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10ez 2. 10ez Filing Requirements and Required Disclosures Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Annual Information ReturnsSupporting Organization Annual Information Return Unrelated Business Income Tax ReturnEstimated tax. 10ez Employment Tax ReturnsException. 10ez FUTA tax exception. 10ez FICA tax exemption election. 10ez Revoking the election. 10ez Definitions. 10ez Effect on employees. 10ez Political Organization Income Tax ReturnExempt function. 10ez Political organization taxable income. 10ez Separate fund. 10ez Failure to file. 10ez Failure to pay on time. 10ez Reporting Requirements for a Political OrganizationForm 8871 Form 8872 Donee Information ReturnCharitable deduction property. 10ez Publicly traded securities. 10ez Exceptions. 10ez Form 8283. 10ez Information Provided to DonorsDisclosure of Quid Pro Quo Contributions Acknowledgment of Charitable Contributions of $250 or More Acknowledgment of Vehicle Contribution Qualified Intellectual Property Report of Cash Received Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting FormsAnnual Information Return Public Inspection of Exemption Application Political Organization Reporting Forms Required DisclosuresSolicitation of Nondeductible Contributions Sales of Information or Services Available Free From Government Dues Used for Lobbying or Political Activities Prohibited Tax Shelter Transactions Miscellaneous RulesOrganizational Changes and Exempt Status Introduction Most exempt organizations (including private foundations) must file various returns and reports at some time during (or following the close of) their accounting period. 10ez Topics - This chapter discusses: Annual information returns Unrelated business income tax return Employment tax returns Political organization income tax return Reporting requirements for a political organization Donee information return Information provided to donors Report of cash received Public inspection of exemption applications, annual returns, and political organizations reporting forms Required disclosures Miscellaneous rules Useful Items - You may want to see: Publication 15 Circular E, Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 598 Tax on Unrelated Business Income of Exempt Organizations Form (and Instructions) 941 Employer's Quarterly Federal Tax Return 990 Return of Organization Exempt From Income Tax 990-EZ Short Form Return of Organization Exempt From Income Tax Schedule A (Form 990 or 990-EZ) Public Charity Status and Public Support Schedule B (Form 990, 990-EZ, or 990-PF) Schedule of Contributors Schedule C (Form 990 or 990-EZ) Political Campaign and Lobbying Activities Schedule D (Form 990) Supplemental Financial Statements Schedule E (Form 990 or 990-EZ) Schools Schedule F (Form 990) Statement of Activities Outside the United States Schedule G (Form 990 or 990-EZ) Supplemental Information Regarding Fundraising or Gaming Activities Schedule H (Form 990) Hospitals Schedule I (Form 990) Grants and Other Assistance to Organizations, Governments, and Individuals in the United States Schedule J (Form 990) Compensation Information Schedule K (Form 990) Supplemental Information on Tax-Exempt Bonds Schedule L (Form 990 or 990-EZ) Transactions With Interested Persons Schedule M (Form 990) Noncash Contributions Schedule N (Form 990 or 990-EZ) Liquidation, Termination, Dissolution, or Significant Disposition of Assets Schedule O (Form 990 or 990-EZ) Supplemental Information to Form 990 Schedule R (Form 990) Related Organizations and Unrelated Partnerships 990-PF Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation 990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons 990-T Exempt Organization Business Income Tax Return 990-W Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations 1120-POL U. 10ez S. 10ez Income Tax Return for Certain Political Organizations 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code 5768 Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To Make Expenditures To Influence Legislation 6069 Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns 8274 Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes 8282 Donee Information Return 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business 8453-X Political Organization Declaration for Electronic Filing of Notice of Section 527 Status 8822-B Change of Address-Business 8868 Application for Extension of Time to File an Exempt Organization Return 8870 Information Return for Transfers Associated with Certain Personal Benefits Contracts 8871 Political Organization Notice of Section 527 Status 8872 Political Organization Report of Contributions and Expenditures 8886-T Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction 8899 Notice of Income from Donated Intellectual Property 8940 Request for Miscellaneous Determination See chapter 6 for information about getting these publications and forms. 10ez Annual Information Returns Every organization exempt from federal income tax under section 501(a) must file an Annual Exempt Organization Return except: A church, an interchurch organization of local units of a church, a convention or association of churches, An integrated auxiliary of a church, A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs, A school below college level affiliated with a church or operated by a religious order, Church-affiliated mission societies if more than half of their activities are conducted in, or are directed at persons in, foreign countries, An exclusively religious activity of any religious order, A state institution, the income of which is excluded from gross income under section 115, A corporation described in section 501(c)(1) that is organized under an Act of Congress, an instrumentality of the United States, and is exempt from Federal income taxes, A stock bonus, pension, or profit-sharing trust that qualifies under section 401 (required to file Form 5500, Annual Return/Report of Employee Benefit Plan), A religious or apostolic organization described in section 501(d) (required to file Form 1065, U. 10ez S. 10ez Return of Partnership Income), A governmental unit or an affiliate of a governmental unit that meets the requirements of Revenue Procedure 95-48, 1995-2 C. 10ez B. 10ez 418, www. 10ez irs. 10ez gov/pub/irs-tege/rp1995-48. 10ez pdf, A private foundation described in section 501(c)(3) and exempt under section 501(a) (required to file Form 990-PF, Return of Private Foundation), A political organization that is a state or local committee of a political party, a political committee of a state or local candidate, a caucus or association of state or local officials, or required to report under the Federal Election Campaign Act of 1971 as a political committee, An exempt organization (other than a private foundation) that normally has annual gross receipts of $50,000 or less, or A foreign organization, or an organization located in a U. 10ez S. 10ez possession, that normally has annual gross receipts from sources within the United States of $50,000 or less. 10ez Supporting Organization Annual Information Return For tax years ending after August 17, 2006, all section 509(a)(3) supporting organizations are required to file Form 990 or 990-EZ with the IRS regardless of the organization's gross receipts, unless it qualifies as one of the following: An integrated auxiliary of a church; The exclusively religious activities of a religious order; or An organization, the gross receipts of which are normally not more than $5,000, that supports a section 509(a)(3) religious order. 10ez If the organization is described in item (3) above, then it must submit Form 990-N (e-Postcard) unless it voluntarily files Form 990 or 990-EZ. 10ez On its annual information return, at Part I, Schedule A (Form 990 or 990-EZ) a supporting organization must: List the section 509(a)(3) organizations to which it provides support, Indicate whether it is a Type I, Type II, or Type III supporting organization, and Certify that the organization is not controlled directly or indirectly by disqualified persons (other than by foundation managers and other than one or more publicly supported organizations). 10ez Annual Electronic Filing Requirement for Small Tax-Exempt Organizations Small tax-exempt organizations with annual gross receipts normally $50,000 or less must submit Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ, with the IRS each year, if they choose not to file a Form 990 or 990-EZ. 10ez Form 990-N requires the following information: The organization's legal name, and mailing address; Any name under which it operates and does business; Its Internet website address (if any); Its taxpayer identification number; The name and address of a principal officer; Organization's annual tax period; Verification that the organization's annual gross receipts are normally $50,000 or less; and Notification if the organization has terminated. 10ez Form 990-N is due by the 15th day of the fifth month after the close of the tax year. 10ez For tax years beginning after December 31, 2006, any organization that fails to meet its annual reporting requirement for 3 consecutive years will automatically lose its tax-exempt status. 