Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1040a Tax Form

How To Amend Last Year's Tax ReturnFile Taxes IncomeFiling A Tax AmendmentHow To File Amended TaxesTurbotax 2011Past Year TaxHow To Fill Out An Amended Tax Return FormFree State Tax UsaHow To File Free State Taxes OnlineDownload Form 1040xHow To Amend A Tax Return 2010Sample 1040ez1040x Site Irs GovE-file State Tax For Free1040a Tax FormTax Amend FormFiling State Income Tax ReturnAmend 2008 Tax ReturnFree Irs FilingFree State Tax Preparation And FilingFree Tax Usa 20112012 Form 1040ezBerkheimer Online Tax FilingFiling 1040 OnlineFile 1040ez Online FreeAmendmentTaxes For 20101040 Ez For 2011Irs Form 1040 EzTax Breaks For UnemployedFree 2007 Tax Software2012 Tax Forms FederalLate TaxesCan I File My 2011 Taxes In 2013I Need To File Taxes For 2011Where Can I File My State Taxes For FreeFillable Form 1040xCan I File 2012 Taxes NowEfile Extension2012 Form 1040ez

1040a Tax Form

1040a tax form Publication 4492-B - Main Content Table of Contents DefinitionsMidwestern Disaster Areas Applicable Disaster Date Charitable Giving IncentivesTemporary Suspension of Limits on Charitable Contributions Standard Mileage Rate for Charitable Use of Vehicles Mileage Reimbursements to Charitable Volunteers Casualty and Theft LossesTime limit for making election. 1040a tax form Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Disaster Recovery Assistance Distributions Repayment of Qualified Disaster Recovery Assistance Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for IndividualsEarned Income Credit and Child Tax Credit Additional Exemption for Housing Individuals Displaced by the Severe Storms, Tornadoes, or Flooding Education Credits Recapture of Federal Mortgage Subsidy Exclusion of Certain Cancellations of Indebtedness by Reason of the Severe Storms, Tornadoes, or Flooding Tax Relief for Temporary Relocation Additional Tax Relief for BusinessesEmployee Retention Credit Employer Housing Credit and Exclusion Demolition and Clean-up Costs Increase in Rehabilitation Tax Credit Request for Copy or Transcript of Tax Return How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040a tax form Definitions The following definitions are used throughout this publication. 1040a tax form Midwestern Disaster Areas A Midwestern disaster area is an area for which a major disaster was declared by the President during the period beginning on May 20, 2008, and ending on July 31, 2008, in the state of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, or Wisconsin, as a result of severe storms, tornadoes, or flooding that occurred on the applicable disaster date. 1040a tax form See Tables 1 and 2 for a list of the counties included in the Midwestern disaster areas. 1040a tax form Applicable Disaster Date The term “applicable disaster date” as used in this publication, refers to the date on which the severe storms, tornadoes, or flooding occurred in the Midwestern disaster areas. 1040a tax form You will need to know this date when using this publication for the various tax provisions. 1040a tax form Table 1 The counties listed in Table 1 below are eligible for all tax provisions shown in this publication. 1040a tax form Applicable Disaster Dates* State Affected Counties—Midwestern Disaster Areas 05/02/2008through05/12/2008 Arkansas Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline, and Van Buren. 1040a tax form 06/01/2008through07/22/2008 Illinois Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Mercer, Rock Island, Whiteside, and Winnebago. 1040a tax form 05/30/2008through06/27/2008 Indiana Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Vigo, Washington, and Wayne. 1040a tax form 05/25/2008through08/13/2008 Iowa Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Union, Van Buren, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, Worth, and Wright. 1040a tax form 05/10/2008through05/11/2008 Missouri Barry, Jasper, and Newton. 1040a tax form 06/01/2008through08/13/2008 Missouri Adair, Andrew, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Nodaway, Pike, Putnam, Ralls, St. 1040a tax form Charles, Stone, Taney, Vernon, and Webster. 1040a tax form 05/22/2008through06/24/2008 Nebraska Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy, and Saunders. 1040a tax form 06/05/2008through07/25/2008 Wisconsin Adams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago. 1040a tax form *For more details, go to www. 1040a tax form fema. 1040a tax form gov Table 2 The counties listed in Table 2 below are eligible for all of the special tax provisions shown in this publication except the following. 1040a tax form Charitable Giving Incentives. 1040a tax form Net Operating Losses. 1040a tax form Education Credits. 1040a tax form Recapture of Federal Mortgage Subsidy. 1040a tax form Tax Relief for Temporary Relocation. 1040a tax form Employee Retention Credit. 1040a tax form Employer Housing Credit and Exclusion. 1040a tax form Demolition and Clean-up Costs. 1040a tax form Increase in Rehabilitation Credit. 1040a tax form Applicable Disaster Dates* State Affected Counties—Midwestern Disaster Areas 06/01/2008through07/22/2008 Illinois Greene, Madison, Monroe, Pike, Randolph, St. 1040a tax form Clair, and Scott. 1040a tax form 05/30/2008through06/27/2008 Indiana Benton, Boone, Fountain, Franklin, Jay, Montgomery, Ohio, Switzerland, Union, and Wabash. 1040a tax form 05/25/2008through08/13/2008 Iowa Carroll, Cherokee, Lyon, Palo Alto, Pocahontas, Taylor, and Wayne. 1040a tax form 05/22/2008through06/16/2008 Kansas Barber, Barton, Bourbon, Brown, Butler, Chautauqua, Cherokee, Clark, Clay, Comanche, Cowley, Crawford, Decatur, Dickinson, Edwards, Elk, Ellis, Ellsworth, Franklin, Gove, Graham, Harper, Haskell, Hodgeman, Jackson, Jewell, Kingman, Kiowa, Lane, Linn, Logan, Mitchell, Montgomery, Ness, Norton, Osborne, Pawnee, Phillips, Pratt, Reno, Republic, Riley, Rooks, Rush, Saline, Seward, Sheridan, Smith, Stafford, Sumner, Thomas, Trego, Wallace, and Wilson. 1040a tax form 06/06/2008through06/13/2008 Michigan Allegan, Barry, Eaton, Ingham, Lake, Manistee, Mason, Missaukee, Osceola, Ottawa, Saginaw, and Wexford. 1040a tax form 06/06/2008through06/12/2008 Minnesota Cook, Fillmore, Freeborn, Houston, Mower, and Nobles. 1040a tax form 06/01/2008through08/13/2008 Missouri Atchison, Audrain, Bates, Buchanan, Cape Girardeau, Carroll, Christian, Daviess, Grundy, Howard, Jefferson, Knox, Mercer, Miller, Mississippi, Morgan, New Madrid, Pemiscot, Perry, Pettis, Platte, Polk, Randolph, Ray, Saline, Schuyler, Scotland, Shelby, St. 1040a tax form Genevieve, St. 1040a tax form Louis, the Independent City of St. 1040a tax form Louis, Scott, Sullivan, and Worth. 1040a tax form 04/23/2008through04/26/2008 Nebraska Gage, Johnson, Morrill, Nemaha, and Pawnee. 1040a tax form 05/22/2008through06/24/2008 Nebraska Adams, Blaine, Boone, Boyd, Brown, Burt, Cass, Chase, Cherry, Cuming, Dundy, Fillmore, Frontier, Furnas, Garfield, Gosper, Greeley, Hall, Hayes, Howard, Johnson, Keya Paha, Lincoln, Logan, Loup, Merrick, McPherson, Morrill, Nance, Nemaha, Otoe, Phelps, Polk, Red Willow, Rock, Saline, Seward, Sherman, Stanton, Thayer, Thomas, Thurston, Valley, Webster, Wheeler, and York. 1040a tax form 06/27/2008 Nebraska Dodge, Douglas, Sarpy, and Saunders. 1040a tax form 06/05/2008through07/25/2008 Wisconsin Lafayette. 1040a tax form * For more details, go to www. 1040a tax form fema. 1040a tax form gov Charitable Giving Incentives Temporary Suspension of Limits on Charitable Contributions This benefit applies only to the counties in Table 1. 1040a tax form Individuals. 1040a tax form   Qualified contributions are not subject to the overall limit on itemized deductions or the 50% of adjusted gross income (AGI) limit. 1040a tax form A qualified contribution is a charitable contribution paid in cash or by check to a 50% limit organization if you make an election to have the 50% limit not apply to these contributions. 1040a tax form   A qualified contribution must also meet all of the following requirements. 1040a tax form Be paid after May 1, 2008, and before January 1, 2009. 1040a tax form The contribution must be for relief efforts in one or more Midwestern disaster areas. 1040a tax form Documentation must be provided by the donee organization that the contribution was used (or will be used) for relief efforts in one or more Midwestern disaster areas. 1040a tax form   Your deduction for qualified contributions is limited to your AGI minus your deduction for all other charitable contributions. 1040a tax form You can carry over any contributions you are not able to deduct for 2008 because of this limit. 1040a tax form In 2009, the carryover of your unused qualified contributions is subject to the 50% of AGI limit. 1040a tax form Exception. 