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2011 1040a

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2011 1040a

2011 1040a 2. 2011 1040a   Roth IRAs Table of Contents What's New for 2013 What's New for 2014 Reminders Introduction What Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA?How Much Can Be Contributed? When Can You Make Contributions? What if You Contribute Too Much? Can You Move Amounts Into a Roth IRA?Conversions Rollover From Employer's Plan Into a Roth IRA Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments Rollover From a Roth IRA Rollover of Exxon Valdez Settlement Income Rollover of Airline Payments Are Distributions Taxable?What Are Qualified Distributions? Additional Tax on Early Distributions Ordering Rules for Distributions How Do You Figure the Taxable Part? Must You Withdraw or Use Assets?Minimum distributions. 2011 1040a Recognizing Losses on Investments Distributions After Owner's Death What's New for 2013 Roth IRA contribution limit. 2011 1040a  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. 2011 1040a If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. 2011 1040a However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. 2011 1040a For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter. 2011 1040a Modified AGI limit for Roth IRA contributions increased. 2011 1040a  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. 2011 1040a Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. 2011 1040a Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. 2011 1040a Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. 2011 1040a See Can You Contribute to a Roth IRA? in this chapter. 2011 1040a Net Investment Income Tax. 2011 1040a  For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 457(b) plans, and IRAs). 2011 1040a However, these distributions are taken into account when determining the modified adjusted gross income threshold. 2011 1040a Distributions from a nonqualified retirement plan are included in net investment income. 2011 1040a See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. 2011 1040a What's New for 2014 Modified AGI limit for Roth IRA contributions increased. 2011 1040a  For 2014, your Roth IRA contribution limit is reduced (phased out) in the following situations. 2011 1040a Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $181,000. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $191,000 or more. 2011 1040a Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2014 and your modified AGI is at least $114,000. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $129,000 or more. 2011 1040a Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. 2011 1040a You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. 2011 1040a Reminders Deemed IRAs. 2011 1040a  For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. 2011 1040a If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. 2011 1040a An employee's account can be treated as a traditional IRA or a Roth IRA. 2011 1040a For this purpose, a “qualified employer plan” includes: A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan), A qualified employee annuity plan (section 403(a) plan), A tax-sheltered annuity plan (section 403(b) plan), and A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. 2011 1040a Designated Roth accounts. 2011 1040a  Designated Roth accounts are separate accounts under 401(k), 403(b), or 457(b) plans that accept elective deferrals that are referred to as Roth contributions. 2011 1040a These elective deferrals are included in your income, but qualified distributions from these accounts are not included in your income. 2011 1040a Designated Roth accounts are not IRAs and should not be confused with Roth IRAs. 2011 1040a Contributions, up to their respective limits, can be made to Roth IRAs and designated Roth accounts according to your eligibility to participate. 2011 1040a A contribution to one does not impact your eligibility to contribute to the other. 2011 1040a See Publication 575, for more information on designated Roth accounts. 2011 1040a Introduction Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA. 2011 1040a Contributions not reported. 2011 1040a   You do not report Roth IRA contributions on your return. 2011 1040a What Is a Roth IRA? A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined next). 2011 1040a It can be either an account or an annuity. 2011 1040a Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Opened. 2011 1040a To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is opened. 2011 1040a A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA. 2011 1040a Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. 2011 1040a But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. 2011 1040a Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live. 2011 1040a Traditional IRA. 2011 1040a   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. 2011 1040a Traditional IRAs are discussed in chapter 1. 2011 1040a When Can a Roth IRA Be Opened? You can open a Roth IRA at any time. 2011 1040a However, the time for making contributions for any year is limited. 2011 1040a See When Can You Make Contributions , later under Can You Contribute to a Roth IRA. 2011 1040a Can You Contribute to a Roth IRA? Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than: $188,000 for married filing jointly or qualifying widow(er), $127,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and $10,000 for married filing separately and you lived with your spouse at any time during the year. 2011 1040a You may be able to claim a credit for contributions to your Roth IRA. 2011 1040a For more information, see chapter 4. 2011 1040a Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age. 2011 1040a Can you contribute to a Roth IRA for your spouse?   You can contribute to a Roth IRA for your spouse provided the contributions satisfy the Kay Bailey Hutchison Spousal IRA limit discussed in chapter 1 under How Much Can Be Contributed, you file jointly, and your modified AGI is less than $188,000. 2011 1040a Compensation. 2011 1040a   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. 2011 1040a It also includes commissions, self-employment income, nontaxable combat pay, military differential pay, and taxable alimony and separate maintenance payments. 2011 1040a For more information, see What Is Compensation? under Who Can Open a Traditional IRA? in chapter 1. 2011 1040a Modified AGI. 2011 1040a   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return with some adjustments. 2011 1040a Use Worksheet 2-1 , later, to determine your modified AGI. 2011 1040a    Do not subtract conversion income when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. 2011 1040a Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes. 2011 1040a How Much Can Be Contributed? The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs. 2011 1040a Worksheet 2-1. 2011 1040a Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes. 2011 1040a 1. 2011 1040a Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37 1. 2011 1040a   2. 2011 1040a Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, line 15b, Form 1040A, line 11b, or Form 1040NR, line 16b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, line 16b, Form 1040A, line 12b, or Form 1040NR, line 17b) 2. 2011 1040a   3. 2011 1040a Subtract line 2 from line 1 3. 2011 1040a   4. 2011 1040a Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32 4. 2011 1040a   5. 2011 1040a Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 33 5. 2011 1040a   6. 2011 1040a Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 6. 2011 1040a   7. 2011 1040a Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 34 7. 2011 1040a   8. 2011 1040a Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8. 2011 1040a   9. 2011 1040a Enter any foreign housing deduction from Form 2555, line 50 9. 2011 1040a   10. 2011 1040a Enter any excludable qualified savings bond interest from Form 8815, line 14 10. 2011 1040a   11. 2011 1040a Enter any excluded employer-provided adoption benefits from Form 8839, line 28 11. 2011 1040a   12. 2011 1040a Add the amounts on lines 3 through 11 12. 2011 1040a   13. 2011 1040a Enter: $188,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $127,000 for all others 13. 2011 1040a   Is the amount on line 12 more than the amount on line 13? If yes, see the note below. 2011 1040a  If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes. 2011 1040a       Note. 2011 1040a If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. 2011 1040a (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI. 2011 1040a ) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. 2011 1040a If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above. 2011 1040a Roth IRAs only. 2011 1040a   If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation. 2011 1040a   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced . 2011 1040a Roth IRAs and traditional IRAs. 2011 1040a   If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. 2011 1040a Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit. 2011 1040a   This means that your contribution limit is the lesser of: $5,500 ($6,500 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs. 2011 1040a   However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained below under Contribution limit reduced . 2011 1040a   Simplified employee pensions (SEPs) are discussed in Publication 560. 2011 1040a Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3. 2011 1040a Repayment of reservist distributions. 2011 1040a   You can repay qualified reservist distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. 2011 1040a However, the total repayments cannot be more than the amount of your distribution. 2011 1040a Note. 2011 1040a If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. 2011 1040a For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1. 2011 1040a Contribution limit reduced. 2011 1040a   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. 2011 1040a Use Table 2-1, later, to determine if this reduction applies to you. 2011 1040a Table 2-1. 2011 1040a Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI). 2011 1040a IF you have taxable compensation and your filing status is . 2011 1040a . 2011 1040a . 2011 1040a AND your modified AGI is . 2011 1040a . 2011 1040a . 2011 1040a THEN . 2011 1040a . 2011 1040a . 2011 1040a married filing jointly or  qualifying widow(er) less than $178,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . 2011 1040a at least $178,000 but less than $188,000 the amount you can contribute is reduced as explained under Contribution limit reduced . 