10ez To regain its exempt status an organization will have to reapply for recognition as a tax-exempt organization. 10ez Exceptions. 10ez This filing requirement does not apply to: Churches, their integrated auxiliaries, and conventions or associations of churches; Organizations that are included in a group return; Private foundations required to file Form 990-PF; and Section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ. 10ez Forms 990 and 990-EZ Exempt organizations, other than private foundations, must file their annual information returns on Form 990 or 990-EZ, unless excepted from filing or allowed to submit Form 990-N, described earlier. 10ez Generally, political organizations with gross receipts of $25,000 ($100,000 for a qualified state or local political organization (QSLPO)) or more for the tax year are required to file Form 990 or 990-EZ unless specifically excepted from filing the annual return. 10ez The following political organizations are not required to file Form 990 or Form 990-EZ. 10ez A state or local committee of a political party. 10ez A political committee of a state or local candidate. 10ez A caucus or association of state or local officials. 10ez A political organization that is required to report as a political committee under the Federal Election Campaign Act. 10ez A 501(c) organization that has expenditures for influencing or attempting to influence the selection, nomination, election, or appointment of any individual for a federal, state, or local public office. 10ez Form 990-EZ. 10ez This is a shortened version of Form 990. 10ez It is designed for use by small exempt organizations and nonexempt charitable trusts. 10ez Beginning in tax year 2010, an organization can file either Form 990 or 990-EZ if it meets the following: Its gross receipts during the year are less than $200,000. 10ez Its total assets (line 25, column (B) of Form 990-EZ) at the end of the year are less than $500,000. 10ez If your organization does not meet either of these conditions, you cannot file Form 990-EZ. 10ez Instead you must file Form 990. 10ez Group return. 10ez A group return on Form 990 may be filed by a central, parent, or like organization for two or more local organizations, none of which is a private foundation. 10ez This return is in addition to the central organization's separate annual return if it must file a return. 10ez It cannot be included in the group return. 10ez See the instructions for Form 990 for the conditions under which this procedure may be used. 10ez In any year that an organization is properly included as a subordinate organization on a group return, it should not file its own Form 990. 10ez Schedule A (Form 990 or 990-EZ). 10ez Organizations, other than private foundations, that are described in section 501(c)(3) and that are otherwise required to file Form 990 or 990-EZ must also complete Schedule A of that form. 10ez Schedule B (Form 990, Form 990-EZ, or 990-PF). 10ez Organizations that file Form 990 or 990-EZ use this schedule to provide required information regarding their contributors. 10ez Schedule O (Form 990). 10ez Organizations that file Form 990 must use this schedule to provide required additional information or if additional space is needed. 10ez Other schedules may be required to be filed with Form 990 or 990-EZ. 10ez See the instructions for Form 990 or the instructions for Form 990-EZ for more information. 10ez Report significant new or changed program services and changes to organizational documents. 10ez An organization should report new significant program services or significant changes in how it conducts program services, and significant changes to its organizational documents, on its Form 990 rather than in a letter to EO Determinations. 10ez EO Determinations no longer issues letters confirming the tax-exempt status of organizations that report new services or significant changes, or changes to organizational documents. 10ez See Miscellaneous Rules, Organization Changes and Exempt Status, later. 10ez Form 990-PF All private foundations exempt under section 501(c)(3) must file Form 990-PF. 10ez These organizations are discussed in chapter 3. 10ez Electronic Filing You may be required to file Form 990, Form 990-EZ, or Form 990-PF, and related forms, schedules, and attachments electronically. 10ez If an organization is required to file a return electronically but does not, the organization is considered to have not filed its return. 10ez See Regulations section 301. 10ez 6033-4 for more information. 10ez The IRS may waive the requirement to file electronically in cases of undue hardship. 10ez For information on filing a waiver, see Notice 2010-13, 2010-4 I. 10ez R. 10ez B. 10ez 327, available at www. 10ez irs. 10ez gov/ir/2010-04_IRSB/ar14. 10ez html. 10ez Form 990. 10ez An organization is required to file Form 990 electronically if it files at least 250 returns during the calendar year and has total assets of $10 million or more at the end of the tax year. 10ez Form 990-PF. 10ez An organization is required to file Form 990-PF electronically if it files at least 250 returns during the calendar year. 10ez Due Date Forms 990, 990-EZ, or 990-PF must be filed by the 15th day of the fifth month after the end of your organization's accounting period. 10ez Thus, for a calendar year taxpayer, Forms 990, 990-EZ, or 990-PF is due May 15 of the following year. 10ez Extension of time to file. 10ez Use Form 8868 to request an automatic 3-month extension of time to file Forms 990, 990-EZ, or 990-PF and also to apply for an additional (not automatic) 3-month extension if needed. 10ez Do not apply for both the automatic 3-month extension and the additional 3-month extension at the same time. 10ez For more information, see Form 8868 and its instructions. 10ez When filing Form 8868 for an automatic 3-month extension, neither a signature, nor an explanation is required. 10ez However, when filing Form 8868 for an additional 3-month extension, both a signature and an explanation are required. 10ez Application for exemption pending. 10ez An organization that claims to be exempt under section 501(a) but has not established its exempt status by the due date for filing an information return must complete and file Form 990, 990-EZ, 990–N or 990-PF (if it considers itself a private foundation), unless the organization is exempt from Form 990-series filing requirements. 10ez If the organization's application is pending with the IRS, it must so indicate on Forms 990, 990-EZ, or 990-PF (whichever applies) by checking the application pending block at the top of page 1 of the return. 10ez For more information on the filing requirements, see the Instructions for Forms 990, 990-EZ, and 990-PF. 10ez State reporting requirements. 10ez Copies of Forms 990, 990-EZ, or 990-PF may be used to satisfy state reporting requirements. 10ez See the instructions for those forms. 10ez Form 8870. 10ez Organizations that filed a Form 990, 990-EZ, or 990-PF, and paid premiums or received transfers on certain life insurance, annuity, and endowment contracts (personal benefit contracts), must file Form 8870. 10ez For more information, see Form 8870 and the instructions for that form. 10ez Automatic Revocation If the organization fails to file a Form 990, 990-EZ, or 990-PF, or fails to submit a Form 990-N, as required, for 3 consecutive years, it will automatically lose its tax-exempt status by operation of law. 10ez The list of organizations whose tax-exempt status has been automatically revoked is available on IRS. 10ez gov. 10ez This list (Auto-Revocation List) may be viewed and searched on Exempt Organizations Select Check. 10ez The Auto-Revocation List includes each organization's name, Employer Identification Number (EIN) and last known address. 10ez It also includes the effective date of the automatic revocation and the date it was posted to the list. 10ez The IRS updates the list monthly to include additional organizations that lose their tax-exempt status. 10ez Tax Effect of Loss of Tax-Exempt Status If your organization’s tax-exempt status is automatically revoked, you may be required to file one of the following federal income tax returns and pay any applicable income taxes: Form 1120, U. 10ez S. 10ez Corporation Income Tax Return, due by the 15th day of the 3rd month after the end of your organization’s tax year, or Form 1041, U. 10ez S. 10ez Income Tax Return for Estates and Trusts, due by the 15th day of the 4th month after the end of your organization’s tax year. 10ez In addition, a section 501(c)(3) organization that loses its tax-exempt status cannot receive tax-deductible contributions and will not be identified in the IRS Business Master File extract as eligible to received tax-deductible contributions, or be included in Exempt Organizations Select Check (Pub 78 database). 10ez An organization whose exemption was automatically revoked must apply for tax exemption in order to regain its tax exemption (even if it was not originally required to apply). 10ez In some situations, an organization may be able to obtain exemption retroactive to its date of revocation. 