1040a tax form   Qualified contributions do not include contributions to certain private foundations described in section 509(a)(3) or contributions for the establishment of a new, or maintenance of an existing, donor advised fund. 1040a tax form Corporations. 1040a tax form   A corporation can elect to deduct qualified cash contributions without regard to the 10% of taxable income limit if the contributions were paid after May 1, 2008, and before January 1, 2009, to a qualified charitable organization (other than certain private foundations described in section 509(a)(3) or contributions for the establishment of a new, or maintenance of an existing, donor advised fund), for relief efforts in one or more Midwestern disaster areas. 1040a tax form Documentation must be provided by the donee organization that the contribution was used (or will be used) for relief efforts in one or more Midwestern disaster areas. 1040a tax form The corporation's deduction for these qualified contributions is limited to 100% of taxable income (as modified for the 10% limit) minus the corporation's deduction for all other charitable contributions. 1040a tax form Any qualified contributions over this limit can be carried over to the next 5 years, subject to the 10% of taxable income limit. 1040a tax form Partners and shareholders. 1040a tax form   Each partner in a partnership and each shareholder in an S corporation must make a separate election to have the appropriate limit not apply. 1040a tax form More information. 1040a tax form   For more information, see Publication 526 or Publication 542, Corporations. 1040a tax form Publication 526 includes a worksheet you can use to figure your deduction if any limits apply to your charitable contributions. 1040a tax form Standard Mileage Rate for Charitable Use of Vehicles This benefit applies only to the counties in Table 1. 1040a tax form The following are special standard mileage rates in effect for 2008 for the cost of operating your vehicle for providing charitable services related only to the severe storms, tornadoes, or flooding. 1040a tax form 36 cents per mile for the period beginning on the applicable disaster date through June 30, 2008. 1040a tax form 41 cents per mile for the period July 1 through December 31, 2008. 1040a tax form Mileage Reimbursements to Charitable Volunteers This benefit applies only to the counties in Table 1. 1040a tax form You can exclude from income amounts you receive as mileage reimbursements for the use of a private passenger vehicle for the benefit of a qualified charitable organization in providing relief related to the severe storms, tornadoes, or flooding during the period beginning on the applicable disaster date, and ending on December 31, 2008. 1040a tax form You cannot claim a deduction or credit for amounts you exclude. 1040a tax form You must keep records of miles driven, time, place (or use), and purpose of the mileage. 1040a tax form The amount you can exclude cannot exceed the standard business mileage rate (shown below) for expenses incurred during the following periods. 1040a tax form 50. 1040a tax form 5 cents per mile for the period beginning on the applicable disaster date through June 30, 2008. 1040a tax form 58. 1040a tax form 5 cents per mile for the period July 1 through December 31, 2008. 1040a tax form Casualty and Theft Losses This benefit applies to the counties in both Tables 1 and 2. 1040a tax form The following paragraphs explain changes to casualty and theft losses that were caused by the severe storms, tornadoes, or flooding in the Midwestern disaster areas. 1040a tax form For more information, see Publication 547. 1040a tax form Limits on personal casualty or theft losses. 1040a tax form   Losses of personal use property that arose in a Midwestern disaster area on or after the applicable disaster date are not subject to the $100 or 10% of AGI limits. 1040a tax form Qualifying losses include losses from casualties and thefts that arose in a Midwestern disaster area that were attributable to the severe storms, tornadoes, or flooding. 1040a tax form When completing Form 4684, do not include on line 17 any losses that arose in a Midwestern disaster area. 1040a tax form A loss arising in a Midwestern disaster area is not considered a loss attributable to a federally declared disaster for purposes of that line and cannot be added to your standard deduction. 1040a tax form When to deduct the loss. 1040a tax form   Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. 1040a tax form However, you can elect to deduct losses caused by the severe storms, tornadoes, or flooding on your return for the prior year. 1040a tax form Special instructions for individuals who elect to claim a Midwestern disaster area casualty or theft loss for 2007. 1040a tax form   Individuals filing or amending their 2007 tax return for casualty or theft losses that were attributable to the severe storms, tornadoes, or flooding should: Enter “Midwestern Disaster Area” at the top of Form 1040 or Form 1040X, and Complete the 2008 version of Form 4684. 1040a tax form Cross out “2008” and enter “2007” at the top of Form 4684. 1040a tax form Time limit for making election. 1040a tax form   You must make this election to claim your casualty or theft loss in 2007 by the later of the following dates. 1040a tax form The due date (without extensions) for filing your 2008 income tax return. 1040a tax form The due date (with extensions) for filing your 2007 income tax return. 1040a tax form Example. 1040a tax form If you are a calendar year individual taxpayer, you have until April 15, 2009, to amend your 2007 tax return to claim a casualty or theft loss that occurred during 2008. 1040a tax form Replacement Period for Nonrecognition of Gain This benefit applies to the counties in both Tables 1 and 2. 1040a tax form Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. 1040a tax form Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a federally declared disaster area). 1040a tax form However, for property that was involuntarily converted on or after the applicable disaster date, as a result of the severe storms, tornadoes, or flooding, a 5-year replacement period applies if substantially all of the use of the replacement property is in a Midwestern disaster area. 1040a tax form For more information, see the Instructions for Form 4684. 1040a tax form Net Operating Losses This benefit applies only to the counties in Table 1. 1040a tax form Qualified disaster recovery assistance loss. 1040a tax form   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. 1040a tax form However, the portion of an NOL that is a qualified disaster recovery assistance loss can be carried back to the 5 tax years before the NOL year. 1040a tax form In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. 1040a tax form   A qualified disaster recovery assistance loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified disaster recovery assistance casualty loss (as defined below), Moving expenses paid or incurred on or after the applicable disaster date, and before January 1, 2011, for the employment of an individual whose main home was in a Midwestern disaster area before the applicable disaster date, who was unable to remain in that home because of the severe storms, tornadoes, or flooding, and whose main job location (after the move) is in a Midwestern disaster area, Temporary housing expenses paid or incurred on or after the applicable disaster date, and before January 1, 2011, to house employees of the taxpayer whose main job location is in a Midwestern disaster area, Depreciation or amortization allowable for any qualified disaster recovery assistance property (even if you elected not to claim the special disaster recovery assistance depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred on or after the applicable disaster date, and before January 1, 2011, for any damage from the severe storms, tornadoes, or flooding to property located in a Midwestern disaster area. 1040a tax form Qualified disaster recovery assistance casualty loss. 1040a tax form   A qualified disaster recovery assistance casualty loss is any deductible section 1231 loss of property located in a Midwestern disaster area if the loss was caused by the severe storms, tornadoes, or flooding. 1040a tax form For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by the severe storms, tornadoes, or flooding of property located in a Midwestern disaster area. 1040a tax form Any such loss taken into account in figuring your qualified disaster recovery assistance loss is not eligible for the election to be treated as having occurred in the previous tax year. 1040a tax form More information. 1040a tax form   For more information on NOLs, see Publication 536 or Publication 542, Corporations. 