Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations

Employee-owner. A person is considered to be an employee-owner if the person is an employee of the corporation on any day of the testing period, and owns any outstanding stock of the corporation on any day of the testing period. Stock ownership is determined under the attribution rules of section 318, except that “any” is substituted for “50% or more in value” in section 318(a)(2)(C).

Closely held corporation. A corporation is a closely held corporation if at any time during the last half of the tax year more than 50% in value of its outstanding stock is directly or indirectly owned by or for not more than five individuals, and the corporation is not a personal service corporation.

Certain organizations are treated as individuals for this test (see section 542(a)). For rules of determining stock ownership, see section 544 (as modified by section 465(a)(3)).

Other Passive Activity Terms Some additional terms are defined below.

Net income. The excess of current year income over current year deductions from the activity. This includes any current year gains or losses from the disposition of assets or an interest in the activity.

Net loss. The excess of current year deductions over current year income from the activity. This includes any current year gains or losses from the disposition of assets or an interest in the activity.

Overall gain. The excess of the net income from the activity over the prior year unallowed losses from the activity.

Overall loss. The excess of the prior year unallowed losses from the activity over the net income from the activity or the prior year unallowed losses from the activity plus the net loss from the activity.

Prior year unallowed losses. The deductions and losses from an activity that were disallowed under the PAL limitations in a prior year and carried forward to the tax year under section 469(b). See Regulations section 1.469-1(f)(4).