10ez For more information about automatic revocation, go to IRS. 10ez gov and select Charities & Non-Profits and then select Revoked? Reinstated? Learn More. 10ez Penalties Penalties for failure to file. 10ez Generally, an exempt organization that fails to file a required return must pay a penalty of $20 a day for each day the failure continues. 10ez The same penalty will apply if the organization does not give all the information required on the return or does not give the correct information. 10ez Maximum penalty. 10ez The maximum penalty for any one return is the smaller of $10,000 or 5% of the organization's gross receipts for the year. 10ez Organization with gross receipts over $1 million. 10ez For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000. 10ez Managers. 10ez If the organization is subject to this penalty, the IRS may specify a date by which the return or correct information must be supplied by the organization. 10ez Failure to comply with this demand will result in a penalty imposed upon the manager of the organization, or upon any other person responsible for filing a correct return. 10ez The penalty is $10 a day for each day that a return is not filed after the period given for filing. 10ez The maximum penalty imposed on all persons with respect to any one return is $5,000. 10ez Exception for reasonable cause. 10ez No penalty will be imposed if reasonable cause for failure to file timely can be shown. 10ez Unrelated Business Income Tax Return Even though your organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. 10ez Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis for the organization's exemption. 10ez If your organization has $1,000 or more of unrelated business income, you must file Form 990-T in addition to your required annual information return. 10ez Estimated tax. 10ez Quarterly estimated tax payments are due if your organization expects to owe $500 or more in tax including unrelated business income. 10ez Use Form 990-W to figure your organization's estimated tax payments. 10ez Travel tour programs. 10ez Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose to which tax exemption was granted to the organization. 10ez Whether travel tour activities conducted by an organization are substantially related to the organization's tax exempt purpose is determined by looking at all the relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted, and operated. 10ez Example. 10ez ABC, a university alumni association, is tax exempt as an educational organization under section 501(c)(3). 10ez As part of its activities, ABC operates a travel tour program. 10ez The program is open to all current members of ABC and their guests. 10ez ABC works with travel agents to schedule approximately ten tours annually to various destinations around the world. 10ez Members of ABC pay $1,000 to XYZ Travel Agency to participate in a tour. 10ez XYZ pays ABC a per person fee for each participant. 10ez Although the literature advertising the tours encourages ABC members to continue their lifelong learning by joining the tours, and a faculty member of ABC's related university frequently joins the tour as a guest of the alumni association, none of the tours include any scheduled instruction or curriculum related to the destinations being visited. 10ez The travel tours made available to ABC's members do not contribute importantly to the accomplishment of ABC's educational purpose. 10ez Rather, ABC's program is designed to generate revenues for ABC by regularly offering its members travel services. 10ez Therefore, ABC's tour program is an unrelated trade or business. 10ez For additional information on unrelated business income, see Publication 598 and the Instructions for Form 990-T. 10ez Employment Tax Returns Every employer, including an organization exempt from federal income tax, who pays wages to employees is responsible for withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements, or if the taxes clearly do not apply. 10ez For more information, obtain a copy of Publication 15, which summarizes the responsibilities of an employer, Publication 15-A, Publication 15-B, and Form 941. 10ez Small Business Health Care Tax Credit. 10ez If your small tax-exempt organization provides health care coverage for your workers you may qualify for the small business health care tax credit. 10ez Go to IRS. 10ez gov and select Affordable Care Act Tax Provisions for more details. 10ez See Small Business Health Care Tax Credit at www. 10ez irs. 10ez gov/newsroom/article/0,,id=223666,00. 10ez html. 10ez Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans. 10ez The VOW to Hire Heroes Act of 2011 made changes to the Work Opportunity Tax Credit (WOTC). 10ez The Act added two new categories to the existing qualified veteran targeted group and made the WOTC available to certain tax-exempt employers as a credit against the employer's share of social security tax. 10ez The Act allows employers to claim the WOTC for veterans certified as qualified veterans and who begin work before January 1, 2013. 10ez This tax credit was extended through December 31, 2013, under the American Taxpayer Relief Act, passed on January 1, 2013. 10ez The credit can be as high as $6,240 for qualified tax-exempt organizations. 10ez The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, the number of hours the veteran works, and the veteran’s first-year wages. 10ez The amount of the credit for qualified tax-exempt organizations may not exceed the organization's employer social security tax for the period for which the credit is claimed. 10ez All employers must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. 10ez The process for certifying veterans for this credit is the same for all employers. 10ez For more information, see Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit and the instructions to Form 8850. 10ez Notice 2012-13, 2012-9 I. 10ez R. 10ez B. 10ez 421, also provides additional guidance on submission Form 8850. 10ez Organizations described in section 501(c) and exempt from taxation under section 501(a) may claim the credit for qualified veterans who begin work on or after Nov. 10ez 22, 2011, and before January 1, 2013. 10ez After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, Form 5884-C. 10ez File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. 10ez It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit as the forms are processed separately. 10ez In addition to Form 5884-C and its instructions, tax-exempt employers should see Notice 2012-13 and the Frequently Asked Questions & Answers for more details for claiming the credit. 10ez Trust fund recovery penalty. 10ez If any person required to collect, truthfully account for, and pay over any of these taxes willfully fails to satisfy any of these requirements or willfully tries in any way to evade or defeat any of them, that person will be subject to a penalty. 10ez The penalty is equal to the tax evaded, not collected, or not accounted for and paid over. 10ez The term person includes: An officer or employee of a corporation, or A member or employee of a partnership. 10ez Exception. 10ez The penalty is not imposed on any unpaid volunteer director or member of a board of trustees of an exempt organization if the unpaid volunteer serves solely in an honorary capacity, does not participate in the day-to-day or financial operations of the organization, and does not have actual knowledge of the failure on which the penalty is imposed. 10ez This exception does not apply if it results in no one being liable for the penalty. 10ez FICA and FUTA tax exceptions. 10ez Payments for services performed by a minister of a church in the exercise of the ministry, or a member of a religious order performing duties required by the order, are generally not subject to FICA or FUTA taxes. 10ez FUTA tax exception. 10ez Payments for services performed by an employee of a religious, charitable, educational, or other organization described in section 501(c)(3) that are generally subject to FICA taxes if the payments are $100 or more for the year, are not subject to FUTA taxes. 10ez FICA tax exemption election. 10ez Churches and qualified church-controlled organizations can elect exemption from employer FICA taxes by filing Form 8274. 10ez To elect the exemption, Form 8274 must be filed before the first date on which a quarterly employment tax return would otherwise be due from the electing organization. 10ez The organization can make the election only if it is opposed for religious reasons to the payment of FICA taxes. 10ez The election applies to payments for services of current and future employees other than services performed in an unrelated trade or business. 10ez Revoking the election. 10ez The election can be revoked by the IRS if the organization fails to file Form W-2, Wage and Tax Statement, for 2 years and fails to furnish certain information upon request by the IRS. 10ez Such revocation will apply retroactively to the beginning of the 2-year period. 10ez Definitions. 