1040a tax form IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the severe storms, tornadoes, or flooding. 1040a tax form Definitions Qualified disaster recovery assistance distribution. 1040a tax form   A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan if all of the following apply. 1040a tax form The distribution was made on or after the applicable disaster date and before January 1, 2010. 1040a tax form Your main home was located in a Midwestern disaster area on the applicable disaster date. 1040a tax form You sustained an economic loss because of the severe storms, tornadoes, or flooding and your main home was in a Midwestern disaster area on the applicable disaster date. 1040a tax form Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040a tax form   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes, or flooding. 1040a tax form Qualified disaster recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss. 1040a tax form   The total of your qualified disaster recovery assistance distributions from all plans is limited to $100,000. 1040a tax form If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you can allocate the $100,000 limit among the plans any way you choose. 1040a tax form   A reduction or offset (on or after the applicable disaster date) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified disaster recovery assistance distribution. 1040a tax form Eligible retirement plan. 1040a tax form   An eligible retirement plan can be any of the following. 1040a tax form A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). 1040a tax form A qualified annuity plan. 1040a tax form A tax-sheltered annuity contract. 1040a tax form A governmental section 457 deferred compensation plan. 1040a tax form A traditional, SEP, SIMPLE, or Roth IRA. 1040a tax form Main home. 1040a tax form   Generally, your main home is the home where you live most of the time. 1040a tax form A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. 1040a tax form Taxation of Qualified Disaster Recovery Assistance Distributions This benefit applies to the counties in both Tables 1 and 2. 1040a tax form Qualified disaster recovery assistance distributions are included in income in equal amounts over three years. 1040a tax form However, if you elect, you can include the entire distribution in your income in the year it was received. 1040a tax form Qualified disaster recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). 1040a tax form However, any distributions you receive in excess of the $100,000 qualified disaster recovery assistance distribution limit may be subject to the additional tax on early distributions. 1040a tax form For more information, see Form 8930. 1040a tax form Repayment of Qualified Disaster Recovery Assistance Distributions This benefit applies to the counties in both Tables 1 and 2. 1040a tax form If you choose, you generally can repay any portion of a qualified disaster recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. 1040a tax form Also, you can repay a qualified disaster recovery assistance distribution made on account of a hardship from a retirement plan. 1040a tax form However, see Exceptions later for qualified disaster recovery assistance distributions you cannot repay. 1040a tax form You have three years from the day after the date you received the distribution to make a repayment. 1040a tax form Amounts that are repaid are treated as a qualified rollover and are not included in income. 1040a tax form Also, a repayment of a qualified disaster recovery assistance distribution to an IRA is not counted when figuring the one-rollover-per-year limitation. 1040a tax form See Form 8930 for more information on how to report repayments. 1040a tax form Exceptions. 1040a tax form   You cannot repay the following types of distributions. 1040a tax form Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse). 1040a tax form Required minimum distributions. 1040a tax form Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. 1040a tax form Repayment of Qualified Distributions for the Purchase or Construction of a Main Home This benefit applies to the counties in both Tables 1 and 2. 1040a tax form If you received a qualified distribution to purchase or construct a main home in a Midwestern disaster area, you can repay part or all of that distribution on or after the applicable disaster date, but no later than March 3, 2009, to an eligible retirement plan. 1040a tax form For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. 1040a tax form To be a qualified distribution, the distribution must meet all of the following requirements. 1040a tax form The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. 1040a tax form The distribution was received after the date that was 6 months before the day after the applicable disaster date. 1040a tax form The distribution was to be used to purchase or construct a main home in a Midwestern disaster area that was not purchased or constructed because of the severe storms, tornadoes, or flooding. 1040a tax form Amounts that are repaid before March 4, 2009, are treated as a qualified rollover and are not included in income. 1040a tax form Also, a repayment of a qualified distribution to an IRA is not counted when figuring the one-rollover-per-year limitation. 1040a tax form A qualified distribution not repaid before March 4, 2009, may be taxable for 2007 or 2008 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. 1040a tax form You must file Form 8930 if you received a qualified distribution that you repaid, in whole or in part, before March 4, 2009. 1040a tax form Loans From Qualified Plans This benefit applies to the counties in both Tables 1 and 2. 1040a tax form The following benefits are available to qualified individuals. 1040a tax form Increases to the limits for distributions treated as loans from employer plans. 1040a tax form A 1-year suspension for payments due on plan loans. 1040a tax form Qualified individual. 1040a tax form   You are a qualified individual if your main home was located in a Midwestern disaster area on the applicable disaster date and you had an economic loss because of the severe storms, tornadoes, or flooding. 1040a tax form Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040a tax form Limits on plan loans. 1040a tax form   The $50,000 limit for distributions treated as plan loans is increased to $100,000. 1040a tax form In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. 1040a tax form If your main home was located in a Midwestern disaster area, the higher limits apply only to loans received during the period beginning on October 3, 2008, and ending on December 31, 2009. 1040a tax form One-year suspension of loan payments. 1040a tax form   Payments on plan loans outstanding on or after the applicable disaster date, may be suspended for 1 year by the plan administrator. 1040a tax form To qualify for the suspension, the due date for any loan payment must occur during the period beginning on the applicable disaster date and ending on December 31, 2009. 1040a tax form Additional Tax Relief for Individuals Earned Income Credit and Child Tax Credit This benefit applies to the counties in both Tables 1 and 2. 1040a tax form You can elect to use your 2007 earned income to figure your earned income credit (EIC) and additional child tax credit for 2008 if: Your 2008 earned income is less than your 2007 earned income, and At least one of the following statements is true. 1040a tax form Your main home on the applicable disaster date was in a Midwestern disaster area as shown in Table 1. 1040a tax form Your main home on the applicable disaster date was in a Midwestern disaster area as shown in Table 2, and you were displaced from that home because of the severe storms, tornadoes, or flooding. 1040a tax form Earned income. 1040a tax form    For the purpose of this election, your earned income for both the EIC and the additional child tax credit is the amount of earned income used to figure your EIC, even if you did not take the EIC and even if that amount is different than your earned income for the additional child tax credit. 1040a tax form If you are claiming only the additional child tax credit, you must figure the amount of your earned income for EIC purposes to determine your eligibility to make the election and the amount of the credit. 1040a tax form Joint returns. 1040a tax form   If you file a joint return, you qualify to make this election even if only one spouse meets the requirements. 1040a tax form If you make the election, your 2007 earned income is the sum of your 2007 earned income and your spouse's 2007 earned income. 1040a tax form Making the election. 1040a tax form   If you make the election to use your 2007 earned income, the election applies for figuring both the EIC and the additional child tax credit. 