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1040es Form

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1040es Form

1040es form Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. 1040es form S. 1040es form Taxpayer Identification NumbersUnexpected payment. 1040es form Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. 1040es form Electronic reporting. 1040es form Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. 1040es form S. 1040es form Real Property InterestForeign corporations. 1040es form Domestic corporations. 1040es form U. 1040es form S. 1040es form real property holding corporations. 1040es form Partnerships. 1040es form Trusts and estates. 1040es form Domestically controlled QIE. 1040es form Late filing of certifications or notices. 1040es form Certifications. 1040es form Liability of agent or qualified substitute. 1040es form Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 1040es form Withholding of Tax In most cases, a foreign person is subject to U. 1040es form S. 1040es form tax on its U. 1040es form S. 1040es form source income. 1040es form Most types of U. 1040es form S. 1040es form source income received by a foreign person are subject to U. 1040es form S. 1040es form tax of 30%. 1040es form A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. 1040es form The tax is generally withheld (NRA withholding) from the payment made to the foreign person. 1040es form The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. 1040es form In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. 1040es form S. 1040es form source income. 1040es form Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. 1040es form NRA withholding does not include withholding under section 1445 of the Code (see U. 1040es form S. 1040es form Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). 1040es form A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. 1040es form However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. 1040es form S. 1040es form person is not required to withhold. 1040es form In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. 1040es form Withholding Agent You are a withholding agent if you are a U. 1040es form S. 1040es form or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. 1040es form A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. 1040es form S. 1040es form branch of certain foreign banks and insurance companies. 1040es form You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. 1040es form Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. 1040es form In most cases, the U. 1040es form S. 1040es form person who pays an amount subject to NRA withholding is the person responsible for withholding. 1040es form However, other persons may be required to withhold. 1040es form For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. 1040es form In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. 1040es form Liability for tax. 1040es form   As a withholding agent, you are personally liable for any tax required to be withheld. 1040es form This liability is independent of the tax liability of the foreign person to whom the payment is made. 1040es form If you fail to withhold and the foreign payee fails to satisfy its U. 1040es form S. 1040es form tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. 1040es form   The applicable tax will be collected only once. 1040es form If the foreign person satisfies its U. 1040es form S. 1040es form tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. 1040es form Determination of amount to withhold. 1040es form   You must withhold on the gross amount subject to NRA withholding. 1040es form You cannot reduce the gross amount by any deductions. 1040es form However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. 1040es form   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. 1040es form In no case, however, should you withhold more than 30% of the total amount paid. 1040es form Or, you may make a reasonable estimate of the amount from U. 1040es form S. 1040es form sources and put a corresponding part of the amount due in escrow until the amount from U. 1040es form S. 1040es form sources can be determined, at which time withholding becomes due. 1040es form When to withhold. 1040es form   Withholding is required at the time you make a payment of an amount subject to withholding. 1040es form A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. 1040es form A payment is considered made to a person if it is paid for that person's benefit. 1040es form For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. 1040es form A payment also is considered made to a person if it is made to that person's agent. 1040es form   A U. 1040es form S. 1040es form partnership should withhold when any distributions that include amounts subject to withholding are made. 1040es form However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. 1040es form S. 1040es form partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. 1040es form If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. 1040es form A U. 1040es form S. 1040es form trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. 1040es form To the extent a U. 1040es form S. 1040es form trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. 1040es form Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. 1040es form (See Returns Required , later. 1040es form ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. 1040es form Form 1099 reporting and backup withholding. 1040es form    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. 1040es form S. 1040es form person. 1040es form You must withhold 28% (backup withholding rate) from a reportable payment made to a U. 1040es form S. 1040es form person that is subject to Form 1099 reporting if any of the following apply. 1040es form The U. 1040es form S. 1040es form person has not provided its taxpayer identification number (TIN) in the manner required. 1040es form The IRS notifies you that the TIN furnished by the payee is incorrect. 1040es form There has been a notified payee underreporting. 1040es form There has been a payee certification failure. 1040es form In most cases, a TIN must be provided by a U. 1040es form S. 1040es form non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. 1040es form A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. 1040es form You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. 1040es form S. 1040es form person. 1040es form For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. 1040es form S. 1040es form person subject to Form 1099 reporting. 1040es form See Identifying the Payee , later, for more information. 1040es form Also see Section S. 1040es form Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. 1040es form Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. 1040es form Wages paid to employees. 1040es form   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. 1040es form See Pay for Personal Services Performed , later. 1040es form Effectively connected income by partnerships. 1040es form   A withholding agent that is a partnership (whether U. 1040es form S. 1040es form or foreign) is also responsible for withholding on its income effectively connected with a U. 1040es form S. 1040es form trade or business that is allocable to foreign partners. 1040es form See Partnership Withholding on Effectively Connected Income , later, for more information. 1040es form U. 1040es form S. 1040es form real property interest. 1040es form   A withholding agent also may be responsible for withholding if a foreign person transfers a U. 1040es form S. 1040es form real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. 1040es form S. 1040es form real property interest to a shareholder, partner, or beneficiary that is a foreign person. 1040es form See U. 1040es form S. 1040es form Real Property Interest , later. 1040es form Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. 1040es form It does not apply to payments made to U. 1040es form S. 1040es form persons. 1040es form Usually, you determine the payee's status as a U. 1040es form S. 1040es form or foreign person based on the documentation that person provides. 1040es form See Documentation , later. 1040es form However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. 1040es form Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. 1040es form However, there are situations in which the payee is a person other than the one to whom you actually make a payment. 1040es form U. 1040es form S. 1040es form agent of foreign person. 