charge such expenditures to a capital account and amortize such expenditures ratably over a period of not less than 60 months, beginning with the month in which the corporation first realizes benefits from such expenditures. In addition, section 70302(f) of P.L. 119-21 provides corporations with various transition options that may be applied to recover unamortized amounts paid or incurred in tax years beginning after December 31, 2021, and before January 1, 2025, that were capitalized and amortized for such tax years. See Rev. Proc. 2025-28 for information regarding the transition options contained in section 70302(f) of P.L. 119-21, as well as the procedures to follow to begin applying either section 174A(a) or (c) for the corporation’s first tax year beginning after December 31, 2024.

Interim simplified method to determine applicable corpora- tion status. Proposed Regulations section 1.59-2(g)(2) provides that a corporation may choose to apply the safe harbor method (simplified method) for purposes of determining whether it is an applicable corporation under section 59(k). Section 3.03 of Notice 2025-27 provides an optional interim simplified method for determining applicable corporation status. See the instructions for item JJ, later. Also, see the Instructions for Form 4626.

Certain qualified sound recording productions. P.L. 119-21 amends section 181 to include qualified sound recording production costs as an elective expense deduction. A corporation can elect to deduct certain costs of qualified sound recording productions that commence before January 1, 2026, in tax years ending after July 4, 2025. Also, qualified sound recording productions are eligible for the special depreciation allowance under section 168(k) if they commence in tax years ending after July 4, 2025. Qualified sound recording productions acquired after January 19, 2025, are eligible for 100% special allowance depreciation under the amendments to section 168(k) by P.L. 119-21. Qualified sound recording productions acquired before January 20, 2025, and commencing in tax years ending after July 4, 2025, are also eligible for the special depreciation allowance at the applicable phased down percentage rates under section 168(k)(6). See sections 181 and 168(k).

Claim for credit or refund of amounts withheld on certain borrow fees. On October 23, 2025, Notice 2025-63, 2025-46 I.R.B. 709, was released announcing that the Department of the Treasury and the IRS intend to issue proposed regulations providing that certain borrow fees, as defined in the notice, are sourced based on the residence of the recipient. Notice 2025-63

Instructions for Form 1120-F (2025) Catalog Number 11475L Jan 21, 2026 Department of the Treasury Internal Revenue Service www.irs.gov

provides that taxpayers can rely on the sourcing rule described in the notice with respect to securities lending transactions and sale-repurchase transactions entered into before the forthcoming proposed regulations are published. Taxpayers relying on Notice 2025-63 to claim a credit or refund for amounts withheld on borrow fees must attach copies of the Form(s) 1042-S received to support such claim, and attach a statement indicating reliance on Notice 2025-63 as the reason for the claim and include the amount of income that was subject to withholding for each payment of a borrow fee associated with securities lending transactions or sale-repurchase transactions.