1040a tax form However, you can make the election for the additional child tax credit even if you do not take the EIC. 1040a tax form   Electing to use your 2007 earned income can increase or decrease your EIC. 1040a tax form Take the following steps to decide whether to make the election. 1040a tax form Figure your 2008 EIC using your 2007 earned income. 1040a tax form Figure your 2008 additional child tax credit using your 2007 earned income for EIC purposes. 1040a tax form Add the results of (1) and (2). 1040a tax form Figure your 2008 EIC using your 2008 earned income. 1040a tax form Figure your 2008 additional child tax credit using your 2008 earned income for additional child tax credit purposes. 1040a tax form Add the results of (4) and (5). 1040a tax form Compare the results of (3) and (6). 1040a tax form If (3) is larger than (6), it is to your benefit to make the election. 1040a tax form If (3) is equal to or smaller than (6), making the election will not help you. 1040a tax form   If you elect to use your 2007 earned income and you are claiming the EIC, enter “PYEI” and the amount of your 2007 earned income on the dotted line next to line 64a of Form 1040, on the line next to line 40a of Form 1040A, or in the space to the left of line 8a of Form 1040EZ. 1040a tax form   If you elect to use your 2007 earned income and you are claiming the additional child tax credit, enter your 2007 earned income for EIC purposes (even if you did not claim the EIC) on Form 8812, Additional Child Tax Credit, line 4a, and check the box on that line. 1040a tax form Getting your 2007 tax return information. 1040a tax form   If you do not have your 2007 tax records, you can get the amount of earned income used to figure your 2007 EIC by calling 1-866-562-5227. 1040a tax form You can also get this information by visiting the IRS website at www. 1040a tax form irs. 1040a tax form gov. 1040a tax form   If you prefer to figure your 2007 earned income yourself, copies or transcripts of your filed and processed tax returns can help you reconstruct your tax records. 1040a tax form See Request for Copy or Transcript of Tax Return on page 11. 1040a tax form Additional Exemption for Housing Individuals Displaced by the Severe Storms, Tornadoes, or Flooding This benefit applies to the counties in both Tables 1 and 2. 1040a tax form You can claim an additional exemption amount of $500 for providing housing in your main home for each individual displaced by the severe storms, tornadoes, or flooding. 1040a tax form The additional exemption amount is claimed on Form 8914. 1040a tax form You can claim an additional exemption amount only one time for a specific individual. 1040a tax form If you claimed an additional exemption amount for an individual in 2008, you cannot claim that amount again for the same individual in 2009. 1040a tax form The maximum additional exemption amount you can claim for all displaced individuals is $2,000. 1040a tax form Any additional exemption amount you claimed for displaced individuals in 2008 will reduce the $2,000 maximum for 2009. 1040a tax form The $2,000 limit applies to a husband and wife, whether the husband and wife file joint returns or separate returns. 1040a tax form If married filing separately, the $2,000 can be divided in $500 increments between the spouses. 1040a tax form For example, if one spouse claims an additional exemption amount for one displaced individual, the other spouse, if otherwise eligible, can claim additional exemption amounts for three different displaced individuals. 1040a tax form If two or more taxpayers share the same main home, only one taxpayer in that main home can claim the additional exemption amount for a specific displaced individual. 1040a tax form In order for you to be considered to have provided housing, you must have a legal interest in the main home (that is, own or rent the home). 1040a tax form To qualify as a displaced individual, the individual: Must have had his or her main home in a Midwestern disaster area on the applicable disaster date, and he or she must have been displaced from that home. 1040a tax form If the individual's main home was located in a Midwestern disaster area as shown in Table 2, that home must have been damaged by the severe storms, tornadoes, or flooding or the individual must have been evacuated from that home because of the severe storms, tornadoes, or flooding, Must have been provided housing in your main home for a period of at least 60 consecutive days ending in the tax year in which the exemption is claimed, and Cannot be your spouse or dependent. 1040a tax form You cannot claim the additional exemption amount if you received rent (or any other amount) from any source for providing the housing. 1040a tax form You are permitted to receive payments or reimbursements that do not relate to normal housing costs, including the following. 1040a tax form Food, clothing, or personal items consumed or used by the displaced individual. 1040a tax form Reimbursement for the cost of any long distance telephone calls made by the displaced individual. 1040a tax form Reimbursement for the cost of gasoline for the displaced individual's use of your vehicle. 1040a tax form However, you cannot claim the additional exemption amount if you received any reimbursement for the extra costs of heat, electricity, or water used by the displaced individual. 1040a tax form Also, you must report on Form 8914 the displaced individual's social security number or individual taxpayer identification number to claim an additional exemption amount. 1040a tax form For more information, see Form 8914. 1040a tax form Education Credits This benefit applies only to the counties in Table 1. 1040a tax form The education credits have been expanded for students attending an eligible educational institution located in a Midwestern disaster area (Midwestern disaster area students) for any tax year beginning in 2008 or 2009. 1040a tax form The Hope credit for a Midwestern disaster area student is increased to 100% of the first $2,400 in qualified education expenses and 50% of the next $2,400 of qualified education expenses for a maximum credit of $3,600 per student. 1040a tax form The lifetime learning credit rate for a Midwestern disaster area student is increased from 20% to 40%. 1040a tax form The definition of qualified education expenses for a Midwestern disaster area student also has been expanded. 1040a tax form This expanded definition also applies to the tuition and fees deduction claimed on Form 8917. 1040a tax form In addition to tuition and fees required for the student's enrollment or attendance at an eligible educational institution, qualified education expenses for a Midwestern disaster area student include the following. 1040a tax form Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. 1040a tax form For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution. 1040a tax form For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts. 1040a tax form The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. 1040a tax form The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. 1040a tax form You will need to contact the eligible educational institution for qualified room and board costs. 1040a tax form For more information, see Form 8863. 1040a tax form See Form 8917 for the tuition and fees deduction. 1040a tax form Recapture of Federal Mortgage Subsidy This benefit applies only to the counties in Table 1. 1040a tax form Generally, if you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. 1040a tax form However, you do not have to recapture any benefit if your mortgage loan was a qualified home improvement loan of not more than $15,000. 1040a tax form This amount is increased to $150,000 if the loan was provided before 2011 and was used to alter, repair, or improve an existing owner-occupied residence in a Midwestern disaster area as shown in Table 1. 1040a tax form Exclusion of Certain Cancellations of Indebtedness by Reason of the Severe Storms, Tornadoes, or Flooding This benefit applies to the counties in both Tables 1 and 2. 1040a tax form Generally, discharges of nonbusiness debts (such as mortgages) made on or after the applicable disaster date and before January 1, 2010, are excluded from income for individuals whose main home was in a Midwestern disaster area on the applicable disaster date. 1040a tax form If the individual's main home was located in a Midwestern disaster area as shown in Table 2, the individual also must have had an economic loss because of the severe storms, tornadoes, or flooding. 1040a tax form Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. 1040a tax form This relief does not apply to any debt secured by real property located outside a Midwestern disaster area. 1040a tax form You may also have to reduce certain tax attributes by the amount excluded. 