1040es form   If you make a payment to a U. 1040es form S. 1040es form person and you have actual knowledge that the U. 1040es form S. 1040es form person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. 1040es form However, if the U. 1040es form S. 1040es form person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. 1040es form   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. 1040es form S. 1040es form person and not as a payment to a foreign person. 1040es form You may be required to report the payment on Form 1099 and, if applicable, backup withhold. 1040es form Disregarded entities. 1040es form   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. 1040es form The payee of a payment made to a disregarded entity is the owner of the entity. 1040es form   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. 1040es form   If the owner is a U. 1040es form S. 1040es form person, you do not apply NRA withholding. 1040es form However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. 1040es form You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. 1040es form Flow-Through Entities The payees of payments (other than income effectively connected with a U. 1040es form S. 1040es form trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. 1040es form This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 1040es form Income that is, or is deemed to be, effectively connected with the conduct of a U. 1040es form S. 1040es form trade or business of a flow-through entity is treated as paid to the entity. 1040es form All of the following are flow-through entities. 1040es form A foreign partnership (other than a withholding foreign partnership). 1040es form A foreign simple or foreign grantor trust (other than a withholding foreign trust). 1040es form A fiscally transparent entity receiving income for which treaty benefits are claimed. 1040es form See Fiscally transparent entity , later. 1040es form In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. 1040es form You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. 1040es form You must determine whether the owners or beneficiaries of a flow-through entity are U. 1040es form S. 1040es form or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. 1040es form You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. 1040es form If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. 1040es form See Documentation and Presumption Rules , later. 1040es form Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. 1040es form Foreign partnerships. 1040es form    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. 1040es form If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. 1040es form However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 1040es form If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. 1040es form Example 1. 1040es form A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. 1040es form S. 1040es form citizen. 1040es form You make a payment of U. 1040es form S. 1040es form source interest to the partnership. 1040es form It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. 1040es form S. 1040es form citizen. 1040es form The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. 1040es form You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. 1040es form Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. 1040es form Report the payment to the U. 1040es form S. 1040es form citizen on Form 1099-INT. 1040es form Example 2. 1040es form A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. 1040es form The second partnership has two partners, both nonresident alien individuals. 1040es form You make a payment of U. 1040es form S. 1040es form source interest to the first partnership. 1040es form It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. 1040es form In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. 1040es form The Forms W-8IMY from the partnerships have complete withholding statements associated with them. 1040es form Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. 1040es form Example 3. 1040es form You make a payment of U. 1040es form S. 1040es form source dividends to a withholding foreign partnership. 1040es form The partnership has two partners, both foreign corporations. 1040es form You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. 1040es form You must treat the partnership as the payee of the dividends. 1040es form Foreign simple and grantor trust. 1040es form   A trust is foreign unless it meets both of the following tests. 1040es form A court within the United States is able to exercise primary supervision over the administration of the trust. 1040es form One or more U. 1040es form S. 1040es form persons have the authority to control all substantial decisions of the trust. 1040es form   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. 1040es form A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. 1040es form   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. 1040es form The payees of a payment made to a foreign grantor trust are the owners of the trust. 1040es form However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 1040es form If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. 1040es form Example. 1040es form A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. 1040es form S. 1040es form citizen. 1040es form You make a payment of interest to the foreign trust. 1040es form It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. 1040es form S. 1040es form citizen. 1040es form The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. 1040es form You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. 1040es form Report the payment to the nonresident aliens on Forms 1042-S. 1040es form Report the payment to the U. 1040es form S. 1040es form citizen on Form 1099-INT. 1040es form Fiscally transparent entity. 1040es form   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. 1040es form The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. 1040es form ). 1040es form The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. 1040es form An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. 1040es form Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. 1040es form   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. 1040es form Example. 1040es form Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. 1040es form A has two interest holders, B and C. 1040es form B is a corporation organized under the laws of country Y. 1040es form C is a corporation organized under the laws of country Z. 1040es form Both countries Y and Z have an income tax treaty in force with the United States. 1040es form A receives royalty income from U. 1040es form S. 1040es form sources that is not effectively connected with the conduct of a trade or business in the United States. 1040es form For U. 1040es form S. 1040es form income tax purposes, A is treated as a partnership. 1040es form Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. 1040es form The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. 1040es form Accordingly, A is fiscally transparent in its jurisdiction, country X. 1040es form B and C are not fiscally transparent under the laws of their respective countries of incorporation. 1040es form Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. 1040es form Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. 1040es form S. 1040es form source royalty income for purposes of the U. 1040es form S. 1040es form -Y income tax treaty. 1040es form Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. 1040es form Therefore, A is not treated as fiscally transparent under the laws of country Z. 1040es form Accordingly, C is not treated as deriving its share of the U. 1040es form S. 1040es form source royalty income for purposes of the U. 1040es form S. 1040es form -Z income tax treaty. 1040es form Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. 1040es form This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 1040es form You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. 1040es form An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. 1040es form A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. 1040es form In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. 1040es form You must determine whether the customers or account holders of a foreign intermediary are U. 1040es form S. 1040es form or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. 1040es form You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. 1040es form If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. 