10ez For purposes of this election, the term church means a church, a convention or association of churches, or an elementary or secondary school that is controlled, operated, or principally supported by a church or by a convention or association of churches. 10ez The term qualified church-controlled organization means any church-controlled section 501(c)(3) tax-exempt organization, other than an organization that both: Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and Normally receives more than 25% of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses. 10ez Effect on employees. 10ez If a church or qualified church-controlled organization has made an election, payment for services performed for that church or organization, other than in an unrelated trade or business, will not be subject to FICA taxes. 10ez However, the employee, unless otherwise exempt, will be subject to self-employment tax on the income. 10ez The tax applies to income of $108. 10ez 28 or more for the tax year from that church or organization, and no deductions for trade or business expenses are allowed against this self-employment income. 10ez Schedule SE (Form 1040), Self-Employment Tax, should be attached to the employee's income tax return. 10ez Political Organization Income Tax Return Generally, a political organization is treated as an organization exempt from tax. 10ez Certain political organizations, however, must file an annual income tax return, Form 1120-POL, U. 10ez S. 10ez Income Tax Return for Certain Political Organizations, for any year they have political organization taxable income in excess of the $100 specific deduction allowed under section 527. 10ez A political organization that has $25,000 ($100,000 for a qualified state or local political organization) or more in gross receipts for the tax year must file Form 990 or Form 990-EZ (and Schedule B of the form), unless excepted. 10ez See Forms 990 and 990-EZ , earlier. 10ez Political organization. 10ez A political organization is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function. 10ez Exempt function. 10ez An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local public office or office in a political organization, or the election of the Presidential or Vice Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. 10ez It also includes certain office expenses of a holder of public office or an office in a political organization. 10ez Certain political organizations are required to notify the IRS that they are section 527 organizations. 10ez These organizations must use Form 8871. 10ez Some of these section 527 organizations must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. 10ez For a discussion on these forms, see Reporting Requirements for a Political Organization, later. 10ez Political organization taxable income. 10ez Political organization taxable income is the excess of: Gross income for the tax year (excluding exempt function income) minus Deductions directly connected with the earning of gross income. 10ez To figure taxable income, allow for a $100 specific deduction, but do not allow for the net operating loss deduction, the dividends-received deduction, and other special deductions for corporations. 10ez Exempt organization not a political organization. 10ez An organization exempt under section 501(c) that spends any amount for an exempt function must file Form 1120-POL for any year which it has political taxable income. 10ez These organizations must include in gross income the lesser of: The total amount of its exempt function expenditures, or The organization's net investment income. 10ez Separate fund. 10ez A section 501(c) organization can set up a separate segregated fund that will be treated as an independent political organization. 10ez The earnings and expenditures made by the separate fund will not be attributed to the section 501(c) organization. 10ez Section 501(c)(3) organizations are precluded from, and may suffer loss of exemption for, engaging in any political campaign on behalf of, or in opposition to, any candidate for public office. 10ez Due date. 10ez Form 1120-POL is due by the 15th day of the 3rd month after the end of the tax year. 10ez Thus, for a calendar year taxpayer, Form 1120-POL is due on March 15 of the following year. 10ez If any due date falls on a Saturday, Sunday, or legal holiday, the organization can file the return on the next business day. 10ez Form 1120-POL is not required of an exempt organization that makes expenditures for political purposes if its gross income does not exceed its directly connected deductions by more than $100 for the tax year. 10ez Extension of time to file. 10ez Use Form 7004 to request an automatic 6-month extension of time to file Form 1120-POL. 10ez The extension will be granted if you complete Form 7004 properly, make a proper estimate of the tax (if applicable), file Form 1120-POL by the due date, and pay any tax due. 10ez Failure to file. 10ez A political organization that fails to file Form 1120-POL is subject to a penalty equal to 5% of the tax due for each month (or partial month) the return is late up to a maximum of 25% of the tax due, unless the organization shows the failure was due to reasonable cause. 10ez For more information about filing Form 1120-POL, refer to the instructions accompanying the form. 10ez Failure to pay on time. 10ez An organization that does not pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. 10ez The penalty will not be imposed if the organization can show that the failure to pay on time was due to reasonable cause. 10ez Reporting Requirements for a Political Organization Certain political organizations are required to notify the IRS that the organization is to be treated as a section 527 political organization. 10ez The organization is also required to periodically report certain contributions received and expenditures made by the organization. 10ez To notify the IRS of section 527 treatment, an organization must file Form 8871. 10ez To report contributions and expenditures, certain tax-exempt political organizations must file Form 8872. 10ez Form 8871 A political organization must electronically file Form 8871 to notify the IRS that it is to be treated as a section 527 organization. 10ez However, an organization is not required to file Form 8871 if: It reasonably expects its annual gross receipts to always be less than $25,000. 10ez It is a political committee required to report under the Federal Election Campaign Act of 1971 (FECA) (2 U. 10ez S. 10ez C. 10ez 431(4)). 10ez It is a state or local candidate committee. 10ez It is a state or local committee of a political party. 10ez It is a section 501(c) organization that has made an “exempt function expenditure. 10ez ” All other political organizations are required to file Form 8871. 10ez An organization must provide on Form 8871: Its name and address (including any business address, if different) and its electronic mailing address; Its purpose; The names and addresses of its officers, highly compensated employees, contact person, custodian of records, and members of its board of directors; The name and address of, and relationship to, any related entities (within the meaning of section 168(h)(4)); and Whether it intends to claim an exemption from filing Form 8872, Form 990, or Form 990-EZ. 10ez Employer identification number. 10ez If your organization needs an EIN, you can apply for one: Online—Click on the Employer ID Numbers (EINs) link at www. 10ez IRS. 10ez gov/businesses/small. 10ez By telephone at 1-800-829-4933 from 7:00 a. 10ez m. 10ez to 10:00 p. 10ez m. 10ez in the organization's local time zone. 10ez By mailing or faxing Form SS-4. 10ez If you previously applied for an EIN and have not yet received it, or you are unsure whether you have an EIN, please call our toll-free customer account services number, 1-877-829-5500, for assistance. 10ez Due dates. 10ez The initial Form 8871 must be filed within 24 hours of the date on which the organization was established. 10ez If there is a material change, an amended Form 8871 must be filed within 30 days of the material change. 10ez When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination. 10ez If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file on the next business day. 10ez How to file. 10ez An organization must file Form 8871 electronically via the IRS Internet website at www. 10ez IRS. 10ez gov/polorgs (Keyword: political orgs). 10ez Form 8453-X, Political Organization Declaration for Electronic Filing of Notice of Section 527 Status. 10ez After electronically submitting Form 8871, the political organization must print, sign, and mail Form 8453-X to the IRS. 10ez Upon receipt of the Form 8453-X, the IRS will send the organization a username and password that must be used to file an amended or final Form 8871 or to electronically file Form 8872. 10ez Penalties Failure to file. 10ez An organization that is required to file Form 8871, but fails to do so on a timely basis, will not be treated as a tax-exempt section 527 organization for any period before the date Form 8871 is filed. 10ez Also, the taxable income of the organization for that period will include its exempt function income (including contributions received, membership dues, and political fundraising receipts) minus any deductions directly connected with the production of that income. 