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1040ez help 3. 1040ez help   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. 1040ez help Leveraged leases. 1040ez help Leveraged leases of limited-use property. 1040ez help Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. 1040ez help It also discusses how to treat other kinds of payments you make that are related to your use of this property. 1040ez help These include payments you make for taxes on the property. 1040ez help Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. 1040ez help In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. 1040ez help If you have or will receive equity in or title to the property, the rent is not deductible. 1040ez help Unreasonable rent. 1040ez help   You cannot take a rental deduction for unreasonable rent. 1040ez help Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 1040ez help Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 1040ez help Rent is not unreasonable just because it is figured as a percentage of gross sales. 1040ez help For examples of related persons, see Related persons in chapter 2, Publication 544. 1040ez help Rent on your home. 1040ez help   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 1040ez help You must meet the requirements for business use of your home. 1040ez help For more information, see Business use of your home in chapter 1. 1040ez help Rent paid in advance. 1040ez help   Generally, rent paid in your trade or business is deductible in the year paid or accrued. 1040ez help If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 1040ez help You can deduct the rest of your payment only over the period to which it applies. 1040ez help Example 1. 1040ez help You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. 1040ez help Your rent is $12,000 per year. 1040ez help You paid the first year's rent ($12,000) on June 30. 1040ez help You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. 1040ez help Example 2. 1040ez help You are a calendar year taxpayer. 1040ez help Last January you leased property for 3 years for $6,000 a year. 1040ez help You paid the full $18,000 (3 × $6,000) during the first year of the lease. 1040ez help Each year you can deduct only $6,000, the part of the lease that applies to that year. 1040ez help Canceling a lease. 1040ez help   You generally can deduct as rent an amount you pay to cancel a business lease. 1040ez help Lease or purchase. 1040ez help   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. 1040ez help You must first determine whether your agreement is a lease or a conditional sales contract. 1040ez help Payments made under a conditional sales contract are not deductible as rent expense. 1040ez help Conditional sales contract. 1040ez help   Whether an agreement is a conditional sales contract depends on the intent of the parties. 1040ez help Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 1040ez help No single test, or special combination of tests, always applies. 1040ez help However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 1040ez help The agreement applies part of each payment toward an equity interest you will receive. 1040ez help You get title to the property after you make a stated amount of required payments. 1040ez help The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. 1040ez help You pay much more than the current fair rental value of the property. 1040ez help You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. 1040ez help Determine this value when you make the agreement. 1040ez help You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 1040ez help The agreement designates part of the payments as interest, or that part is easy to recognize as interest. 1040ez help Leveraged leases. 1040ez help   Leveraged lease transactions may not be considered leases. 1040ez help Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. 1040ez help Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. 1040ez help   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. 1040ez help Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. 1040ez help Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. 1040ez help Internal Revenue Bulletin 2001-19 is available at www. 1040ez help irs. 1040ez help gov/pub/irs-irbs/irb01-19. 1040ez help pdf. 1040ez help   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. 1040ez help The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. 1040ez help The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. 1040ez help The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. 1040ez help The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. 1040ez help The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. 1040ez help   The IRS may charge you a user fee for issuing a tax ruling. 1040ez help For more information, see Revenue Procedure 2014-1 available at  www. 1040ez help irs. 1040ez help gov/irb/2014-1_IRB/ar05. 1040ez help html. 1040ez help Leveraged leases of limited-use property. 1040ez help   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. 1040ez help Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. 1040ez help See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. 1040ez help Leases over $250,000. 1040ez help   Special rules are provided for certain leases of tangible property. 