1040es form See Documentation and Presumption Rules , later. 1040es form Nonqualified intermediary. 1040es form   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. 1040es form The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. 1040es form Example. 1040es form You make a payment of interest to a foreign bank that is a nonqualified intermediary. 1040es form The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. 1040es form S. 1040es form person for whom the bank is collecting the payments. 1040es form The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. 1040es form The account holders are the payees of the interest payment. 1040es form You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. 1040es form S. 1040es form person on Form 1099-INT. 1040es form Qualified intermediary. 1040es form   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. 1040es form S. 1040es form intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. 1040es form You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. 1040es form In this situation, the QI is required to withhold the tax. 1040es form You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. 1040es form   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. 1040es form If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. 1040es form S. 1040es form person. 1040es form Branches of financial institutions. 1040es form   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. 1040es form The countries with approved KYC rules are listed on IRS. 1040es form gov. 1040es form QI withholding agreement. 1040es form   Foreign financial institutions and foreign branches of U. 1040es form S. 1040es form financial institutions can enter into an agreement with the IRS to be a qualified intermediary. 1040es form   A QI is entitled to certain simplified withholding and reporting rules. 1040es form In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. 1040es form   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. 1040es form These forms, and the procedures required to obtain a QI withholding agreement are available at www. 1040es form irs. 1040es form gov/Businesses/Corporations/Qualified-Intermediaries-(QI). 1040es form Documentation. 1040es form   A QI is not required to forward documentation obtained from foreign account holders to the U. 1040es form S. 1040es form withholding agent from whom the QI receives a payment of U. 1040es form S. 1040es form source income. 1040es form The QI maintains such documentation at its location and provides the U. 1040es form S. 1040es form withholding agent with withholding rate pools. 1040es form A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. 1040es form   A QI is required to provide the U. 1040es form S. 1040es form withholding agent with information regarding U. 1040es form S. 1040es form persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. 1040es form   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. 1040es form This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. 1040es form Form 1042-S reporting. 1040es form   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. 1040es form Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). 1040es form Collective refund procedures. 1040es form   A QI may seek a refund on behalf of its direct account holders. 1040es form The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. 1040es form U. 1040es form S. 1040es form branches of foreign banks and foreign insurance companies. 1040es form   Special rules apply to a U. 1040es form S. 1040es form branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. 1040es form If you agree to treat the branch as a U. 1040es form S. 1040es form person, you may treat the branch as a U. 1040es form S. 1040es form payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. 1040es form S. 1040es form branch on which the agreement is evidenced. 1040es form If you treat the branch as a U. 1040es form S. 1040es form payee, you are not required to withhold. 1040es form Even though you agree to treat the branch as a U. 1040es form S. 1040es form person, you must report the payment on Form 1042-S. 1040es form   A financial institution organized in a U. 1040es form S. 1040es form possession is treated as a U. 1040es form S. 1040es form branch. 1040es form The special rules discussed in this section apply to a possessions financial institution. 1040es form   If you are paying a U. 1040es form S. 1040es form branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. 1040es form S. 1040es form person for amounts subject to NRA withholding. 1040es form Consequently, amounts not subject to NRA withholding that are paid to a U. 1040es form S. 1040es form branch are not subject to Form 1099 reporting or backup withholding. 1040es form   Alternatively, a U. 1040es form S. 1040es form branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. 1040es form In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. 1040es form See Nonqualified Intermediaries under  Documentation, later. 1040es form   If the U. 1040es form S. 1040es form branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. 1040es form Withholding foreign partnership and foreign trust. 1040es form   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. 1040es form A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. 1040es form   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. 1040es form A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. 1040es form You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. 1040es form WP and WT withholding agreements. 1040es form   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. 1040es form Also see the following items. 1040es form Revenue Procedure 2004-21. 1040es form Revenue Procedure 2005-77. 1040es form Employer identification number (EIN). 1040es form   A completed Form SS-4 must be submitted with the application for being a WP or WT. 1040es form The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. 1040es form Documentation. 1040es form   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. 1040es form The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. 1040es form The Form W-8IMY must contain the WP-EIN or WT-EIN. 1040es form Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. 1040es form A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. 1040es form S. 1040es form person. 1040es form It also includes a foreign branch of a U. 1040es form S. 1040es form financial institution if the foreign branch is a qualified intermediary. 1040es form In most cases, the U. 1040es form S. 1040es form branch of a foreign corporation or partnership is treated as a foreign person. 1040es form Nonresident alien. 1040es form   A nonresident alien is an individual who is not a U. 1040es form S. 1040es form citizen or a resident alien. 1040es form A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. 1040es form Married to U. 1040es form S. 1040es form citizen or resident alien. 1040es form   Nonresident alien individuals married to U. 1040es form S. 1040es form citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. 1040es form However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. 1040es form Wages paid to these individuals are subject to graduated withholding. 1040es form See Wages Paid to Employees—Graduated Withholding . 1040es form Resident alien. 1040es form   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. 1040es form Green card test. 1040es form An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. 1040es form This is known as the green card test because these aliens hold immigrant visas (also known as green cards). 1040es form Substantial presence test. 1040es form An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. 1040es form Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. 1040es form   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. 1040es form This exception is for a limited period of time. 1040es form   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. 1040es form Note. 1040es form   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. 1040es form For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). 1040es form Resident of a U. 1040es form S. 1040es form possession. 1040es form   A bona fide resident of Puerto Rico, the U. 1040es form S. 1040es form Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. 1040es form S. 1040es form citizen or a U. 1040es form S. 1040es form national is treated as a nonresident alien for the withholding rules explained here. 1040es form A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. 