10ez Failure to file an amended Form 8871 will cause the organization not to be treated as a tax-exempt section 527 organization. 10ez If an organization is treated as not being a tax-exempt section 527 organization, the taxable income of the organization will be determined by considering any exempt function income and deductions during the period beginning on the date of the material change and ending on the date that the amended Form 8871 is filed. 10ez The tax is computed by multiplying the organization's taxable income by the highest corporate tax rate. 10ez Fraudulent returns. 10ez Any individual or corporation that willfully delivers or discloses to the IRS any list, return, account, statement or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation) or imprisoned for not more than 1 year or both. 10ez Waiver of penalties. 10ez The IRS may waive any additional tax assessed on an organization for failure to file Form 8871 if the failure was due to reasonable cause and not willful neglect. 10ez Additional information. 10ez For more information on Form 8871, see the form and its instructions. 10ez For a discussion on the public inspection requirements for the form, see Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms , later. 10ez Form 8872 Every tax-exempt section 527 political organization that accepts a contribution or makes an expenditure, for an exempt function during the calendar year, must file Form 8872 except: A political organization that is not required to file Form 8871 (discussed earlier). 10ez A political organization that is subject to tax on its income because it did not file or amend Form 8871. 10ez A qualified state or local political organization (QSLPO), discussed below. 10ez All other tax-exempt section 527 organizations that accept contributions or make expenditures for an exempt function are required to file Form 8872. 10ez Qualified state or local political organization. 10ez A state or local political organization may be a QSLPO if: All of its political activities relate solely to state or local public office (or office in a state or local political organization). 10ez It is subject to a state law that requires it to report (and it does report) to a state agency information about contributions and expenditures that is similar to the information that the organization would otherwise be required to report to the IRS. 10ez The state agency and the organization make the reports publicly available. 10ez No federal candidate or office holder: Controls or materially participates in the direction of the organization, Solicits contributions for the organization, or Directs the disbursements of the organization. 10ez Information required on Form 8872. 10ez If an organization pays an individual $500 or more for the calendar year, the organization is required to disclose the individual's name, address, occupation, employer, amount of the expense, the date the expense was paid, and the purpose of the expense on Form 8872. 10ez If an organization receives contributions of $200 or more from one contributor for the calendar year, the organization must disclose the donor's name, address, occupation, employer, and the date the contributions were made. 10ez For additional information that is required, see Form 8872. 10ez Due dates. 10ez The due dates for filing Form 8872 vary depending on whether the form is due for a reporting period that occurs during a calendar year in which a regularly scheduled election is held, or any other calendar year (a nonelection year). 10ez If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file on the next business day. 10ez Election year filing. 10ez In election years, Form 8872 must be filed on either a quarterly or a monthly basis. 10ez Both a pre-election report and a post-election report are also required to be filed in an election year. 10ez An election year is any year in which a regularly scheduled general election for federal office is held (an even-numbered year). 10ez Nonelection year filing. 10ez In nonelection years, the form must be filed on a semiannual or monthly basis. 10ez A complete listing of these filing periods are in the Form 8872 Instructions. 10ez A nonelection year is any odd-numbered year. 10ez How to file. 10ez Form 8872 can be filed either electronically or by mail. 10ez However, organizations that have, or expect to have, contributions or expenditures of $50,000 or more for the year must file electronically. 10ez To file by mail, send Form 8872 to the: Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0027 Electronic filing. 10ez File electronically via the IRS internet website at www. 10ez IRS. 10ez gov/polorgs. 10ez You will need a user ID and password to electronically file Form 8872. 10ez Organizations that have completed the electronic filing of Form 8871 and submitted a completed and signed Form 8453-X will receive a username and password in the mail. 10ez Organizations that have completed the electronic filing of Form 8871, but have not received their user ID and password can request one by writing to the following address: Internal Revenue Service Attn: Request for 8872 Password Mail Stop 6273 Ogden, UT 84201 Lost username and password. 10ez If you have forgotten or misplaced the username and password issued to your organization after you filed your initial Form 8871, send a letter requesting a new username and password to the address under Electronic filing. 10ez You can also fax your request to (801) 620-3249. 10ez It may take 3-6 weeks for your new username and password to arrive, as they will be mailed to the organization. 10ez Penalty A penalty will be imposed if the organization is required to file Form 8872 and it: Fails to file the form by the due date, or Files the form but fails to report all of the information required or reports incorrect information. 10ez The penalty is 35% of the total amount of contributions and expenditures to which a failure relates. 10ez Fraudulent returns. 10ez Any individual or corporation that willfully delivers or discloses any list, return, account, statement, or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned for not more than 1 year, or both. 10ez Waiver of penalties. 10ez The IRS may waive any additional tax assessed on an organization for failure to file Form 8872 if the failure was due to reasonable cause and not willful neglect. 10ez Donee Information Return Dispositions of donated property. 10ez If an organization receives charitable deduction property and within three years sells, exchanges, or otherwise disposes of the property, the organization must file Form 8282, Donee Information Return. 10ez However, an organization is not required to file Form 8282 if: The property is valued at $500 or less, or The property is consumed or distributed for charitable purposes. 10ez Form 8282 must be filed with the IRS within 125 days after the disposition. 10ez Additionally, a copy of Form 8282 must be given to the donor. 10ez If the organization fails to file the required information return, penalties may apply. 10ez Charitable deduction property. 10ez This is any property (other than money or publicly traded securities) for which the donee organization signed an appraisal summary or Form 8283, Noncash Charitable Contributions. 10ez Publicly traded securities. 10ez These are securities for which market quotations are readily available on an established securities market as of the date of the contribution. 10ez Appraisal summary. 10ez If the value of the donated property exceeds $5,000, the donor must get a qualified appraisal for contributions of property, see the Exceptions. 10ez below. 10ez Exceptions. 10ez A written appraisal is not needed if the property is: Nonpublicly traded stock of $10,000 or less, A vehicle (including a car, boat, or airplane), if your deduction for the vehicle is limited to the gross proceeds from its sale, Intellectual property, Certain securities considered to have market quotations readily available (see Regulations section 1. 10ez 170A-13(c)(7)(xi)(B)), Inventory and other property donated by a corporation that are qualified contributions for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A), or Any donation of stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business. 10ez The donee organization is not a qualified appraiser for the purpose of valuing the donated property. 10ez For more information, get Publication 561, Determining the Value of Donated Property. 10ez Form 8283. 10ez For noncash donations over $5,000, the donor must attach Form 8283 to the tax return to support the charitable deduction. 10ez The donee must sign Part IV of Section B, Form 8283 unless publicly traded securities are donated. 10ez The person who signs for the donee must be an official authorized to sign the donee's tax or information returns, or a person specifically authorized to sign by that official. 10ez The signature does not represent concurrence in the appraised value of the contributed property. 