1040ez help The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. 1040ez help Rents increase during the lease. 1040ez help Rents decrease during the lease. 1040ez help Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). 1040ez help Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). 1040ez help These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). 1040ez help   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. 1040ez help In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. 1040ez help For details, see section 467 of the Internal Revenue Code. 1040ez help Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. 1040ez help When you can deduct these taxes as additional rent depends on your accounting method. 1040ez help Cash method. 1040ez help   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. 1040ez help Accrual method. 1040ez help   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. 1040ez help That you have a liability for taxes on the leased property. 1040ez help How much the liability is. 1040ez help That economic performance occurred. 1040ez help   The liability and amount of taxes are determined by state or local law and the lease agreement. 1040ez help Economic performance occurs as you use the property. 1040ez help Example 1. 1040ez help Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. 1040ez help Oak leases land for use in its business. 1040ez help Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. 1040ez help However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. 1040ez help Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. 1040ez help If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. 1040ez help Oak cannot deduct the real estate taxes as rent until the tax bill is issued. 1040ez help This is when Oak's liability under the lease becomes fixed. 1040ez help Example 2. 1040ez help The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. 1040ez help As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. 1040ez help This is the year in which Oak's liability under the lease becomes fixed. 1040ez help Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. 1040ez help Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. 1040ez help If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. 1040ez help For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. 1040ez help The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. 1040ez help Option to renew. 1040ez help   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. 1040ez help However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). 1040ez help Allocate the lease cost to the original term and any option term based on the facts and circumstances. 1040ez help In some cases, it may be appropriate to make the allocation using a present value computation. 1040ez help For more information, see Regulations section 1. 1040ez help 178-1(b)(5). 1040ez help Example 1. 1040ez help You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. 1040ez help Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. 1040ez help Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. 1040ez help That is the remaining life of your present lease plus the periods for renewal. 1040ez help Example 2. 1040ez help The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. 1040ez help You can amortize the entire $10,000 over the 20-year remaining life of the original lease. 1040ez help The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). 1040ez help Cost of a modification agreement. 1040ez help   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. 1040ez help You must capitalize these payments and amortize them over the remaining period of the lease. 1040ez help You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. 1040ez help Example. 1040ez help You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. 1040ez help However, before you occupy it, you decide that you really need less space. 1040ez help The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. 1040ez help In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. 1040ez help   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. 1040ez help Your amortization deduction each year will be $150 ($3,000 ÷ 20). 1040ez help You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. 1040ez help Commissions, bonuses, and fees. 1040ez help   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. 1040ez help You must amortize these costs over the term of the lease. 1040ez help Loss on merchandise and fixtures. 1040ez help   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. 1040ez help You must capitalize the loss and amortize it over the remaining term of the lease. 1040ez help Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). 1040ez help Depreciate the property over its appropriate recovery period. 1040ez help You cannot amortize the cost over the remaining term of the lease. 1040ez help If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. 1040ez help For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. 1040ez help Assignment of a lease. 1040ez help   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. 1040ez help If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. 1040ez help The rest is for your investment in the permanent improvements. 