1040es form   For more information, see Publication 570, Tax Guide for Individuals With Income From U. 1040es form S. 1040es form Possessions. 1040es form Foreign corporations. 1040es form   A foreign corporation is one that does not fit the definition of a domestic corporation. 1040es form A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. 1040es form Guam or Northern Mariana Islands corporations. 1040es form   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). 1040es form Note. 1040es form   The provisions discussed below under U. 1040es form S. 1040es form Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. 1040es form U. 1040es form S. 1040es form Virgin Islands and American Samoa corporations. 1040es form   A corporation created or organized in, or under the laws of, the U. 1040es form S. 1040es form Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. 1040es form S. 1040es form Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. 1040es form S. 1040es form Virgin Islands, American Samoa, Guam, the CNMI, or the United States. 1040es form Foreign private foundations. 1040es form   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. 1040es form Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. 1040es form Other foreign organizations, associations, and charitable institutions. 1040es form   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. 1040es form In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. 1040es form   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. 1040es form   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. 1040es form U. 1040es form S. 1040es form branches of foreign persons. 1040es form   In most cases, a payment to a U. 1040es form S. 1040es form branch of a foreign person is a payment made to the foreign person. 1040es form However, you may treat payments to U. 1040es form S. 1040es form branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. 1040es form S. 1040es form regulatory supervision as payments made to a U. 1040es form S. 1040es form person, if you and the U. 1040es form S. 1040es form branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. 1040es form For this purpose, a financial institution organized under the laws of a U. 1040es form S. 1040es form possession is treated as a U. 1040es form S. 1040es form branch. 1040es form Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. 1040es form The payee is a U. 1040es form S. 1040es form person. 1040es form The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. 1040es form In most cases, you must get the documentation before you make the payment. 1040es form The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. 1040es form See Standards of Knowledge , later. 1040es form If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. 1040es form For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. 1040es form The specific types of documentation are discussed in this section. 1040es form However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. 1040es form As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. 1040es form Section 1446 withholding. 1040es form   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. 1040es form In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. 1040es form This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. 1040es form Joint owners. 1040es form    If you make a payment to joint owners, you need to get documentation from each owner. 1040es form Form W-9. 1040es form   In most cases, you can treat the payee as a U. 1040es form S. 1040es form person if the payee gives you a Form W-9. 1040es form The Form W-9 can be used only by a U. 1040es form S. 1040es form person and must contain the payee's taxpayer identification number (TIN). 1040es form If there is more than one owner, you may treat the total amount as paid to a U. 1040es form S. 1040es form person if any one of the owners gives you a Form W-9. 1040es form See U. 1040es form S. 1040es form Taxpayer Identification Numbers , later. 1040es form U. 1040es form S. 1040es form persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. 1040es form Form W-8. 1040es form   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. 1040es form Until further notice, you can rely upon Forms W-8 that contain a P. 1040es form O. 1040es form box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. 1040es form S. 1040es form person and that a street address is available. 1040es form You may rely on Forms W-8 for which there is a U. 1040es form S. 1040es form mailing address provided you received the form prior to December 31, 2001. 1040es form   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. 1040es form You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. 1040es form S. 1040es form possession. 1040es form Other documentation. 1040es form   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. 1040es form The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 1040es form These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. 1040es form Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. 1040es form Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 1040es form   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. 1040es form   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. 1040es form For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. 1040es form Claiming treaty benefits. 1040es form   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. 1040es form S. 1040es form TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. 1040es form   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. 1040es form   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. 1040es form See Fiscally transparent entity discussed earlier under Flow-Through Entities. 1040es form   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. 1040es form For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. 1040es form   The exemptions from, or reduced rates of, U. 1040es form S. 1040es form tax vary under each treaty. 1040es form You must check the provisions of the tax treaty that apply. 1040es form Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. 1040es form   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. 1040es form You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. 1040es form Exceptions to TIN requirement. 1040es form   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. 1040es form Income from marketable securities (discussed next). 1040es form Unexpected payments to an individual (discussed under U. 1040es form S. 1040es form Taxpayer Identification Numbers ). 1040es form Marketable securities. 1040es form   A Form W-8BEN provided to claim treaty benefits does not need a U. 1040es form S. 1040es form TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. 1040es form For this purpose, income from a marketable security consists of the following items. 1040es form Dividends and interest from stocks and debt obligations that are actively traded. 1040es form Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). 1040es form Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. 1040es form Income related to loans of any of the above securities. 1040es form Offshore accounts. 1040es form   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. 1040es form   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. 1040es form However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. 1040es form An offshore account is an account maintained at an office or branch of a U. 1040es form S. 1040es form or foreign bank or other financial institution at any location outside the United States. 1040es form   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. 1040es form This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. 1040es form In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. 1040es form Documentary evidence. 1040es form   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. 1040es form To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. 1040es form Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. 1040es form Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. 1040es form In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. 1040es form Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. 1040es form   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. 1040es form (See Effectively Connected Income , later. 1040es form )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. 1040es form   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. 