2011 1040a $188,000 or more you cannot contribute to a Roth IRA. 2011 1040a married filing separately and you lived with your spouse at any time during the year zero (-0-) you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . 2011 1040a more than zero (-0-) but less than $10,000 the amount you can contribute is reduced as explained under Contribution limit reduced . 2011 1040a $10,000 or more you cannot contribute to a Roth IRA. 2011 1040a single, head of household,  or married filing separately and you did not live with your spouse at any time during the year less than $112,000 you can contribute up to $5,500 ($6,500 if you are age 50 or older) as explained under How Much Can Be Contributed . 2011 1040a at least $112,000 but less than $127,000 the amount you can contribute is reduced as explained under Contribution limit reduced . 2011 1040a $127,000 or more you cannot contribute to a Roth IRA. 2011 1040a Figuring the reduction. 2011 1040a   If the amount you can contribute must be reduced, use Worksheet 2-2, later, to figure your reduced contribution limit. 2011 1040a Worksheet 2-2. 2011 1040a Determining Your Reduced Roth IRA Contribution Limit Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. 2011 1040a If it is, use this worksheet to determine how much it is reduced. 2011 1040a 1. 2011 1040a Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. 2011 1040a   2. 2011 1040a Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. 2011 1040a   3. 2011 1040a Subtract line 2 from line 1 3. 2011 1040a   4. 2011 1040a Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. 2011 1040a   5. 2011 1040a Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). 2011 1040a If the result is 1. 2011 1040a 000 or more, enter 1. 2011 1040a 000 5. 2011 1040a   6. 2011 1040a Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. 2011 1040a   7. 2011 1040a Multiply line 5 by line 6 7. 2011 1040a   8. 2011 1040a Subtract line 7 from line 6. 2011 1040a Round the result up to the nearest $10. 2011 1040a If the result is less than $200, enter $200 8. 2011 1040a   9. 2011 1040a Enter contributions for the year to other IRAs 9. 2011 1040a   10. 2011 1040a Subtract line 9 from line 6 10. 2011 1040a   11. 2011 1040a Enter the lesser of line 8 or line 10. 2011 1040a This is your reduced Roth IRA contribution limit 11. 2011 1040a      Round your reduced contribution limit up to the nearest $10. 2011 1040a If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200. 2011 1040a Example. 2011 1040a You are a 45-year-old, single individual with taxable compensation of $113,000. 2011 1040a You want to make the maximum allowable contribution to your Roth IRA for 2013. 2011 1040a Your modified AGI for 2013 is $113,000. 2011 1040a You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,500. 2011 1040a You figure your reduced Roth IRA contribution of $5,140 as shown on Worksheet 2-2. 2011 1040a Example—Illustrated, later. 2011 1040a   Worksheet 2-2. 2011 1040a Example—Illustrated Before using this worksheet, check Table 2-1, earlier, to determine whether or not your Roth IRA contribution limit is reduced. 2011 1040a If it is, use this worksheet to determine how much it is reduced. 2011 1040a 1. 2011 1040a Enter your modified AGI for Roth IRA purposes (Worksheet 2-1, line 12) 1. 2011 1040a 113,000 2. 2011 1040a Enter: $178,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2013, or $112,000 for all others 2. 2011 1040a 112,000 3. 2011 1040a Subtract line 2 from line 1 3. 2011 1040a 1,000 4. 2011 1040a Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others 4. 2011 1040a 15,000 5. 2011 1040a Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). 2011 1040a If the result is 1. 2011 1040a 000 or more, enter 1. 2011 1040a 000 5. 2011 1040a . 2011 1040a 067 6. 2011 1040a Enter the lesser of: $5,500 ($6,500 if you are age 50 or older), or Your taxable compensation 6. 2011 1040a 5,500 7. 2011 1040a Multiply line 5 by line 6 7. 2011 1040a 369 8. 2011 1040a Subtract line 7 from line 6. 2011 1040a Round the result up to the nearest $10. 2011 1040a If the result is less than $200, enter $200 8. 2011 1040a 5,140 9. 2011 1040a Enter contributions for the year to other IRAs 9. 2011 1040a 0 10. 2011 1040a Subtract line 9 from line 6 10. 2011 1040a 5,500 11. 2011 1040a Enter the lesser of line 8 or line 10. 2011 1040a This is your reduced Roth IRA contribution limit 11. 2011 1040a 5,140 When Can You Make Contributions? You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). 2011 1040a You can make contributions for 2013 by the due date (not including extensions) for filing your 2013 tax return. 2011 1040a This means that most people can make contributions for 2013 by April 15, 2014. 2011 1040a What if You Contribute Too Much? A 6% excise tax applies to any excess contribution to a Roth IRA. 2011 1040a Excess contributions. 2011 1040a   These are the contributions to your Roth IRAs for a year that equal the total of: Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed? ), plus Any excess contributions for the preceding year, reduced by the total of: Any distributions out of your Roth IRAs for the year, plus Your contribution limit for the year minus your contributions to all your IRAs for the year. 2011 1040a Withdrawal of excess contributions. 2011 1040a   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. 2011 1040a This treatment only applies if any earnings on the contributions are also withdrawn. 