1040ez help   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. 1040ez help You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. 1040ez help Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 1040ez help Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 1040ez help You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 1040ez help Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. 1040ez help Uniform capitalization rules. 1040ez help   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 1040ez help Produce real property or tangible personal property. 1040ez help For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 1040ez help Acquire property for resale. 1040ez help However, these rules do not apply to the following property. 1040ez help Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. 1040ez help Property you produce if you meet either of the following conditions. 1040ez help Your indirect costs of producing the property are $200,000 or less. 1040ez help You use the cash method of accounting and do not account for inventories. 1040ez help Example 1. 1040ez help You rent construction equipment to build a storage facility. 1040ez help If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. 1040ez help You recover your cost by claiming a deduction for depreciation on the building. 1040ez help Example 2. 1040ez help You rent space in a facility to conduct your business of manufacturing tools. 1040ez help If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. 1040ez help More information. 1040ez help   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. 1040ez help Prev  Up  Next   Home   More Online Publications
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1040ez help Publication 595 - Main Contents Table of Contents Capital Construction FundCCF Accounts Types of Accounts You Must Maintain Within a CCF Tax Treatment of CCF Deposits Tax Treatment of CCF Earnings Tax Treatment of CCF Withdrawals More Information How To Get Tax Help Capital Construction Fund The following sections discuss CCF accounts and the types of bookkeeping accounts you must maintain when you invest in a CCF account. 1040ez help They also discuss the income tax treatment of CCF deposits, earnings, and withdrawals. 1040ez help CCF Accounts This section explains who can open a CCF account and how to use the account to defer income tax. 1040ez help Opening a CCF account. 1040ez help   If you are a U. 1040ez help S. 1040ez help citizen and you own or lease one or more eligible vessels (defined later), you can open a CCF account. 1040ez help However, before you open your CCF account, you must enter into an agreement with the Secretary of Commerce through the NMFS. 1040ez help This agreement will establish the following. 1040ez help Agreement vessels. 1040ez help Eligible vessels named in the agreement that will be the basis for the deferral of income tax. 1040ez help Planned use of withdrawals. 1040ez help Use of CCF funds to acquire, build, or rebuild a vessel. 1040ez help CCF depository. 1040ez help Where your CCF funds will be held. 1040ez help    You can request an application kit or get additional information from NMFS at the following address. 1040ez help NOAA/NMFS, Financial Services Division, F/MB5 Capital Construction Fund Program 1315 East-West Highway Silver Spring, MD 20910-3282    You can obtain information on the Capital Construction Fund Program at the following website: www. 1040ez help nmfs. 1040ez help noaa. 1040ez help gov/mb/financial_services/ccf. 1040ez help htm. 1040ez help    You can call NMFS to request an application kit or get additional information at (301) 713-2393 (ext. 1040ez help 204). 1040ez help Their fax number is (301) 713-1939. 1040ez help Eligible vessels. 1040ez help   There are two types of vessels that may be considered eligible, those weighing 5 tons or more and those weighing less than 5 tons. 1040ez help For each type, certain requirements must be met. 1040ez help Vessel weighing 5 tons or more. 1040ez help   To be considered eligible, the vessel must meet all the following requirements. 1040ez help Be built or rebuilt in the United States. 1040ez help Be documented under the laws of the United States. 1040ez help Be used commercially in the fisheries of the United States. 1040ez help Be operated in the foreign or domestic commerce of the United States. 1040ez help Vessel weighing less than 5 tons. 1040ez help   A small vessel, weighing at least 2 net tons but less than 5 net tons, must meet all the following requirements to be considered eligible. 1040ez help Be built or rebuilt in the United States. 1040ez help Be owned by a U. 1040ez help S. 1040ez help citizen. 1040ez help Have a home port in the United States. 1040ez help Be used commercially in the fisheries of the United States. 1040ez help Deferring tax on CCF deposits and earnings. 1040ez help   You can use a CCF account to defer income tax by taking the following actions. 1040ez help Making deposits to your CCF account from taxable income. 1040ez help Excluding from income deposits assigned to certain accounts (discussed later). 1040ez help Making withdrawals from your CCF account when you acquire, build, or rebuild fishing vessels. 