1040a tax form For more information, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 1040a tax form Tax Relief for Temporary Relocation This benefit applies only to the counties in Table 1. 1040a tax form The IRS can adjust the internal revenue laws to ensure that taxpayers do not lose a deduction or credit or experience a change of filing status in 2008 or 2009 as a result of a temporary relocation caused by the severe storms, tornadoes, or flooding. 1040a tax form However, any such adjustment must ensure that an individual is not taken into account by more than one taxpayer for the same tax benefit. 1040a tax form The IRS has exercised this authority as follows. 1040a tax form In determining whether you furnished over one-half of the cost of maintaining a household, you can exclude from total household costs any assistance received from the government or charitable organizations because you were temporarily relocated as a result of the severe storms, tornadoes, or flooding. 1040a tax form In determining whether you provided more than one-half of an individual's support, you can disregard any assistance received from the government or charitable organizations because you were temporarily relocated as a result of the severe storms, tornadoes, or flooding. 1040a tax form You can treat as a student an individual who enrolled in school before the applicable disaster date, and who is unable to attend classes because of the severe storms, tornadoes, or flooding, for each month of the enrollment period that individual is prevented by the severe storms, tornadoes, or flooding from attending school as planned. 1040a tax form Additional Tax Relief for Businesses Employee Retention Credit This benefit applies only to the counties in Table 1. 1040a tax form An eligible employer who conducted an active trade or business in a Midwestern disaster area can claim the employee retention credit. 1040a tax form The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). 1040a tax form Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 1040a tax form Use Form 5884-A to claim the credit. 1040a tax form Employers affected by the severe storms, tornadoes, or flooding. 1040a tax form   The following definitions apply to employers affected by the severe storms, tornadoes, or flooding. 1040a tax form Eligible employer. 1040a tax form   For this purpose, an eligible employer is any employer who meets all of the following. 1040a tax form Employed an average of not more than 200 employees on business days during the tax year before the applicable disaster date. 1040a tax form Conducted an active trade or business on the applicable disaster date in a Midwestern disaster area. 1040a tax form Whose trade or business was inoperable on any day after the applicable disaster date and before January 1, 2009, because of the damage caused by the severe storms, tornadoes, or flooding. 1040a tax form Eligible employee. 1040a tax form   For this purpose, an eligible employee is an employee whose principal place of employment on the applicable disaster date with such eligible employer was in a Midwestern disaster area. 1040a tax form An employee is not an eligible employee for purposes of the severe storms, tornadoes, or flooding if the employee is treated as an eligible employee for the work opportunity credit. 1040a tax form Qualified wages. 1040a tax form   Qualified wages are wages (up to $6,000 per employee) you paid or incurred before January 1, 2009, for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable disaster, and ending on the date your trade or business resumed significant operations at that place. 1040a tax form In addition, the wages must have been paid or incurred after the applicable disaster date. 1040a tax form    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. 1040a tax form    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). 1040a tax form Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. 1040a tax form Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. 1040a tax form   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. 1040a tax form For a special rule that applies to railroad employees, see section 51(h)(1)(B). 1040a tax form   Qualified wages do not include the following. 1040a tax form Wages paid to your dependent or a related individual. 1040a tax form See section 51(i)(1). 1040a tax form Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. 1040a tax form Wages for services of replacement workers during a strike or lockout. 1040a tax form   For more information, see Form 5884-A. 1040a tax form Employer Housing Credit and Exclusion This benefit applies only to the counties in Table 1. 1040a tax form An employer who conducted an active trade or business in a Midwestern disaster area can claim the employer housing credit. 1040a tax form The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from November 1, 2008, through May 1, 2009. 1040a tax form The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). 1040a tax form Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). 1040a tax form The employer must use Form 5884-A to claim the credit. 1040a tax form A qualified employee is an individual who had a main home in a Midwestern disaster area on the applicable disaster date, and who performs substantially all employment services in a Midwestern disaster area for the employer furnishing the lodging. 1040a tax form The employee cannot be your dependent or a related individual. 1040a tax form See section 51(i)(1). 1040a tax form For more information, see Form 5884-A. 1040a tax form Demolition and Clean-up Costs This benefit applies only to the counties in Table 1. 1040a tax form You can elect to deduct 50% of any qualified disaster recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. 1040a tax form Qualified disaster recovery assistance clean-up costs are any amounts paid or incurred on or after the applicable disaster date, and before January 1, 2011, for the removal of debris from, or the demolition of structures on, real property located in a Midwestern disaster area that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. 1040a tax form Qualified disaster recovery assistance clean-up costs are limited to amounts necessary due to damage attributable to the severe storms, tornadoes, or flooding in the Midwestern disaster areas. 1040a tax form Increase in Rehabilitation Tax Credit This benefit applies only to the counties in Table 1. 1040a tax form The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred on or after the applicable disaster date, and before January 1, 2012, on buildings located in a Midwestern disaster area as follows. 1040a tax form For pre-1936 buildings (other than certified historic structures), the credit percentage is increased from 10% to 13%. 1040a tax form For certified historic structures, the credit percentage is increased from 20% to 26%. 1040a tax form For more information, see Form 3468, Investment Credit. 1040a tax form Request for Copy or Transcript of Tax Return Request for copy of tax return. 1040a tax form   You can use Form 4506 to order a copy of your tax return. 1040a tax form Generally, there is a $57 fee for requesting each copy of a tax return. 1040a tax form If your main home, principal place of business, or tax records are located in a Midwestern disaster area, the fee will be waived if “Midwestern Disaster Area” is written in red across the top of the form when filed. 1040a tax form Request for transcript of tax return. 1040a tax form   You can use Form 4506-T to order a free transcript of your tax return. 1040a tax form A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. 1040a tax form You can also call 1-800-829-1040 to order a transcript. 1040a tax form How To Get Tax Help Special IRS assistance. 1040a tax form   The IRS is providing special help for those affected by the severe storms, tornadoes, or flooding, as well as survivors and personal representatives of the victims. 1040a tax form We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by recent federally declared disasters, or who have other tax issues related to the severe storms, tornadoes, or flooding. 1040a tax form Call 1-866-562-5227 Monday through FridayIn English–7 a. 1040a tax form m. 1040a tax form to 10 p. 1040a tax form m. 1040a tax form local timeIn Spanish–8 a. 1040a tax form m. 1040a tax form to 9:30 p. 1040a tax form m. 1040a tax form local time   The IRS website at www. 1040a tax form irs. 1040a tax form gov has notices and other tax relief information. 1040a tax form Check it periodically for any new guidance. 1040a tax form You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. 1040a tax form By selecting the method that is best for you, you will have quick and easy access to tax help. 1040a tax form Contacting your Taxpayer Advocate. 