K-1 (1120-S) box 17 code AC: gross receipts for section 448(c)

“Use the gross receipts amount to figure the business interest expense you can deduct, if applicable.” IRS, Shareholder's Instructions for Schedule K-1 (Form 1120-S) (2025), box 17, code AC

What does box 17 code AC report on a K-1 (1120-S)?

Box 17 code AC on Schedule K-1 (Form 1120-S) reports gross receipts for section 448(c), the figure a shareholder needs for the gross receipts test that decides whether they are a small business taxpayer for the business interest limit. The 2025 Shareholder's Instructions tell the shareholder to use the amount to figure the business interest expense they can deduct, if applicable, and point to section 163(j) and the Instructions for Form 8990. The Instructions for Form 1120-S tell the corporation to provide the information shareholders need to complete the test.

Box 17 code AC has carried this meaning in every Shareholder's Instructions from 2020 through 2025. In the 2019 instructions, code AC was "Other information", so an older K-1 with code AC means something else. Two other AC codes sit on the same 2025 K-1: box 12 code AC is interest expense allocated to debt-financed distributions, and box 13 code AC is the biodiesel, renewable diesel or sustainable aviation fuels credit.

Where does box 17 code AC go on the shareholder's return?

Box 17 code AC on Schedule K-1 (Form 1120-S) has no line of its own on Form 1040. The amount is an input to the shareholder's gross receipts test, and the Instructions for Form 8990 include an Average Annual Gross Receipts Worksheet Per Section 448(c) for it. The related section 163(j) codes and the other AC codes map like this.

Codes AA and AB come only from an S corporation that is itself subject to section 163(j). The Instructions for Form 8990 say a pass-through entity that is a small business taxpayer doesn't allocate excess taxable income or excess business interest income to its owners. Box 12 code AC is an interest deduction and box 13 code AC is a credit, so neither belongs in the gross receipts test. The full box list is on the Schedule K-1 (Form 1120-S) page.

How does the section 448(c) gross receipts test work for a shareholder?

The section 448(c) gross receipts test asks whether the taxpayer's average annual gross receipts for the 3 prior tax years are at or below the threshold, which the Instructions for Form 8990 set at $31 million for tax years beginning in 2025. A taxpayer that meets the test and isn't a tax shelter is a small business taxpayer, isn't subject to the section 163(j) limit and generally doesn't file Form 8990.

Treas. Reg. 1.163(j)-2(d)(2) applies the test to an individual as if the individual were a corporation or partnership. Gross receipts include all section 448(c) gross receipts, business or not, but leave out inherently personal amounts such as Form W-2 wages and Social Security benefits. Each S corporation shareholder includes a pro rata share of the corporation's gross receipts, which is what code AC supplies. If the two are treated as a single employer under the aggregation rules, the shareholder aggregates the corporation's gross receipts instead and doesn't add the code AC share. Short years are annualized before averaging.

What does a code AC gross receipts test look like?

For example, Luis owns 40% of an S corporation and also runs a sole proprietorship, reported on Schedule C, that pays $9,000 of business interest in 2025. The two businesses aren't aggregated, and Luis has no other gross receipts. His share of the corporation's gross receipts, from box 17 code AC, and his Schedule C gross receipts for the 3 prior years are below.

Luis's 3-year average is $28,100,000, at or below the $31 million threshold for 2025, so he is a small business taxpayer. His $9,000 of Schedule C interest isn't limited by section 163(j), and he doesn't file Form 8990 unless he has excess business interest expense from a partnership. The 2024 total alone is over $31 million, which is why the test uses the average and not the latest year.

What do reviewers check on box 17 code AC?

A reviewer checking box 17 code AC of Schedule K-1 (Form 1120-S) confirms six items against the Instructions for Form 8990, the Shareholder's Instructions and Treas. Reg. 1.163(j)-2. Code AC matters only if the shareholder has business interest expense outside the corporation, so the first step is to find it: Schedule C, a rental or farm activity, or another pass-through entity. If there is none, and no excess business interest expense from a partnership, code AC doesn't change the return. If there is, the reviewer needs the code AC share for each of the 3 prior years, so the prior-year K-1s matter as much as the current one. The shareholder's other gross receipts, including investment receipts, come from the same years. The Form 1120-S Schedule B, question 10 shows how the corporation answered the test for itself.