1040ez help Reducing the basis of fishing vessels you acquire, build, or rebuild to recapture amounts previously excluded from tax. 1040ez help    Reporting requirements. 1040ez help Beginning with the tax year in which you establish your agreement, you must report annual deposit and withdrawal activity to the NMFS on NOAA Form 34-82. 1040ez help This form is due within 30 days after you file your federal income tax return even if no deposits or withdrawals are made. 1040ez help For more information, contact the NMFS at the address or phone number given earlier. 1040ez help Types of Accounts You Must Maintain Within a CCF This section discusses the three types of bookkeeping accounts you must maintain when you invest in a CCF account. 1040ez help Your total CCF deposits and earnings for any given year are limited to the amount attributed to these three accounts for that year. 1040ez help Capital account. 1040ez help   The capital account consists primarily of amounts attributable to the following items. 1040ez help Allowable depreciation deductions for agreement vessels. 1040ez help Any nontaxable return of capital from either (a) or (b), below. 1040ez help The sale or other disposition of agreement vessels. 1040ez help Insurance or indemnity proceeds attributable to agreement vessels. 1040ez help Any tax-exempt interest earned on state or local bonds in your CCF account. 1040ez help Capital gain account. 1040ez help   The capital gain account consists of amounts attributable to the following items reduced by any capital losses from assets held in your CCF account for more than 6 months. 1040ez help Any capital gain from either of the following sources. 1040ez help The sale or other disposition of agreement vessels held for more than 6 months. 1040ez help Insurance or indemnity proceeds attributable to agreement vessels held for more than 6 months. 1040ez help Any capital gain from assets held in your CCF account for more than 6 months. 1040ez help Ordinary income account. 1040ez help   The ordinary income account consists of amounts attributable to the following items. 1040ez help Any earnings (without regard to the carryback of any net operating or net capital loss) from the operation of agreement vessels in the fisheries of the United States or in the foreign or domestic commerce of the United States. 1040ez help Any capital gain from the following sources reduced by any capital losses from assets held in your CCF account for 6 months or less. 1040ez help The sale or other disposition of agreement vessels held for 6 months or less. 1040ez help Insurance or indemnity proceeds attributable to agreement vessels held for 6 months or less. 1040ez help Any capital gain from assets held in your CCF account for 6 months or less. 1040ez help Any ordinary income (such as depreciation recapture) from either of the following sources. 1040ez help The sale or other disposition of agreement vessels. 1040ez help Insurance or indemnity proceeds attributable to agreement vessels. 1040ez help Any interest (not including tax-exempt interest from state and local bonds), most dividends, and other ordinary income earned on the assets in your CCF account. 1040ez help Tax Treatment of CCF Deposits This section explains the tax treatment of income used as the basis for CCF deposits. 1040ez help Capital gains. 1040ez help   Do not report any transaction that produces a capital gain if you deposit the net proceeds into your CCF account. 1040ez help This treatment applies to either of the following transactions. 1040ez help The sale or other disposition of an agreement vessel. 1040ez help The receipt of insurance or indemnity proceeds attributable to an agreement vessel. 1040ez help Depreciation recapture. 1040ez help   Do not report any transaction that produces depreciation recapture if you deposit the net proceeds into your CCF account. 1040ez help This treatment applies to either of the following transactions. 1040ez help The sale or other disposition of an agreement vessel. 1040ez help The receipt of insurance or indemnity proceeds attributable to an agreement vessel. 1040ez help Earnings from operations. 1040ez help   Report earnings from the operation of agreement vessels on your Schedule C or C-EZ (Form 1040) even if you deposit part of these earnings into your CCF account. 1040ez help You subtract any part of the earnings you deposited into your CCF account from the amount you would otherwise enter as taxable income on Form 1040, line 43 (for 2005). 1040ez help Next to line 43, write “CCF” and the amount of the deposits. 1040ez help Do not deduct these CCF deposits on Schedule C or C-EZ (Form 1040). 1040ez help If you deposit earnings from operations into your CCF account and you must complete other forms such as Form 6251, Alternative Minimum Tax (Individuals), or a worksheet for Schedule D (Form 1040), you will need to make an extra computation. 1040ez help When the other form instructs you to use the amount from Form 1040, line 41 (for 2005), do not use that amount. 1040ez help Instead, add Form 1040, lines 42 and 43 (for 2005), and use that amount. 1040ez help Self-employment tax. 1040ez help   You must use your net profit or loss from your fishing business to figure your self-employment tax. 1040ez help Do not reduce your net profit or loss by any earnings from operations you deposit into your CCF account. 