1040es form S. 1040es form trade or business is subject to withholding under section 1446. 1040es form If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. 1040es form    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. 1040es form Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. 1040es form   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. 1040es form S. 1040es form possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. 1040es form   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. 1040es form   See Foreign Governments and Certain Other Foreign Organizations , later. 1040es form Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. 1040es form The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. 1040es form The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. 1040es form Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. 1040es form S. 1040es form Branches for United States Tax Withholding. 1040es form   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. 1040es form S. 1040es form branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. 1040es form S. 1040es form branch of a foreign bank or insurance company and either is agreeing to be treated as a U. 1040es form S. 1040es form person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. 1040es form For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. 1040es form 1446-5. 1040es form Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. 1040es form A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. 1040es form The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. 1040es form The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. 1040es form Responsibilities. 1040es form   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. 1040es form However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. 1040es form Instead, it provides you with a withholding statement that contains withholding rate pool information. 1040es form A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. 1040es form A qualified intermediary is required to provide you with information regarding U. 1040es form S. 1040es form persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. 1040es form S. 1040es form person unless it has assumed Form 1099 reporting and backup withholding responsibility. 1040es form For the alternative procedure for providing rate pool information for U. 1040es form S. 1040es form non-exempt persons, see the Form W-8IMY instructions. 1040es form   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. 1040es form   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. 1040es form Primary responsibility not assumed. 1040es form   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. 1040es form Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. 1040es form S. 1040es form person subject to Form 1099 reporting and/or backup withholding. 1040es form The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 1040es form Primary NRA withholding responsibility assumed. 1040es form   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. 1040es form S. 1040es form person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. 1040es form The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 1040es form Primary NRA and Form 1099 responsibility assumed. 1040es form   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. 1040es form It is not necessary to associate the payment with withholding rate pools. 1040es form Example. 1040es form You make a payment of dividends to a QI. 1040es form It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. 1040es form S. 1040es form individual who provides it with a Form W-9. 1040es form Each customer is entitled to 20% of the dividend payment. 1040es form The QI does not assume any primary withholding responsibility. 1040es form The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. 1040es form S. 1040es form individual. 1040es form You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. 1040es form The part of the payment allocable to the U. 1040es form S. 1040es form individual (20%) is reportable on Form 1099-DIV. 1040es form Smaller partnerships and trusts. 1040es form   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. 1040es form It is a foreign partnership or foreign simple or grantor trust. 1040es form It is a direct account holder of the QI. 1040es form It does not have any partner, beneficiary, or owner that is a U. 1040es form S. 1040es form person or a pass- through partner, beneficiary, or owner. 1040es form   For information on these rules, see section 4A. 1040es form 01 of the QI agreement. 1040es form This is found in Appendix 3 of Revenue Procedure 2003-64. 1040es form Also see Revenue Procedure 2004-21. 1040es form Related partnerships and trusts. 1040es form    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. 1040es form It is a foreign partnership or foreign simple or grantor trust. 1040es form It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. 1040es form For information on these rules, see section 4A. 1040es form 02 of the QI agreement. 1040es form This is found in Appendix 3 of Revenue Procedure 2003-64. 1040es form Also see Revenue Procedure 2005-77. 1040es form Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. 1040es form S. 1040es form branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. 1040es form S. 1040es form branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. 1040es form The NQI, flow-through entity, or U. 1040es form S. 1040es form branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. 1040es form A withholding statement must be updated to keep the information accurate prior to each payment. 1040es form Withholding statement. 1040es form   In most cases, a withholding statement must contain the following information. 1040es form The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. 1040es form The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. 1040es form The status of the person for whom the documentation has been provided, such as whether the person is a U. 1040es form S. 1040es form exempt recipient (U. 1040es form S. 1040es form person exempt from Form 1099 reporting), U. 1040es form S. 1040es form non-exempt recipient (U. 1040es form S. 1040es form person subject to Form 1099 reporting), or a foreign person. 1040es form For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. 1040es form S. 1040es form branch. 1040es form The type of recipient the person is, based on the recipient codes used on Form 1042-S. 1040es form Information allocating each payment, by income type, to each payee (including U. 1040es form S. 1040es form exempt and U. 1040es form S. 1040es form non-exempt recipients) for whom documentation has been provided. 1040es form The rate of withholding that applies to each foreign person to whom a payment is allocated. 1040es form A foreign payee's country of residence. 1040es form If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. 1040es form ). 1040es form In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. 1040es form The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. 1040es form S. 1040es form branch from which the payee will directly receive a payment. 1040es form Any other information a withholding agent requests to fulfill its reporting and withholding obligations. 1040es form Alternative procedure. 1040es form   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. 1040es form S. 1040es form exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. 1040es form To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. 1040es form You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. 1040es form    This alternative procedure cannot be used for payments to U. 1040es form S. 1040es form non-exempt recipients. 1040es form Therefore, an NQI must always provide you with allocation information for all U. 1040es form S. 1040es form non-exempt recipients prior to a payment being made. 1040es form Pooled withholding information. 1040es form   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. 1040es form A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. 1040es form For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). 1040es form The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. 1040es form Failure to provide allocation information. 1040es form   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. 1040es form You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . 1040es form An NQI is deemed to have f
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Unclaimed Money from the Government