10ez A signed acknowledgment represents receipt of the property described on Form 8283 on the date specified on the form. 10ez The signature also indicates knowledge of the information reporting requirements on dispositions, as previously discussed. 10ez A copy of Form 8283 must be given to the donee. 10ez Information Provided to Donors In some situations, a donor must obtain certain information from a donee organization to obtain a deduction for a charitable contribution. 10ez In other situations, the donee organization is required to provide information to the donor. 10ez A charitable organization must give a donor a disclosure statement for a quid pro quo contribution over $75. 10ez (See Disclosure statement. 10ez later. 10ez ) This is a payment a donor makes to a charity partly as a contribution and partly for goods or services. 10ez See Quid pro quo contribution below for an example. 10ez Failure to make the required disclosure may result in a penalty to the organization. 10ez A donor cannot deduct a charitable contribution of $250 or more unless the donor has a written acknowledgment from the charitable organization. 10ez In certain circumstances, an organization may be able to meet both of these requirements with the same written document. 10ez Disclosure of Quid Pro Quo Contributions A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution over $75. 10ez Quid pro quo contribution. 10ez A contribution made by a donor in exchange for goods or services is known as a quid pro quo contribution. 10ez Your charitable organization must provide the donor a written statement informing the donor of the fair market value of the items or services it provided in exchange for the contribution. 10ez Generally, a written statement is required for each payment, whenever the contribution portion is over $75. 10ez Example. 10ez If a donor gives your charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. 10ez In this example, the charitable part of the payment is $60. 10ez Even though the deductible part of the payment is not more than $75, a written statement must be filed because the total payment is more than $75. 10ez If your organization fails to disclose quid pro quo contributions, the organization may be subject to a penalty. 10ez Disclosure statement. 10ez The required written disclosure statement must: Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the fair market value of goods or services provided by the charity, and Provide the donor with a good faith estimate of the fair market value of the goods or services that the donor received. 10ez The charity must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. 10ez If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when it actually receives the contribution. 10ez No disclosure statement is required if any of the following are true. 10ez The goods or services given to a donor have insubstantial value as described in Revenue Procedure 90-12, 1990-1 C. 10ez B. 10ez 471, Revenue Procedure 90-12, and Revenue Procedure 92-49, 1992-1 C. 10ez B. 10ez 507 (as adjusted for inflation), Revenue Procedure 92-49. 10ez There is no donative element involved in a particular transaction with a charity (for example, there is generally no donative element involved in a visitor's purchase from a museum gift shop). 10ez There is only an intangible religious benefit provided to the donor. 10ez The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context. 10ez For example, a donor who, for a payment, is granted admission to a religious ceremony for which there is no admission charge is provided an intangible religious benefit. 10ez A donor is not provided intangible religious benefits for payments made for tuition for education leading to a recognized degree, travel services, or consumer goods. 10ez The donor makes a payment of $75 or less per year and receives only annual membership benefits that consist of: Any rights or privileges (other than the right to purchase tickets for college athletic events) that the taxpayer can exercise often during the membership period, such as free or discounted admissions or parking or preferred access to goods or services, or Admission to events that are open only to members and the cost per person of which is within the limits for low-cost articles described in Revenue Procedure 90-12 (as adjusted for inflation), Revenue Procedure 90-12. 10ez Good faith estimate of fair market value (FMV). 10ez An organization can use any reasonable method to estimate the FMV of goods or services it provided to a donor, as long as it applies the method in good faith. 10ez The organization can estimate the FMV of goods or services that generally are not commercially available by using the FMV of similar or comparable goods or services. 10ez Goods or services may be similar or comparable even if they do not have the unique qualities of the goods or services being valued. 10ez Example 1. 10ez A charity provides a 1-hour tennis lesson with a tennis professional for the first $500 payment it receives. 10ez The tennis professional provides 1-hour lessons on a commercial basis for $100. 10ez A good faith estimate of the lesson's FMV is $100. 10ez Example 2. 10ez For a payment of $50,000, a museum allows a donor to hold a private event in a room of the museum. 10ez A good faith estimate of the FMV of the right to hold the event in the museum can be made by using the cost of renting a hotel ballroom with a capacity, amenities, and atmosphere comparable to the museum room, even though the hotel ballroom lacks the unique art displayed in the museum room. 10ez If the hotel ballroom rents for $2,500, a good faith estimate of the FMV of the right to hold the event in the museum is $2,500. 10ez Example 3. 10ez For a payment of $1,000, a charity provides an evening tour of a museum conducted by a well-known artist. 10ez The artist does not provide tours on a commercial basis. 10ez Tours of the museum normally are free to the public. 10ez A good faith estimate of the FMV of the evening museum tour is $0 even though it is conducted by the artist. 10ez Penalty for failure to disclose. 10ez A penalty is imposed on a charity that does not make the required disclosure of a quid pro quo contribution of more than $75. 10ez The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. 10ez The charity can avoid the penalty if it can show that the failure was due to reasonable cause. 10ez Acknowledgment of Charitable Contributions of $250 or More A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgment from the charitable organization. 10ez The donor must get the acknowledgment by the earlier of: The date the donor files the original return for the year the contribution is made, or The due date, including extensions, for filing the return. 10ez The donor is responsible for requesting and obtaining the written acknowledgment from the donee. 10ez A charitable organization that receives a payment made as a contribution is treated as the donee organization for this purpose even if the organization (according to the donor's instructions or otherwise) distributes the amount received to one or more charities. 10ez Quid pro quo contribution. 10ez If the donee provides goods or services to the donor in exchange for the contribution (a quid pro quo contribution), the acknowledgment must include a good faith estimate of the value of the goods or services. 10ez See Disclosure of Quid Pro Quo Contributions earlier. 10ez Form of acknowledgment. 10ez Although there is no prescribed format for the written acknowledgment, it must provide enough information to substantiate the amount of the contribution. 10ez For more information, see IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements. 10ez Cash contributions. 10ez To deduct a contribution of cash, a check, or other monetary gift (regardless of the amount), a donor must maintain a bank record or a written communication from the donee organization showing the donee's name, date, and amount of the contribution. 10ez In the case of a lump-sum contribution (rather than a contribution by payroll deduction) made through the Combined Federal Campaign or a similar program such as a United Way Campaign, the written communication must include the name of the donee organization that is the ultimate recipient of the charitable contribution. 10ez Contributions by payroll deduction. 10ez An organization may substantiate an employee's contribution by deduction from its payroll by: A pay stub, Form W-2, or other document showing a contribution to a donee organization, together with A pledge card or other document from the donee organization that shows its name. 10ez For contributions of $250 or more, the document must state that the donee organization provides no goods or services for any payroll contributions. 10ez The amount withheld from each payment of wages to a taxpayer is treated as a separate contribution. 10ez Acknowledgment of Vehicle Contribution If an exempt organization receives a contribution of a qualified vehicle with a claimed value of more than $500, the donee organization is required to provide a contemporaneous written acknowledgment to the donor. 