1040ez help    Partnerships and S corporations. 1040ez help The deduction for partnership earnings from operations deposited into a CCF account is separately stated on Schedule K (Form 1065), line 13d, and allocated to the partners on Schedule K-1 (Form 1065), box 13 (for 2005). 1040ez help   The deduction for S corporation earnings deposited into a CCF account is separately stated on Schedule K (Form 1120S), line 12d, and allocated to the shareholders on Schedule K-1 (Form 1120S), box 12 (for 2005). 1040ez help Tax Treatment of CCF Earnings This section explains the tax treatment of the earnings from the assets in your CCF account when the earnings are redeposited or left in your account. 1040ez help However, if you choose to withdraw the earnings in the year earned, you must generally pay income tax on them. 1040ez help Capital gains. 1040ez help   Do not report any capital gains from the sale of capital assets held in your CCF account. 1040ez help This includes capital gain distributions reported to you on Form 1099-DIV or a substitute statement. 1040ez help However, you should attach a statement to your tax return to list the payers and the amounts and to identify the capital gains as “CCF account earnings. 1040ez help ” Interest and dividends. 1040ez help   Do not report any ordinary income (such as interest and dividends) you earn on the assets in your CCF account. 1040ez help However, you should attach a statement to your return to list the payers and the amounts and to identify them as “CCF account earnings. 1040ez help ”   If you are required to file Schedule B (Form 1040), you can add these earnings to the list of payers and amounts on line 1 or line 5 and identify them as “CCF earnings. 1040ez help ” Then, subtract the same amounts from the list and identify them as “CCF deposits. 1040ez help ” Tax-exempt interest. 1040ez help   Do not report tax-exempt interest from state or local bonds you held in your CCF account. 1040ez help You are not required to report this interest on Form 1040, line 8b. 1040ez help Tax Treatment of CCF Withdrawals This section discusses the tax treatment of amounts you withdraw from your CCF account during the year. 1040ez help Qualified Withdrawals A qualified withdrawal from a CCF account is one that is approved by NMFS for either of the following uses. 1040ez help Acquiring, building, or rebuilding qualified vessels (defined next). 1040ez help Making principal payments on the mortgage of a qualified vessel. 1040ez help NMFS will not approve amounts withdrawn to purchase nets not continuously attached to the vessel, such as seine nets, gill set-nets, and gill drift-nets. 1040ez help NMFS will approve amounts withdrawn to purchase trawl nets. 1040ez help Qualified vessel. 1040ez help   This is any vessel that meets all of the following requirements. 1040ez help The vessel was built or rebuilt in the United States. 1040ez help The vessel is documented under the laws of the United States. 1040ez help The person maintaining the CCF account agrees with the Secretary of Commerce that the vessel will be operated in United States foreign trade, Great Lakes trade, noncontiguous domestic trade, or the fisheries of the United States. 1040ez help How to determine the source of qualified withdrawals. 1040ez help   When you make a qualified withdrawal, the amount is treated as being withdrawn in the following order from the accounts listed below. 1040ez help The capital account. 1040ez help The capital gain account. 1040ez help The ordinary income account. 1040ez help Excluding qualified withdrawals from tax. 1040ez help   Do not report on your income tax return any qualified withdrawals from your CCF account. 1040ez help Reduce the depreciable basis of fishing vessels you acquire, build, or rebuild when you make a qualified withdrawal from either the capital gain or the ordinary income account. 1040ez help Nonqualified Withdrawals A nonqualified withdrawal from a CCF account is generally any withdrawal that is not a qualified withdrawal. 1040ez help Qualified withdrawals are defined under Qualified Withdrawals, earlier. 1040ez help Examples. 1040ez help   Examples of nonqualified withdrawals include the following amounts from either the ordinary income account or the capital gain account. 1040ez help Amounts remaining in a CCF account upon termination of your agreement with NMFS. 1040ez help Amounts you withdraw and use to make principal payments on the mortgage of a vessel if the basis of that vessel and the bases of other vessels you own have already been reduced to zero. 1040ez help Amounts determined by the IRS to cause your CCF account balance to exceed the amount appropriate to meet your planned use of withdrawals. 1040ez help You will generally be given 3 years to revise your plans to cover this excess balance. 1040ez help Amounts you leave in your account for more than 25 years. 1040ez help There is a graduated schedule under which the percentage applied to determine the amount of the nonqualified withdrawal increases from 20% in the 26th year to 100% in the 30th year. 1040ez help How to determine the source of nonqualified withdrawals. 1040ez help    When you make a nonqualified withdrawal from your CCF account, the amount is treated as being withdrawn in the following order from the accounts listed below. 