2011 1040a The earnings are considered earned and received in the year the excess contribution was made. 2011 1040a   If you timely filed your 2013 tax return without withdrawing a contribution that you made in 2013, you can still have the contribution returned to you within 6 months of the due date of your 2013 tax return, excluding extensions. 2011 1040a If you do, file an amended return with “Filed pursuant to section 301. 2011 1040a 9100-2” written at the top. 2011 1040a Report any related earnings on the amended return and include an explanation of the withdrawal. 2011 1040a Make any other necessary changes on the amended return. 2011 1040a Applying excess contributions. 2011 1040a    If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year. 2011 1040a Can You Move Amounts Into a Roth IRA? You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. 2011 1040a You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. 2011 1040a You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. 2011 1040a You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA. 2011 1040a Conversions You can convert a traditional IRA to a Roth IRA. 2011 1040a The conversion is treated as a rollover, regardless of the conversion method used. 2011 1040a Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. 2011 1040a However, the 1-year waiting period does not apply. 2011 1040a Conversion methods. 2011 1040a   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways. 2011 1040a Rollover. 2011 1040a You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution. 2011 1040a Trustee-to-trustee transfer. 2011 1040a You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA. 2011 1040a Same trustee transfer. 2011 1040a If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA. 2011 1040a Same trustee. 2011 1040a   Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract. 2011 1040a Income. 2011 1040a   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. 2011 1040a These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. 2011 1040a If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. 2011 1040a See Publication 505, Tax Withholding and Estimated Tax. 2011 1040a More information. 2011 1040a   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1. 2011 1040a Rollover From Employer's Plan Into a Roth IRA You can roll over into a Roth IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan); Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). 2011 1040a Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. 2011 1040a See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. 2011 1040a Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan. 2011 1040a Rollover methods. 2011 1040a   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways. 2011 1040a Rollover. 2011 1040a You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. 2011 1040a Since the distribution is paid directly to you, the payer generally must withhold 20% of it. 2011 1040a Direct rollover option. 2011 1040a Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. 2011 1040a Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA. 2011 1040a Rollover by nonspouse beneficiary. 2011 1040a   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a Roth IRA. 2011 1040a You must make the rollover by a direct trustee-to-trustee transfer into an inherited Roth IRA. 2011 1040a   You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. 2011 1040a For more information, see Distributions after the employee’s death under Tax on Excess Accumulation in Publication 575. 2011 1040a Income. 2011 1040a   You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. 2011 1040a You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid. 2011 1040a These amounts are normally included in income on your return for the year of the rollover from the qualified employer plan to a Roth IRA. 2011 1040a If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. 2011 1040a See Publication 505, Tax Withholding and Estimated Tax. 2011 1040a For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1. 2011 1040a Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. 2011 1040a The contribution is treated as a qualified rollover contribution. 2011 1040a The amount you can roll over to your Roth IRA cannot exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. 2011 1040a Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers. 2011 1040a The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. 2011 1040a The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. 2011 1040a Rollover From a Roth IRA You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. 2011 1040a Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. 2011 1040a However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers. 2011 1040a A rollover from a Roth IRA to an employer retirement plan is not allowed. 2011 1040a A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA. 2011 1040a If you roll over an amount from one Roth IRA to another Roth IRA, the 5-year period used to determine qualified distributions does not change. 2011 1040a The 5-year period begins with the first taxable year for which the contribution was made to the initial Roth IRA. 2011 1040a See What are Qualified Distributions , later. 