How to enter Intangible Drilling Costs from box 12 of Form K-1S

Intangible Drilling Costs can either be:

• deducted in full as a current business expense

• amortized over a 60 month period.

Deducting in Full as a Current Business Expense

Use screen K1S, box 12, code J4. The amount carries to Form 7203, line 44. Depending on the shareholder's participation in the S corp (active or passive), basis in the S corp, and S corp income (loss), IDC amounts may be able to offset current year income - review Form 7203.

If the S corp is not a passive activity, Intangible Drilling Costs allowed will show as a loss on Schedule E, Page 2, Part II with a description of Sec. 59e Expense.

If the S corp is a passive activity, the deduction will still be calculated on Wks K1P Adj Basis, but the expense is not separately reported on Schedule E, page 2 as amounts carry to Form 8582 first to determine any Passive Activity Loss Limitations that would be applicable.

Amortizing Intangible Drilling Costs

If the IDC deduction should be amortized over a five year period instead of being taken in full, the entry should be removed from the K1P screen and entered on the 4562 screen. Use the FOR and Multi-Form Code boxes to associate the 4562 with the K1P screen to which it belongs.

See Shareholder's Instructions for Schedule K-1 (1120-S) for more information.