1040ez help The ordinary income account. 1040ez help The capital gain account. 1040ez help The capital account. 1040ez help Paying tax on nonqualified withdrawals. 1040ez help   In general, nonqualified withdrawals are taxed separately from your other gross income and at the highest marginal tax rate in effect for the year of withdrawal. 1040ez help However, nonqualified withdrawals treated as made from the capital gain account are taxed at a rate that cannot exceed 15% for individuals and 34% for corporations. 1040ez help    Partnerships and S corporations. 1040ez help Taxable nonqualified partnership withdrawals are separately stated on Schedule K (Form 1065), line 20c, and allocated to the partners on Schedule K-1 (Form 1065), box 20 (for 2005). 1040ez help Taxable nonqualified withdrawals by an S corporation are separately stated on Schedule K (Form 1120S), line 17d, and allocated to the shareholders on Schedule K-1 (Form 1120S), box 17. 1040ez help Interest. 1040ez help   You must pay interest on the additional tax due to nonqualified withdrawals that are treated as made from either the ordinary income or the capital gain account. 1040ez help The interest period begins on the last date for paying tax for the year for which you deposited the amount you withdrew from your CCF account. 1040ez help The period ends on the last date for paying tax for the year in which you make the nonqualified withdrawal. 1040ez help The interest rate on the nonqualified withdrawal is simple interest. 1040ez help The rate is subject to change annually and is published in the Federal Register. 1040ez help    You also can call NMFS at (301) 713-2393 (ext. 1040ez help 204) to get the current interest rate. 1040ez help Interest deduction. 1040ez help   You can deduct the interest you pay on a nonqualified withdrawal as a trade or business expense. 1040ez help Reporting the additional tax and interest. 1040ez help   Attach a statement to your income tax return showing your computation of the tax and the interest on a nonqualified withdrawal. 1040ez help Include the tax and interest on Form 1040, line 63 (for 2005). 1040ez help To the left of line 63, write in the amount of tax and interest and “CCF. 1040ez help ” Tax benefit rule. 1040ez help   If any portion of your nonqualified withdrawal is properly attributable to contributions (not earnings on the contributions) you made to the CCF account that did not reduce your tax liability for any tax year prior to the withdrawal year, the following tax treatment applies. 1040ez help The part that did not reduce your tax liability for any year prior to the withdrawal year is not taxed. 1040ez help That part is allowed as a net operating loss deduction. 1040ez help More Information This section briefly discussed the CCF program. 1040ez help For more detailed information, see the following legislative authorities. 1040ez help Section 607 of the Merchant Marine Act of 1936, as amended (46 U. 1040ez help S. 1040ez help C. 1040ez help 1177). 1040ez help Chapter 2, Part 259 of title 50 of the Code of Federal Regulations (50 C. 1040ez help F. 1040ez help R. 1040ez help , Part 259). 1040ez help Subchapter A, Part 3 of title 26 of the Code of Federal Regulations (26 C. 1040ez help F. 1040ez help R. 1040ez help , Part 3). 1040ez help Section 7518 of the Internal Revenue Code (IRC 7518). 1040ez help The application kit you can obtain from NMFS at the address or phone number given earlier may contain copies of some of these sources of additional information. 1040ez help Also, see their web page at www. 1040ez help nmfs. 1040ez help noaa. 1040ez help gov/mb/financial_services/ccf. 1040ez help htm. 1040ez help How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. 1040ez help By selecting the method that is best for you, you will have quick and easy access to tax help. 1040ez help Contacting your Taxpayer Advocate. 1040ez help   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. 1040ez help   The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. 1040ez help While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. 1040ez help   To contact your Taxpayer Advocate: Call the Taxpayer Advocate toll free at 1-877-777-4778, Call, write, or fax the Taxpayer Advocate office in your area, Call 1-800-829-4059 if you are a TTY/TDD user, or Visit www. 1040ez help irs. 1040ez help gov/advocate. 1040ez help   For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and Vietnamese, in addition to English and Spanish). 1040ez help Free tax services. 1040ez help   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. 1040ez help It contains a list of free tax publications and an index of tax topics. 1040ez help It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. 1040ez help Internet. 1040ez help You can access the IRS website 24 hours a day, 7 days a week, at www. 1040ez help irs. 1040ez help gov to: E-file your return. 1040ez help Find out about commercial tax preparation and e-file services available free to eligible taxpayers. 1040ez help Check the status of your refund. 1040ez help Click on Where's My Refund. 1040ez help Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 1040ez help Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez help Download forms, instructions, and publications. 1040ez help Order IRS products online. 