1040a tax form   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. 1040a tax form Here are seven things every taxpayer should know about TAS: TAS is your voice at the IRS. 1040a tax form Our service is free, confidential, and tailored to meet your needs. 1040a tax form You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should. 1040a tax form TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. 1040a tax form This includes businesses as well as individuals. 1040a tax form TAS employees know the IRS and how to navigate it. 1040a tax form We will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved. 1040a tax form TAS has at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. 1040a tax form You can call your local advocate, whose number is in your phone book, in Pub. 1040a tax form 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www. 1040a tax form irs. 1040a tax form gov/advocate. 1040a tax form You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. 1040a tax form You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www. 1040a tax form taxtoolkit. 1040a tax form irs. 1040a tax form gov. 1040a tax form Low Income Taxpayer Clinics (LITCs). 1040a tax form   The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. 1040a tax form LITCs are independent from the IRS. 1040a tax form Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. 1040a tax form If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. 1040a tax form For more information, see Publication 4134, Low Income Taxpayer Clinic List. 1040a tax form This publication is available at www. 1040a tax form irs. 1040a tax form gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office. 1040a tax form Free tax services. 1040a tax form   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. 1040a tax form It contains lists of free tax information sources, including publications, services, and free tax education and assistance programs. 1040a tax form It also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on your telephone. 1040a tax form   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. 1040a tax form Free help with your return. 1040a tax form   Free help in preparing your return is available nationwide from IRS-trained volunteers. 1040a tax form The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 1040a tax form Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040a tax form To find the nearest VITA or TCE site, call 1-800-829-1040. 1040a tax form   As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040a tax form To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's website atwww. 1040a tax form aarp. 1040a tax form org/money/taxaide. 1040a tax form   For more information on these programs, go to www. 1040a tax form irs. 1040a tax form gov and enter keyword “VITA” in the upper right-hand corner. 1040a tax form Internet. 1040a tax form You can access the IRS website at www. 1040a tax form irs. 1040a tax form gov 24 hours a day, 7 days a week to: E-file your return. 1040a tax form Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 1040a tax form Check the status of your 2009 refund. 1040a tax form Go to www. 1040a tax form irs. 1040a tax form gov and click on Where's My Refund. 1040a tax form Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. 1040a tax form If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 1040a tax form Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 1040a tax form Download forms, instructions, and publications. 1040a tax form Order IRS products online. 1040a tax form Research your tax questions online. 1040a tax form Search publications online by topic or keyword. 1040a tax form Use the online Internal Revenue Code, Regulations, or other official guidance. 1040a tax form View Internal Revenue Bulletins (IRBs) published in the last few years. 1040a tax form Figure your withholding allowances using the withholding calculator online at www. 1040a tax form irs. 1040a tax form gov/individuals. 1040a tax form Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant. 1040a tax form Sign up to receive local and national tax news by email. 1040a tax form Get information on starting and operating a small business. 1040a tax form Phone. 1040a tax form Many services are available by phone. 1040a tax form Ordering forms, instructions, and publications. 1040a tax form Call 1-800-TAX FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. 1040a tax form You should receive your order within 10 days. 1040a tax form Asking tax questions. 1040a tax form Call the IRS with your tax questions at 1-800-829-1040. 1040a tax form Solving problems. 1040a tax form You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. 1040a tax form An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 1040a tax form Call your local Taxpayer Assistance Center for an appointment. 1040a tax form To find the number, go to www. 1040a tax form irs. 1040a tax form gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040a tax form TTY/TDD equipment. 1040a tax form If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. 1040a tax form TeleTax topics. 1040a tax form Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. 1040a tax form Refund information. 1040a tax form To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). 1040a tax form Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. 1040a tax form If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). 1040a tax form Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 1040a tax form Refunds are sent out weekly on Fridays. 1040a tax form If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. 1040a tax form Other refund information. 1040a tax form To check the status of a prior year refund or amended return refund, call 1-800-829-1954. 1040a tax form Evaluating the quality of our telephone services. 1040a tax form To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. 1040a tax form One method is for a second IRS representative to listen in on or record random telephone calls. 1040a tax form Another is to ask some callers to complete a short survey at the end of the call. 1040a tax form Walk-in. 1040a tax form Many products and services are available on a walk-in basis. 1040a tax form Products. 1040a tax form You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040a tax form Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. 1040a tax form Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. 1040a tax form Services. 1040a tax form You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. 1040a tax form An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 1040a tax form If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. 1040a tax form No appointment is necessary—just walk in. 1040a tax form If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. 1040a tax form A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. 1040a tax form If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. 1040a tax form All other issues will be handled without an appointment. 1040a tax form To find the number of your local office, go to www. 1040a tax form irs. 1040a tax form gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040a tax form Mail. 1040a tax form You can send your order for forms, instructions, and publications to the address below. 1040a tax form You should receive a response within 10 days after your request is received. 1040a tax form Internal Revenue Service1201 N. 1040a tax form Mitsubishi MotorwayBloomington, IL 61705-6613 DVD for tax products. 1040a tax form You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. 1040a tax form Prior-year forms, instructions, and publications. 1040a tax form Tax Map: an electronic research tool and finding aid. 1040a tax form Tax law frequently asked questions. 1040a tax form Tax Topics from the IRS telephone response system. 1040a tax form Internal Revenue Code—Title 26 of the U. 1040a tax form S. 1040a tax form Code. 1040a tax form Fill-in, print, and save features for most tax forms. 1040a tax form Internal Revenue Bulletins. 1040a tax form Toll-free and email technical support. 1040a tax form Two releases during the year. 1040a tax form – The first release will ship the beginning of January 2010. 1040a tax form – The final release will ship the beginning of March 2010. 1040a tax form Purchase the DVD from National Technical Information Service (NTIS) at www. 1040a tax form irs. 1040a tax form gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). 1040a tax form Prev  Up  Next   Home   More Online Publications
Español

Open World Leadership Center

The Open World Leadership Center administers the Open World program, a foreign exchange program that brings future leaders from former Soviet states to the U.S. to meet with members of congress.