Find unclaimed money from bank failures, matured savings bonds, pensions, mortgage refunds, and more.


What Is Unclaimed Money?

If the government owes you money and you do not collect it, then it’s unclaimed. This can also happen with banks, credit unions, pensions, and other sources.

Beware of unclaimed money scams. There are people who pretend to be the government and offer to send you unclaimed money for a fee. Government agencies will not call you about unclaimed money or assets. Learn how to spot these types of scams.

Currently, the government does not have one website for finding unclaimed money by name, Social Security number, or state. To find it, you’ll need to visit each site separately and perform a search.

States’ Unclaimed Money

  • Search by State  – Search your state’s listing of unclaimed funds and property.

Retirement

Taxes

Banking, Investments, and Currency

  • Bank Failures  – Search the Federal Deposit Insurance Corporation (FDIC) for unclaimed funds from failed financial institutions.
  • Credit Union Failures  – Find unclaimed deposits from credit unions.
  • SEC Claims Funds  – The Securities and Exchange Commission (SEC) lists enforcement cases where a company or person owes investors money.
  • Damaged Money  – The Treasury Department will exchange mutilated or damaged U.S. currency.

Mortgages

  • FHA-Insurance Refunds  – If you had an FHA-insured mortgage, you may be eligible for a refund from the Department of Housing and Urban Development (HUD).

Savings Bonds

International

  • Foreign Claims  – U.S. nationals can find money owed to them from foreign governments after loss of property.