10ez The donee organization can use a completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, for the contemporaneous written acknowledgment. 10ez See section 3. 10ez 03 of Notice 2005-44 for guidance on the information that must be included in a contemporaneous written acknowledgment and the deadline for furnishing the acknowledgment to the donor. 10ez Any donee organization that provides a contemporaneous written acknowledgment to a donor is required to report to the IRS the information contained in the acknowledgment. 10ez The report is due by February 28 (March 31 if filing electronically) of the year following the year in which the donee organization provides the acknowledgment to the donor. 10ez The organization must file the report on Copy A of Form 1098-C. 10ez An organization that files Form 1098-C on paper should send it with Form 1096, Annual Summary and Transmittal of U. 10ez S. 10ez Information Returns. 10ez See the Instructions for Form 1096 for the correct filing location. 10ez An organization that is required to file 250 or more Forms 1098-C during the calendar year must file the forms electronically or magnetically. 10ez Specifications for filing Form 1098-C electronically or magnetically can be found in Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically at www. 10ez IRS. 10ez gov/pub/irs-pdf/p1220. 10ez pdf. 10ez Acknowledgment For a contribution of a qualified vehicle with a claimed value of $500 or less, do not file Form 1098-C. 10ez However, you can use it as the contemporaneous written acknowledgment under section 170(f)(8) by providing the donor with Copy C only. 10ez See the Instructions for Form 1098-C. 10ez Generally, the organization should complete Form 1098-C as the written acknowledgment to the donor and the IRS. 10ez The contents of the acknowledgment depend upon whether the organization: Sells a qualified vehicle without any significant intervening use or material improvement, Intends to make a significant intervening use of or material improvement to a qualified vehicle prior to sale, or Sells a qualified vehicle to a needy individual at a price significantly below fair market value, or a gratuitous transfer to a needy individual in direct furtherance of a charitable purpose of the organization of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. 10ez For more information on the acknowledgment, see Notice 2005-44, 2005-25 I. 10ez R. 10ez B. 10ez 1287, at www. 10ez irs. 10ez gov/irb/2005-25_IRB/2005-25_IRB/ar09. 10ez html. 10ez Material improvements or significant intervening use. 10ez To constitute significant intervening use, the organization must actually use the vehicle to substantially further the organization's regularly conducted activities, and the use must be significant, not incidental. 10ez Factors in determining whether a use is a significant intervening use depend on the nature, extent, frequency, and duration. 10ez For this purpose, use includes providing transportation on a regular basis for a significant period of time or significant use directly related to training in vehicle repair. 10ez Use does not include the use of a vehicle to provide training in business skills, such as marketing or sales. 10ez Examples of significant use include: Driving a vehicle every day for 1 year to deliver meals to needy individuals, if delivering meals is an activity regularly conducted by the organization. 10ez Driving a vehicle for 10,000 miles over a 1-year period to deliver meals to needy individuals, if delivering meals is an activity regularly conducted by the organization. 10ez Material improvements include major repairs and additions that improve the condition of the vehicle in a manner that significantly increases the value. 10ez To be a material improvement, the improvement cannot be funded by an additional payment to the organization from the donor of the vehicle. 10ez Material improvements do not include cleaning, minor repairs, routine maintenance, painting, removal of dents or scratches, cleaning or repair of upholstery, and installation of theft deterrent devices. 10ez Penalties. 10ez If your charitable organization receives contributions of used motor vehicles, boats, and airplanes valued over $500 it may be subject to a penalty if it knowingly: Fails to furnish an acknowledgement in a timely manner, showing the required information, or Furnishes a false or fraudulent acknowledgement of the contribution. 10ez Other penalties may apply. 10ez See Part O in the 2012 General Instructions for Certain Information Returns. 10ez An acknowledgment containing a certification will be presumed to be false or fraudulent if the qualified vehicle is sold to a buyer other than a needy individual without a significant intervening use or material improvement within 6 months of the date of the contribution. 10ez If a charity sells a donated vehicle at auction, the IRS will not accept as substantiation an acknowledgment from the charity stating that the vehicle is to be transferred to a needy individual for significantly below fair market value. 10ez Vehicles sold at auction are not sold at prices significantly below fair market value, and the IRS will not treat vehicles sold at auction as qualifying for this exception. 10ez The penalty for a false or fraudulent acknowledgment where the donee certifies that the vehicle will not be transferred for money, other property, or services before completion of material improvements or significant intervening use or the donee certifies that the vehicle is to be transferred to a needy individual for significantly below fair market value in furtherance of the donee's charitable purpose is the larger of $5,000 or the claimed value of the vehicle multiplied by 39. 10ez 6%. 10ez The penalty for an acknowledgment relating to a qualified vehicle being sold in an arm's length transaction to an unrelated party is the larger of the gross proceeds from the sale or the sales price stated in the acknowledgment multiplied by 39. 10ez 6%. 10ez Qualified Intellectual Property A taxpayer who contributes qualified intellectual property to a charity may be entitled to a charitable deduction, in addition to any initial deduction allowed in the year of contribution. 10ez The additional deduction is based on a specified percentage of the qualified donee income with respect to the qualified intellectual property. 10ez To qualify for the additional charitable deduction, the donor must provide notice to the donee at the time of the contribution that the donor intends to treat the contribution as qualified intellectual property contribution for purposes of sections 170(m) and 6050L. 10ez Every donee organization described in section 170(c) (except a private foundation as defined in section 509(a) that is not described in section 170(b)(1)(F)) that receives or accrues net income from a charitable gift of qualified intellectual property must file Form 8899. 10ez Form 8899. 10ez Form 8899, Notice of Income From Donated Intellectual Property, is used by a donee to report net income from qualified intellectual property to the donor of the property and to the IRS and is due by the last day of the first full month following the close of the donee’s tax year. 10ez This form must be filed for each tax year of the donee in which the donated property produces net income, but only if all or part of that tax year occurs during the 10-year period beginning on the date of the contribution and that tax year does not begin after the expiration of the legal life of the donated property. 10ez Qualified donee income. 10ez Qualified donee income is any net income received by or accrued to the donee that is properly allocable to the qualified intellectual property for the tax year of the donee which ends within or with the tax year of the donor. 10ez Income is not treated as allocated to qualified intellectual property if it is received or accrued after the earlier of the expiration of the legal life of the qualified intellectual property, or the 10-year period beginning with the date of
Understanding Your CP237A Notice
Call us to request your refund check.
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You should receive the replacement check within 30 days.
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Refund checks are mailed only to the address of record, which is the address provided on the tax return or the result of a permanent address change request submitted after the return is filed.
Tips for next year
If you are not already doing so, consider filing your taxes electronically. Filing online can help you to avoid mistakes and find credits and deductions for which you may qualify. Learn more about how to file electronically here.
Tax publications you may find useful
How to get help
Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered. You can also authorize someone (such as an accountant) to contact the IRS on your behalf using a Power of Attorney and Declaration of Representative (Form 2848).
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Notice CP237A, Page 1
Page Last Reviewed or Updated: 07-Aug-2013
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- See if you qualify for help from a Low Income Taxpayer Clinic.