Contact the Agency or Department

Website: Open World Leadership Center

E-mail:

Address: 101 Independence Ave SE
John Adams Building, Room 144

Washington, DC 20540-9980

Phone Number: (202) 707-8943

The 1040a Tax Form

1040a tax form 4. 1040a tax form   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. 1040a tax form Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. 1040a tax form Net unrelated income. 1040a tax form Net unrelated loss. 1040a tax form Control. 1040a tax form Income from property financed with qualified 501(c)(3) bonds. 1040a tax form Disposition of property received from taxable subsidiary and used in unrelated business. 1040a tax form Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. 1040a tax form If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. 1040a tax form In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. 1040a tax form Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. 1040a tax form For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. 1040a tax form Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. 1040a tax form Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. 1040a tax form Dividends, interest, annuities and other investment income. 1040a tax form   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. 1040a tax form Exception for insurance activity income of a controlled foreign corporation. 1040a tax form   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. 1040a tax form The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. 1040a tax form Certain exceptions to this rule apply. 1040a tax form For more information, see section 512(b)(17). 1040a tax form Other exceptions. 1040a tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). 1040a tax form Income from lending securities. 1040a tax form   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. 1040a tax form   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. 1040a tax form The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. 1040a tax form Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. 1040a tax form Royalties. 1040a tax form   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. 1040a tax form   To be considered a royalty, a payment must relate to the use of a valuable right. 1040a tax form Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. 1040a tax form Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. 1040a tax form However, royalties do not include payments for personal services. 1040a tax form Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. 1040a tax form   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. 1040a tax form   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. 1040a tax form However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. 1040a tax form To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. 1040a tax form To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. 1040a tax form Exceptions. 1040a tax form   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). 1040a tax form Rents. 1040a tax form   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. 1040a tax form Rents from personal property are not excluded. 1040a tax form However, special rules apply to “mixed leases” of both real and personal property. 1040a tax form Mixed leases. 1040a tax form   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. 1040a tax form If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. 1040a tax form If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. 1040a tax form   Property is placed in service when the lessee first may use it under the terms of a lease. 1040a tax form For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. 1040a tax form   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. 1040a tax form   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). 1040a tax form Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. 1040a tax form Exception for rents based on net profit. 1040a tax form   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. 1040a tax form Exception for income from personal services. 1040a tax form   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. 1040a tax form Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. 1040a tax form Other exceptions. 1040a tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. 1040a tax form ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). 1040a tax form See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. 1040a tax form Income from research. 1040a tax form   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. 1040a tax form However, the extent of the exclusion depends on the nature of the organization and the type of research. 1040a tax form   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. 1040a tax form   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. 1040a tax form   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. 1040a tax form   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. 1040a tax form In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. 1040a tax form Gains and losses from disposition of property. 1040a tax form   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. 1040a tax form   It should be noted that the last exception relates only to cut timber. 1040a tax form The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. 1040a tax form Lapse or termination of options. 1040a tax form   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. 1040a tax form The exclusion applies only if the option is written in connection with the exempt organization's investment activities. 1040a tax form Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. 1040a tax form Exception. 1040a tax form   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. 1040a tax form Gain or loss on disposition of certain brownfield property. 1040a tax form   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. 1040a tax form See sections 512(b)(19) and 514(b)(1)(E). 1040a tax form Income from services provided under federal license. 1040a tax form   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. 1040a tax form   This exclusion applies only if the following requirements are met. 1040a tax form The trade or business must have been operated by the order or by the institution before May 27, 1959. 1040a tax form The trade or business must provide services under a license issued by a federal regulatory agency. 1040a tax form More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. 1040a tax form The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. 1040a tax form Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. 1040a tax form Exception. 1040a tax form    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). 1040a tax form Member income of mutual or cooperative electric companies. 1040a tax form   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. 1040a tax form Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. 1040a tax form For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. 1040a tax form Exception. 1040a tax form   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. 1040a tax form The limit on dues paid by an associate member is $148 for 2011. 1040a tax form   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. 1040a tax form Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. 1040a tax form They cannot be directly connected with excluded income. 1040a tax form For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. 1040a tax form Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. 1040a tax form For an exception, see Expenses attributable to exploitation of exempt activities, later. 1040a tax form Expenses attributable solely to unrelated business. 1040a tax form   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. 1040a tax form   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. 1040a tax form Expenses attributable to dual use of facilities or personnel. 1040a tax form   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. 1040a tax form The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. 1040a tax form Example 1. 1040a tax form A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. 1040a tax form The school provides the tennis courts, housing, and dining facilities. 1040a tax form The contracted individual hires the instructors, recruits campers, and provides supervision. 1040a tax form The income the school receives from this activity is from a dual use of the facilities and personnel. 1040a tax form The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. 1040a tax form Example 2. 1040a tax form An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. 1040a tax form The president devotes approximately 10% of his time to the unrelated business. 1040a tax form To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. 1040a tax form Expenses attributable to exploitation of exempt activities. 1040a tax form   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. 1040a tax form (See Exploitation of exempt functions under Not substantially related in chapter 3. 1040a tax form ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. 1040a tax form Exception. 1040a tax form   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. 1040a tax form The unrelated business exploits the exempt activity. 1040a tax form The unrelated business is a type normally conducted for profit by taxable organizations. 1040a tax form The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. 1040a tax form The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. 1040a tax form   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. 1040a tax form Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. 1040a tax form Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. 1040a tax form (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. 1040a tax form ) Figuring unrelated business taxable income (UBTI). 1040a tax form   The UBTI of an advertising activity is the amount shown in the following chart. 1040a tax form IF gross advertising income is . 1040a tax form . 1040a tax form . 1040a tax form THEN UBTI is . 1040a tax form . 1040a tax form . 1040a tax form More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. 1040a tax form Equal to or less than direct advertising costs Zero. 1040a tax form   • Circulation income and readership costs are not taken into account. 1040a tax form   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. 1040a tax form   The terms used in the chart are explained in the following discussions. 1040a tax form Periodical Income Gross advertising income. 1040a tax form   This is all the income from the unrelated advertising activities of an exempt organization periodical. 1040a tax form Circulation income. 1040a tax form   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). 1040a tax form It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. 1040a tax form It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. 1040a tax form Allocable membership receipts. 1040a tax form   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. 1040a tax form   The amount used to allocate membership receipts is the amount shown in the following chart. 1040a tax form   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. 1040a tax form The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. 1040a tax form IF . 1040a tax form . 1040a tax form . 1040a tax form THEN the amount used to allocate membership receipts is . 1040a tax form . 1040a tax form . 1040a tax form 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. 1040a tax form The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. 1040a tax form Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. 1040a tax form U is an exempt scientific organization with 10,000 members who pay annual dues of $15. 1040a tax form One of U's activities is publishing a monthly periodical distributed to all of its members. 1040a tax form U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. 1040a tax form Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. 1040a tax form Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). 1040a tax form Example 2. 1040a tax form Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. 1040a tax form Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. 1040a tax form U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. 1040a tax form Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. 1040a tax form Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. 1040a tax form Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). 1040a tax form U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). 1040a tax form Periodical Costs Direct advertising costs. 1040a tax form   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. 1040a tax form   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. 1040a tax form Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. 1040a tax form   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. 1040a tax form For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. 1040a tax form Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. 1040a tax form   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. 1040a tax form Readership costs. 1040a tax form   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. 1040a tax form Costs partly attributable to other activities. 1040a tax form   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. 1040a tax form When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. 1040a tax form The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. 1040a tax form Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. 1040a tax form Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. 1040a tax form It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. 1040a tax form Consolidated treatment, once adopted, must be followed consistently and is binding. 1040a tax form This treatment can be changed only with the consent of the Internal Revenue Service. 1040a tax form An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. 1040a tax form Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. 1040a tax form The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. 1040a tax form For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. 1040a tax form The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. 1040a tax form Example. 1040a tax form Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. 1040a tax form Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. 1040a tax form Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. 1040a tax form The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. 1040a tax form The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. 1040a tax form It is not engaged in for profit. 1040a tax form Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. 1040a tax form It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. 1040a tax form Modifications Net operating loss deduction. 1040a tax form   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. 1040a tax form However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. 1040a tax form For example, a loss from an unrelated trade or business is not diminished because dividend income was received. 1040a tax form   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. 1040a tax form This would reduce the loss that could be applied against unrelated business income of prior or future tax years. 1040a tax form Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. 1040a tax form   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. 1040a tax form   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. 1040a tax form   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. 