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The 1040es Form

1040es form 4. 1040es form   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. 1040es form Line of business. 1040es form Examples. 1040es form Improvement of business conditions. 1040es form Exception for local legislation. 1040es form De minimis exception. 1040es form Grass roots lobbying. 1040es form 501(c)(7) - Social and Recreation ClubsLimited membership. 1040es form Support. 1040es form Facilities open to public. 1040es form Gross receipts from nonmembership sources. 1040es form Gross receipts. 1040es form Nontraditional activities. 1040es form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. 1040es form Losses and expenses. 1040es form Distributions of proceeds. 1040es form The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. 1040es form Perpetual care organization. 1040es form Care of individual plots. 1040es form 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. 1040es form 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. 1040es form Waiver of payment of income. 1040es form 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). 1040es form Section 501(c)(3) organizations are covered in chapter 3 of this publication. 1040es form The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. 1040es form 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). 1040es form The discussion that follows describes the information you must provide when applying. 1040es form For application procedures, see chapter 1. 1040es form To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. 1040es form In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. 1040es form If the organization provides an excess benefit to certain persons, an excise tax may be imposed. 1040es form See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. 1040es form Examples. 1040es form   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. 1040es form Nonprofit operation. 1040es form   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. 1040es form However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. 1040es form Social welfare. 1040es form   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). 1040es form   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. 1040es form It therefore does not qualify as a section 501(c)(4) organization. 1040es form Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. 1040es form However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. 1040es form Political activity. 1040es form   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. 1040es form However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. 1040es form See the discussion in chapter 2 under Political Organization Income Tax Return . 1040es form Social or recreational activity. 1040es form   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). 1040es form Retirement benefit program. 1040es form   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. 1040es form It may qualify under another paragraph of section 501(c) depending on all the facts. 1040es form   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). 1040es form Tax treatment of donations. 1040es form   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. 1040es form Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. 1040es form They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. 1040es form However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 1040es form for more information. 1040es form For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. 1040es form gov. 1040es form Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. 1040es form Volunteer fire companies. 1040es form   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. 1040es form   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). 1040es form In this event, your organization should file Form 1023. 1040es form Homeowners' associations. 1040es form   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. 1040es form The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. 1040es form Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. 1040es form Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. 1040es form   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. 1040es form It also must show that it does not engage in exterior maintenance of private homes. 1040es form   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. 1040es form Other organizations. 1040es form   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. 1040es form 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. 1040es form You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. 1040es form In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. 1040es form Submit any additional information that may be required, as described in this section. 1040es form Tax treatment of donations. 1040es form   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. 1040es form However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. 1040es form For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 1040es form Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. 1040es form To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. 1040es form In addition, no net earnings of the organization can inure to the benefit of any member. 1040es form Composition of membership. 1040es form   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. 1040es form You must show in your application that your organization has the purposes described in the preceding paragraph. 1040es form These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. 1040es form Benefits to members. 1040es form   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. 1040es form However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. 1040es form   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. 1040es form gov. 1040es form Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. 1040es form For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. 1040es form The term harvesting, in this case, includes fishing and related pursuits. 1040es form Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. 1040es form When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. 1040es form The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. 1040es form The following list contains some examples of activities that show an agricultural or horticultural purpose. 1040es form Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. 1040es form Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. 1040es form Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. 1040es form Guarding the purity of a specific breed of livestock. 1040es form Encouraging improvements in the production of fish on privately owned fish farms. 1040es form Negotiating with processors for the price to be paid to members for their crops. 1040es form For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. 1040es form gov. 1040es form 501(c)(6) - Business Leagues, etc. 1040es form If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. 1040es form For a discussion of the procedure to follow, see chapter 1. 1040es form Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). 1040es form In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. 1040es form It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. 1040es form A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. 1040es form Trade associations and professional associations are considered business leagues. 1040es form Chamber of commerce. 1040es form   A chamber of commerce usually is composed of the merchants and traders of a city. 1040es form Board of trade. 1040es form   A board of trade often consists of persons engaged in similar lines of business. 1040es form For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. 1040es form   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. 1040es form Real estate board. 1040es form   A real estate board consists of members interested in improving the business conditions in the real estate field. 1040es form It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. 1040es form Professional football leagues. 1040es form   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). 1040es form They are exempt whether or not they administer a pension fund for football players. 1040es form General purpose. 1040es form   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. 1040es form It must be shown that the conditions of a particular trade or the interests of the community will be advanced. 1040es form Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. 1040es form Line of business. 1040es form   This term generally refers either to an entire industry or to all components of an industry within a geographic area. 1040es form It does not include a group composed of businesses that market a particular brand within an industry. 1040es form Common business interest. 1040es form   A common business interest of all members of the organization must be established by the application documents. 1040es form Examples. 1040es form   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). 1040es form Improvement of business conditions. 1040es form   Generally, this must be shown to be the purpose of the organization. 1040es form This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. 1040es form Stock or commodity exchange. 1040es form   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). 1040es form Legislative activity. 1040es form   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. 1040es form Deduction not allowed for dues used for political or legislative activities. 1040es form   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. 1040es form Influencing legislation. 1040es form Participating or intervening in a political campaign for, or against, any candidate for public office. 1040es form Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). 1040es form Communicating directly with certain executive branch officials to try to influence their official actions or positions. 1040es form See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. 1040es form Exception for local legislation. 1040es form   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. 1040es form Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. 1040es form De minimis exception. 1040es form   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. 1040es form Grass roots lobbying. 1040es form   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. 1040es form Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. 1040es form Tax treatment of donations. 1040es form   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. 1040es form They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. 1040es form   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. 1040es form gov. 1040es form 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. 1040es form In applying for recognition of exemption, you should submit the information described in this section. 1040es form Also see chapter 1 for the procedures to follow. 1040es form Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. 1040es form Discrimination prohibited. 1040es form   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. 1040es form   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. 1040es form Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. 1040es form Private benefit prohibited. 1040es form   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. 1040es form For purposes of this requirement, it is not necessary that net earnings be actually distributed. 1040es form Even undistributed earnings can benefit members. 1040es form Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. 1040es form However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. 1040es form Purposes. 1040es form   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. 1040es form You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. 1040es form   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. 1040es form A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. 1040es form   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. 1040es form For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. 1040es form Limited membership. 1040es form   The membership in a social club must be limited. 1040es form To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. 1040es form   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. 1040es form Corporate members of a club are not the kind of members contemplated by the law. 1040es form Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. 1040es form See Gross receipts from nonmembership sources , later. 1040es form Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. 1040es form   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. 1040es form However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. 1040es form Support. 1040es form   In general, your club should be supported solely by membership fees, dues, and assessments. 1040es form However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. 1040es form Business activities. 1040es form   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. 1040es form However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. 1040es form Facilities open to public. 1040es form   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. 1040es form This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. 1040es form Gross receipts from nonmembership sources. 1040es form   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. 1040es form Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. 1040es form Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. 1040es form If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. 1040es form Gross receipts. 1040es form   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. 1040es form These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. 1040es form Receipts do not include initiation fees and capital contributions. 1040es form Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. 