1040ez help Research your tax questions online. 1040ez help Search publications online by topic or keyword. 1040ez help View Internal Revenue Bulletins (IRBs) published in the last few years. 1040ez help Figure your withholding allowances using our Form W-4 calculator. 1040ez help Sign up to receive local and national tax news by email. 1040ez help Get information on starting and operating a small business. 1040ez help Phone. 1040ez help Many services are available by phone. 1040ez help Ordering forms, instructions, and publications. 1040ez help Call 1-800-829-3676 to order current-year forms, instructions, and publications and prior-year forms and instructions. 1040ez help You should receive your order within 10 days. 1040ez help Asking tax questions. 1040ez help Call the IRS with your tax questions at 1-800-829-1040. 1040ez help Solving problems. 1040ez help You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. 1040ez help An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 1040ez help Call your local Taxpayer Assistance Center for an appointment. 1040ez help To find the number, go to www. 1040ez help irs. 1040ez help gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez help TTY/TDD equipment. 1040ez help If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. 1040ez help TeleTax topics. 1040ez help Call 1-800-829-4477 and press 2 to listen to pre-recorded messages covering various tax topics. 1040ez help Refund information. 1040ez help If you would like to check the status of your refund, call 1-800-829-4477 and press 1 for automated refund information and follow the recorded instructions or call 1-800-829-1954. 1040ez help Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). 1040ez help Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez help Evaluating the quality of our telephone services. 1040ez help To ensure that IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. 1040ez help One method is for a second IRS representative to sometimes listen in on or record telephone calls. 1040ez help Another is to ask some callers to complete a short survey at the end of the call. 1040ez help Walk-in. 1040ez help Many products and services are available on a walk-in basis. 1040ez help Products. 1040ez help You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040ez help Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD-ROM or photocopy from reproducible proofs. 1040ez help Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. 1040ez help Services. 1040ez help You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. 1040ez help An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. 1040ez help If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. 1040ez help No appointment is necessary, but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. 1040ez help A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. 1040ez help To find the number, go to www. 1040ez help irs. 1040ez help gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. 1040ez help Mail. 1040ez help You can send your order for forms, instructions, and publications to the address below and receive a response within 10 business days after your request is received. 1040ez help National Distribution Center P. 1040ez help O. 1040ez help Box 8903 Bloomington, IL 61702-8903 CD-ROM for tax products. 1040ez help You can order Publication 1796, IRS Tax Products on CD-ROM, and obtain: A CD that is released twice so you have the latest products. 1040ez help The first release ships in late December and the final release ships in late February. 1040ez help Current-year forms, instructions, and publications. 1040ez help Prior-year forms, instructions, and publications. 1040ez help Tax Map: an electronic research tool and finding aid. 1040ez help Tax law frequently asked questions (FAQs). 1040ez help Tax Topics from the IRS telephone response system. 1040ez help Fill-in, print, and save features for most tax forms. 1040ez help Internal Revenue Bulletins. 1040ez help Toll-free and email technical support. 1040ez help Buy the CD-ROM from National Technical Information Service (NTIS) at www. 1040ez help irs. 1040ez help gov/cdorders for $25 (no handling fee) or call 1-877-233-6767 toll free to buy the CD-ROM for $25 (plus a $5 handling fee). 1040ez help CD-ROM for small businesses. 1040ez help Publication 3207, Small Business Resource Guide CD-ROM, has a new look and enhanced navigation features. 1040ez help This CD includes: Helpful information, such as how to prepare a business plan, find financing for your business, and much more. 1040ez help All the business tax forms, instructions, and publications needed to successfully manage a business. 1040ez help Tax law changes. 1040ez help IRS Tax Map to help you find forms, instructions, and publications by searching on a keyword or topic. 1040ez help Web links to various government agencies, business associations, and IRS organizations. 1040ez help “Rate the Product” survey—your opportunity to suggest changes for future editions. 1040ez help An updated version of this CD is available each year in early April. 1040ez help You can get a free copy by calling 1-800-829-3676 or by visiting www. 1040ez help irs. 1040ez help gov/smallbiz. 1040ez help Prev  Up  Next   Home   More Online Publications