10ez 31. 10ez Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. 10ez Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. 10ez Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. 10ez Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. 10ez . 10ez For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). 10ez NIIT is a 3. 10ez 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. 10ez Use Form 8960, Net Investment Income Tax, to figure this tax. 10ez For more information on NIIT, go to www. 10ez irs. 10ez gov and enter “Net Investment Income Tax” in the search box. 10ez Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. 10ez If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. 10ez (See Parent's Election To Report Child's Interest and Dividends , later. 10ez ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 10ez (See Tax for Certain Children Who Have Unearned Income , later. 10ez ) For these rules, the term “child” includes a legally adopted child and a stepchild. 10ez These rules apply whether or not the child is a dependent. 10ez Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. 10ez The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . 10ez Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. 10ez Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . 10ez Parents are married. 10ez If the child's parents file separate returns, use the return of the parent with the greater taxable income. 10ez Parents not living together. 10ez If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. 10ez If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. 10ez For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. 10ez Parents are divorced. 10ez If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. 10ez Custodial parent remarried. 10ez If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. 10ez Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. 10ez Do not use the return of the noncustodial parent. 10ez If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. 10ez If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. 10ez Parents never married. 10ez If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. 10ez If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. 10ez Widowed parent remarried. 10ez If a widow or widower remarries, the new spouse is treated as the child's other parent. 10ez The rules explained earlier under Custodial parent remarried apply. 10ez Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. 10ez If you do, your child will not have to file a return. 10ez You can make this election only if all the following conditions are met. 10ez Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. 10ez Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). 10ez The child's gross income was less than $10,000. 10ez The child is required to file a return unless you make this election. 10ez The child does not file a joint return for the year. 10ez No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. 10ez No federal income tax was taken out of your child's income under the backup withholding rules. 10ez You are the parent whose return must be used when applying the special tax rules for children. 10ez (See Which Parent's Return To Use , earlier. 10ez ) These conditions are also shown in Figure 31-A. 10ez Certain January 1 birthdays. 10ez A child born on January 1, 1995, is considered to be age 19 at the end of 2013. 10ez You cannot make this election for such a child unless the child was a full-time student. 10ez A child born on January 1, 1990, is considered to be age 24 at the end of 2013. 10ez You cannot make this election for such a child. 10ez Full-time student. 10ez A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. 10ez A school includes a technical, trade, or mechanical school. 10ez It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. 10ez How to make the election. 10ez Make the election by attaching Form 8814 to your Form 1040. 10ez (If you make this election, you cannot file Form 1040A or Form 1040EZ. 10ez ) Attach a separate Form 8814 for each child for whom you make the election. 10ez You can make the election for one or more children and not for others. 10ez Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. 10ez Rate may be higher. 10ez If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. 10ez This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. 10ez However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. 10ez Deductions you cannot take. 10ez By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. 10ez The additional standard deduction if the child is blind. 10ez The deduction for a penalty on an early withdrawal of your child's savings. 10ez Itemized deductions (such as your child's investment expenses or charitable contributions). 10ez Reduced deductions or credits. 10ez If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. 10ez Deduction for contributions to a traditional individual retirement arrangement (IRA). 10ez Deduction for student loan interest. 10ez Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. 10ez Credit for child and dependent care expenses. 10ez Child tax credit. 10ez Education tax credits. 10ez Earned income credit. 10ez Penalty for underpayment of estimated tax. 10ez If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. 10ez If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. 10ez See chapter 4 for more information. 10ez Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. 10ez Only the amount over $2,000 is added to your income. 10ez The amount over $2,000 is shown on Form 8814, line 6. 10ez Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. 10ez Include the amount from Form 8814, line 12, on Form 1040, line 21. 10ez Enter “Form 8814” on the dotted line next to line 21. 10ez If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. 10ez Capital gain distributions and qualified dividends. 10ez If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. 10ez If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. 10ez Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. 10ez This tax is added to the tax figured on your income. 10ez This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. 10ez Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. 10ez Check box a on Form 1040, line 44. 10ez Figure 31-A. 10ez Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. 10ez Figure 31–A. 10ez Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. 10ez If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. 10ez Attach the completed form to the child's Form 1040 or Form 1040A. 10ez When Form 8615 must be filed. 10ez Form 8615 must be filed for a child if all of the following statements are true. 10ez The child's investment income was more than $2,000. 10ez The child is required to file a return for 2013. 10ez The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. 10ez At least one of the child's parents was alive at the end of 2013. 10ez The child does not file a joint return for 2013. 10ez These conditions are also shown in Figure 31-B. 10ez Earned income. 10ez Earned income includes salaries, wages, tips, and other payments received for personal services performed. 10ez It does not include unearned income as defined later in this chapter. 10ez Support. 10ez Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. 10ez To figure your child's support, count support provided by you, your child, and others. 10ez However, a scholarship received by your child is not considered support if your child is a full-time student. 10ez See chapter 3 for details about support. 10ez Certain January 1 birthdays. 10ez Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. 10ez Figure 31-B. 10ez Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. 10ez Figure 31-B. 10ez Do You Have To Use Form 8615 To Figure Your Child's Tax? IF a child was born on. 10ez . 10ez . 10ez THEN, at the end of 2013, the child is considered to be. 10ez . 10ez . 10ez January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. 10ez The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. 10ez **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. 10ez ***Do not use Form 8615 for this child. 10ez Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. 10ez (If the parents filed a joint return, enter the name and social security number listed first on the joint return. 10ez ) On line C, check the box for the parent's filing status. 10ez See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. 10ez Parent with different tax year. 10ez If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. 10ez Parent's return information not known timely. 10ez If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. 10ez You can use any reasonable estimate. 10ez This includes using information from last year's return. 10ez If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. 10ez When you get the correct information, file an amended return on Form 1040X, Amended U. 10ez S. 10ez Individual Income Tax Return. 10ez Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. 10ez S. 10ez Individual Income Tax Return. 10ez Extensions are discussed in chapter 1. 10ez Step 1. 10ez Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. 10ez To do that, use Form 8615, Part I. 10ez Line 1 (unearned income). 10ez If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. 10ez Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. 10ez Form 1040EZ cannot be used if Form 8615 must be filed. 10ez If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. 10ez However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. 10ez Unearned income defined. 10ez Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. 10ez It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. 10ez Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). 10ez Nontaxable income. 10ez For this purpose, unearned income includes only amounts the child must include in total income. 10ez Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. 10ez Income from property received as a gift. 10ez A child's unearned income includes all income produced by property belonging to the child. 10ez This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. 10ez A child's unearned income includes income produced by property given as a gift to the child. 10ez This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. 10ez Example. 10ez Amanda Black, age 13, received the following income. 10ez Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. 10ez Amanda's unearned income is $2,100. 10ez This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). 10ez Her wages are earned (not unearned) income because they are received for work actually done. 10ez Her tax-exempt interest is not included because it is nontaxable. 10ez Trust income. 10ez If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. 10ez However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. 10ez Line 2 (deductions). 10ez If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. 10ez If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. 10ez Directly connected. 10ez Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. 10ez These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. 10ez These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). 10ez Only the amount greater than 2% of the child's adjusted gross income can be deducted. 10ez See chapter 28 for more information. 10ez Example 1. 10ez Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. 10ez His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. 10ez Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. 10ez Example 2. 10ez Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. 10ez She has no other income. 10ez She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. 10ez Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). 10ez The amount on line 2 is $2,050. 10ez This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. 10ez Line 3. 10ez Subtract line 2 from line 1 and enter the result on this line. 10ez If zero or less, do not complete the rest of the form. 10ez However, you must still attach Form 8615 to the child's tax return. 10ez Figure the tax on the child's taxable income in the normal manner. 10ez Line 4 (child's taxable income). 10ez Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. 10ez However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. 10ez 929. 10ez Line 5 (net unearned income). 10ez A child's net unearned income cannot be more than his or her taxable income. 10ez Enter on Form 8615, line 5, the smaller of line 3 or line 4. 10ez This is the child's net unearned income. 10ez If zero or less, do not complete the rest of the form. 10ez However, you must still attach Form 8615 to the child's tax return. 10ez Figure the tax on the child's taxable income in the normal manner. 10ez Step 2. 10ez Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. 10ez The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. 10ez When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. 10ez For example, do not refigure the medical expense deduction. 10ez Figure the tentative tax on Form 8615, lines 6 through 13. 10ez Note. 10ez If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. 10ez Line 6 (parent's taxable income). 10ez Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. 10ez If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. 10ez Line 7 (net unearned income of other children). 10ez If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. 10ez Do not include the amount from line 5 of the Form 8615 being completed. 10ez Example. 10ez Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. 10ez The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. 10ez Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). 10ez Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). 10ez Other children's information not available. 10ez If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. 10ez See Parent's return information not known timely , earlier. 10ez Line 11 (tentative tax). 10ez Subtract line 10 from line 9 and enter the result on this line. 10ez This is the tentative tax. 10ez If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. 10ez Also skip the discussion for lines 12a and 12b that follows. 10ez Lines 12a and 12b (dividing the tentative tax). 10ez If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. 10ez This is done on lines 12a, 12b, and 13. 10ez Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. 10ez Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. 10ez Example. 10ez In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. 10ez The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). 10ez The decimal on line 12b is . 10ez 333, figured as follows and rounded to three places. 10ez $800 = . 10ez 333 $2,400 Step 3. 10ez Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. 10ez This is the child's tax. 10ez It is figured on Form 8615, lines 14 through 18. 10ez Alternative minimum tax. 10ez A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. 10ez See Alternative Minimum Tax (AMT) in chapter 30. 10ez For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. 10ez For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. 10ez Prev Up Next Home 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