1040a tax form For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. 1040a tax form   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 1040a tax form Charitable contributions deduction. 1040a tax form   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. 1040a tax form   To be deductible, the contribution must be paid to another qualified organization. 1040a tax form For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. 1040a tax form   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. 1040a tax form Deduction limits. 1040a tax form   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. 1040a tax form See the Instructions for Form 990-T for more information. 1040a tax form    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. 1040a tax form However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. 1040a tax form   Contributions in excess of the limits just described may be carried over to the next 5 tax years. 1040a tax form A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. 1040a tax form Suspension of deduction limits for farmers and ranchers. 1040a tax form   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. 1040a tax form See the Instructions for Form 990-T for details. 1040a tax form Specific deduction. 1040a tax form   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. 1040a tax form However, the specific deduction is not allowed in computing an NOL or the NOL deduction. 1040a tax form   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. 1040a tax form Exception. 1040a tax form   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. 1040a tax form In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. 1040a tax form   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. 1040a tax form The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. 1040a tax form The local units cannot file separate returns. 1040a tax form However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. 1040a tax form See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. 1040a tax form Example. 1040a tax form X is an association of churches and is divided into local units A, B, C, and D. 1040a tax form Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. 1040a tax form X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. 1040a tax form Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. 1040a tax form If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. 1040a tax form No distinction is made between limited and general partners. 1040a tax form The organization is required to notify the partnership of its tax-exempt status. 1040a tax form Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. 1040a tax form The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. 1040a tax form The partnership is required to provide the organization this information on Schedule K-1. 1040a tax form Example. 1040a tax form An exempt educational organization is a partner in a partnership that operates a factory. 1040a tax form The partnership also holds stock in a corporation. 1040a tax form The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. 1040a tax form Different tax years. 1040a tax form   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. 1040a tax form S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. 1040a tax form For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. 1040a tax form The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. 1040a tax form Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. 1040a tax form To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. 1040a tax form Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). 1040a tax form These organizations must figure unrelated business taxable income under special rules. 1040a tax form Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. 1040a tax form ). 1040a tax form (See Exclusions under Income, earlier. 1040a tax form ) Therefore, they are generally subject to unrelated business income tax on this income. 1040a tax form The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. 1040a tax form The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. 1040a tax form Losses from nonexempt activities. 1040a tax form   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. 1040a tax form Example. 1040a tax form A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. 1040a tax form The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. 1040a tax form Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. 1040a tax form Modifications. 1040a tax form   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). 1040a tax form Exempt function income. 1040a tax form   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. 1040a tax form Exempt function income also includes income set aside for qualified purposes. 1040a tax form Income that is set aside. 1040a tax form   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 1040a tax form In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. 1040a tax form   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. 1040a tax form Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. 1040a tax form These rules are explained in section 512(a)(3)(E)(ii). 1040a tax form   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. 1040a tax form In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. 1040a tax form   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. 1040a tax form However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. 1040a tax form The income set aside must have been includible in gross income for that earlier year. 1040a tax form Nonrecognition of gain. 1040a tax form   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. 1040a tax form The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. 1040a tax form   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. 1040a tax form Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. 1040a tax form The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. 1040a tax form For details, see section 512(a)(4) and the regulations under that section. 1040a tax form Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. 1040a tax form The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. 1040a tax form All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. 1040a tax form Excess qualifying specified payments. 1040a tax form   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. 1040a tax form Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. 1040a tax form   If a controlled participant is not required to file a U. 1040a tax form S. 1040a tax form income tax return, the participant must ensure that the copy or copies of the Regulations section 1. 1040a tax form 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. 1040a tax form S. 1040a tax form Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. 1040a tax form S. 1040a tax form Corporation or a Foreign Corporation Engaged in a U. 1040a tax form S. 1040a tax form Trade or Business, or any Form 8865, Return of U. 1040a tax form S. 1040a tax form Persons With Respect to Certain Foreign Partnerships, filed for that participant. 1040a tax form Addition to tax for valuation misstatements. 1040a tax form   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. 1040a tax form See section 512(b)(13)(E)(ii) for more information. 1040a tax form Net unrelated income. 1040a tax form   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. 1040a tax form Net unrelated loss. 1040a tax form   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. 1040a tax form Control. 1040a tax form   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. 1040a tax form For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. 1040a tax form   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). 1040a tax form Income from property financed with qualified 501(c)(3) bonds. 1040a tax form If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. 1040a tax form No deduction is allowed for interest on the private activity bond. 1040a tax form See sections 150(b)(3) and (c) for more information. 1040a tax form Disposition of property received from taxable subsidiary and used in unrelated business. 1040a tax form A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). 1040a tax form The assets are treated as if sold at fair market value. 1040a tax form Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. 1040a tax form S. 1040a tax form and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. 1040a tax form A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. 1040a tax form However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. 1040a tax form In such a case the built-in appreciation is preserved in the replacement property received in the transaction. 1040a tax form A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). 1040a tax form This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. 1040a tax form In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. 1040a tax form If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. 1040a tax form If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. 1040a tax form Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. 1040a tax form Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. 1040a tax form Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. 1040a tax form The amount of income included is proportionate to the debt on the property. 1040a tax form Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). 1040a tax form It includes rental real estate, tangible personal property, and corporate stock. 1040a tax form Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. 1040a tax form The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. 1040a tax form That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. 1040a tax form Example 1. 1040a tax form Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. 1040a tax form The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. 1040a tax form Example 2. 1040a tax form X, an exempt organization, forms a partnership with A and B. 1040a tax form The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. 1040a tax form X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. 1040a tax form The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. 1040a tax form The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. 1040a tax form The loan is secured by a mortgage on the entire office building. 1040a tax form By agreement with Y bank, X is not personally liable for payment of the mortgage. 1040a tax form X has acquisition indebtedness of $7 million. 1040a tax form This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). 1040a tax form Example 3. 1040a tax form A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. 1040a tax form The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. 1040a tax form Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. 1040a tax form The union has no outstanding debt on the property. 1040a tax form The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. 1040a tax form The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. 1040a tax form Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. 1040a tax form In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. 1040a tax form Accordingly, the debt is not acquisition indebtedness. 1040a tax form Change in use of property. 1040a tax form   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. 1040a tax form Example. 1040a tax form Four years ago a university borrowed funds to acquire an apartment building as housing for married students. 1040a tax form Last year, the university rented the apartment building to the public for nonexempt purposes. 1040a tax form The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. 1040a tax form Continued debt. 1040a tax form   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. 1040a tax form This is true even if the original property was not debt-financed property. 1040a tax form Example. 1040a tax form To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. 1040a tax form The office building was not debt-financed property. 1040a tax form The organization later sold the building for $1 million without repaying the $400,000 loan. 1040a tax form It used the sale proceeds to buy an apartment building it rents to the general public. 1040a tax form The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. 1040a tax form Property acquired subject to mortgage or lien. 1040a tax form   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. 1040a tax form Example. 1040a tax form An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. 1040a tax form The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. 1040a tax form Liens similar to a mortgage. 1040a tax form   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. 1040a tax form A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. 1040a tax form However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. 1040a tax form Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). 1040a tax form Exception for property acquired by gift, bequest, or devise. 1040a tax form   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. 1040a tax form However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. 1040a tax form   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). 1040a tax form   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. 1040a tax form Modifying existing debt. 1040a tax form   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. 1040a tax form When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. 1040a tax form Extension or renewal. 1040a tax form   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. 1040a tax form   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. 1040a tax form Debt increase. 1040a tax form   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. 1040a tax form Example. 1040a tax form An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. 1040a tax form The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. 1040a tax form A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. 1040a tax form Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. 1040a tax form These include the following. 1040a tax form Debts incurred in performing an exempt purpose. 1040a tax form Annuity obligations. 1040a tax form Securities loans. 1040a tax form Real property debts of qualified organizations. 1040a tax form Certain Federal financing. 1040a tax form Debt incurred in performing exempt purpose. 1040a tax form   A debt incurred in performing an exempt purpose is not acquisition indebtedness. 1040a tax form For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. 1040a tax form Annuity obligation. 1040a tax form   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. 1040a tax form It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. 1040a tax form Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. 1040a tax form It must be payable over the lives of either one or two individuals living when issued. 1040a tax form It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. 1040a tax form Example. 1040a tax form X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. 1040a tax form In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. 1040a tax form The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. 1040a tax form The present value of this annuity is $81,156, determined from IRS valuation tables. 1040a tax form Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. 1040a tax form Securities loans. 1040a tax form   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). 1040a tax form This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. 1040a tax form   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from