1040es form Nontraditional activities. 1040es form   Activities conducted by a social club need to further its exempt purposes. 1040es form Traditional business activities are those that further a social club's exempt purposes. 1040es form Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. 1040es form Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. 1040es form Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. 1040es form Fraternity foundations. 1040es form   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. 1040es form Tax treatment of donations. 1040es form   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. 1040es form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. 1040es form The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. 1040es form , purposes. 1040es form The procedures to follow in applying for recognition of exemption are described in chapter 1. 1040es form If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. 1040es form If so, your organization need not apply for individual recognition of exemption. 1040es form For more information, see Group Exemption Letter in chapter 1 of this publication. 1040es form Tax treatment of donations. 1040es form   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 1040es form Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 1040es form The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. 1040es form Lodge system. 1040es form   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. 1040es form Payment of benefits. 1040es form   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. 1040es form An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. 1040es form   The benefits must be limited to members and their dependents. 1040es form If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. 1040es form Whole-life insurance. 1040es form   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. 1040es form Reinsurance pool. 1040es form   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. 1040es form Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 1040es form The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. 1040es form S. 1040es form , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. 1040es form The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. 1040es form 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. 1040es form Both the application form to file and the information to provide are discussed later under the section that describes your employee association. 1040es form Chapter 1 describes the procedures to follow in applying for exemption. 1040es form Tax treatment of donations. 1040es form   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. 1040es form Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. 1040es form A local employees' association must apply for recognition of exemption by filing Form 1024. 1040es form The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. 1040es form A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. 1040es form Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. 1040es form Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. 1040es form The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. 1040es form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 1040es form Note. 1040es form Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. 1040es form Notice requirement. 1040es form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 1040es form The organization gives notice by filing Form 1024. 1040es form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. 1040es form An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 1040es form Membership. 1040es form   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. 1040es form This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. 1040es form   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. 1040es form For example, the owner of a business whose employees are members of the association can be a member. 1040es form An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. 1040es form Employees. 1040es form   Employees include individuals who became entitled to membership because they are or were employees. 1040es form For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. 1040es form   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. 1040es form Conversely, membership is involuntary if the designation as a member is due to employee status. 1040es form However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. 1040es form An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. 1040es form Payment of benefits. 1040es form   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. 1040es form The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). 1040es form Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. 1040es form Nondiscrimination requirements. 1040es form   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. 1040es form However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. 1040es form   A plan meets the nondiscrimination requirements only if both of the following statements are true. 1040es form Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. 1040es form The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. 1040es form A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. 1040es form   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. 1040es form This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. 1040es form   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. 1040es form The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. 1040es form For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). 1040es form Excluded employees. 1040es form   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. 1040es form These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. 1040es form Highly compensated individual. 1040es form   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. 1040es form Go to IRS. 1040es form gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. 1040es form However, the employer can choose not to have (3) apply. 1040es form Aggregation rules. 1040es form   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. 1040es form Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. 1040es form Leased employees are treated as employees of the recipient. 1040es form One employee. 1040es form   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). 1040es form Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. 1040es form The trust must be a valid, existing trust under local law and must be evidenced by an executed document. 1040es form A conformed copy of the plan of which the trust is a part should be attached to the application. 1040es form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 1040es form Note. 1040es form Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. 1040es form Notice requirement. 1040es form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 1040es form The organization gives notice by filing Form 1024. 1040es form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. 1040es form An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 1040es form Types of payments. 1040es form   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. 1040es form In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. 1040es form Diversion of funds. 1040es form   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). 1040es form Discrimination in benefits. 1040es form   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. 1040es form However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. 1040es form Prohibited transactions and exemption. 1040es form   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. 1040es form It must file the claim on Form 1024. 1040es form The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. 1040es form An authorized principal officer of your organization must make this declaration under the penalties of perjury. 1040es form   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. 1040es form However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. 1040es form Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. 1040es form For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. 1040es form 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. 1040es form Benevolent life insurance associations of a purely local character and like organizations. 1040es form Mutual ditch or irrigation companies and like organizations. 1040es form Mutual or cooperative telephone companies and like organizations. 1040es form A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. 1040es form The information to be provided upon application by each of these organizations is described in this section. 1040es form For information as to the procedures to follow in applying for exemption, see chapter 1. 1040es form General requirements. 1040es form   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. 1040es form They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. 1040es form Mutual character. 1040es form   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. 1040es form They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. 1040es form To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. 1040es form   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. 1040es form Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. 1040es form The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. 1040es form Membership. 1040es form   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. 1040es form In a stock company, the stockholders are members. 1040es form However, a mutual life insurance organization cannot have policyholders other than its members. 1040es form Losses and expenses. 1040es form   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. 1040es form Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. 1040es form If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. 1040es form Distributions of proceeds. 1040es form   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. 1040es form Such distribution represents a refund in the costs of services rendered to the member. 1040es form The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. 1040es form Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. 1040es form Mutual or cooperative telephone company. 1040es form   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. 1040es form Mutual or cooperative electric company. 1040es form   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. 1040es form   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. 1040es form Qualified pole rental. 1040es form   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. 1040es form   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). 1040es form The 85% requirement is applied on the basis of an annual accounting period. 1040es form Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. 1040es form Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. 1040es form Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. 1040es form Example. 1040es form   The books of an organization reflect the following for the calendar year. 1040es form Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. 1040es form   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. 1040es form   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. 1040es form   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. 1040es form Tax treatment of donations. 1040es form   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. 1040es form Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. 1040es form If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. 1040es form To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. 1040es form If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. 1040es form A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. 1040es form A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. 1040es form Organizations similar to local benevolent life insurance companies. 1040es form   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. 1040es form However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. 1040es form Burial and funeral benefit insurance organization. 1040es form   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. 1040es form An organization that provides its benefits in the form of supplies and service is not a life insurance company. 1040es form Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. 1040es form Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. 1040es form They can serve noncontiguous areas. 1040es form Like organization. 1040es form   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. 1040es form Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. 1040es form 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. 1040es form For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. 1040es form A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. 1040es form A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. 1040es form The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. 1040es form If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. 1040es form Operating a mortuary is not permitted. 1040es form However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. 1040es form How income can be used. 1040es form   You should show that your organization's earnings are or will be used only in one or more of the following ways. 1040es form To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. 1040es form To buy cemetery property. 1040es form To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. 1040es form No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. 1040es form Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. 1040es form Buying cemetery property. 1040es form   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. 1040es form You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. 1040es form   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. 1040es form Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not