2011 1040a Rollover of Exxon Valdez Settlement Income If you are a qualified taxpayer (defined in chapter 1, earlier) and you received qualified settlement income (defined in chapter 1, earlier), you can contribute all or part of the amount received to an eligible retirement plan which includes a Roth IRA. 2011 1040a The rules for contributing qualified settlement income to a Roth IRA are the same as the rules for contributing qualified settlement income to a traditional IRA with the following exception. 2011 1040a Qualified settlement income that is contributed to a Roth IRA, or to a designated Roth account, will be: Included in your taxable income for the year the qualified settlement income was received, and Treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed. 2011 1040a For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1. 2011 1040a Rollover of Airline Payments If you are a qualified airline employee (defined next), you may contribute any portion of an airline payment (defined below) you receive to a Roth IRA. 2011 1040a The contribution must be made within 180 days from the date you received the payment. 2011 1040a The contribution will be treated as a qualified rollover contribution. 2011 1040a The rollover contribution is included in income to the extent it would be included in income if it were not part of the rollover contribution. 2011 1040a Also, any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can contribute to your Roth IRA. 2011 1040a Qualified airline employee. 2011 1040a    A current or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier which was terminated or became subject to restrictions under Section 402(b) of the Pension Protection Act of 2006. 2011 1040a These provisions also apply to surviving spouses of qualified airline employees. 2011 1040a Airline payment. 2011 1040a    An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. 2011 1040a The payment also must be made both: Under the approval of an order of federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and In respect of the qualified airline employee’s interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount. 2011 1040a Any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can roll over to your traditional IRA. 2011 1040a Also, an airline payment shall not include any amount payable on the basis of the airline carrier’s future earnings or profits. 2011 1040a Are Distributions Taxable? You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). 2011 1040a You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. 2011 1040a You may have to include part of other distributions in your income. 2011 1040a See Ordering Rules for Distributions , later. 2011 1040a Basis of distributed property. 2011 1040a   The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution. 2011 1040a Withdrawals of contributions by due date. 2011 1040a   If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. 2011 1040a If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. 2011 1040a The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions. 2011 1040a What Are Qualified Distributions? A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements. 2011 1040a It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and The payment or distribution is: Made on or after the date you reach age 59½, Made because you are disabled (defined earlier), Made to a beneficiary or to your estate after your death, or One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit). 2011 1040a Additional Tax on Early Distributions If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs. 2011 1040a Distributions of conversion and certain rollover contributions within 5-year period. 2011 1040a   If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. 2011 1040a You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). 2011 1040a A separate 5-year period applies to each conversion and rollover. 2011 1040a See Ordering Rules for Distributions , later, to determine the recapture amount, if any. 2011 1040a   The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. 2011 1040a See What Are Qualified Distributions , earlier. 2011 1040a   For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2013, and makes a regular contribution for 2012 on the same date, the 5-year period for the conversion begins January 1, 2013, while the 5-year period for the regular contribution begins on January 1, 2012. 2011 1040a   Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover. 2011 1040a   You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. 2011 1040a You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions. 2011 1040a Other early distributions. 2011 1040a   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions. 2011 1040a Exceptions. 2011 1040a   You may not have to pay the 10% additional tax in the following situations. 2011 1040a You have reached age 59½. 2011 1040a You are totally and permanently disabled. 2011 1040a You are the beneficiary of a deceased IRA owner. 2011 1040a You use the distribution to buy, build, or rebuild a first home. 2011 1040a The distributions are part of a series of substantially equal payments. 2011 1040a You have unreimbursed medical expenses that are more than 10% (or 7. 2011 1040a 5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year. 2011 1040a You are paying medical insurance premiums during a period of unemployment. 2011 1040a The distributions are not more than your qualified higher education expenses. 2011 1040a The distribution is due to an IRS levy of the qualified plan. 2011 1040a The distribution is a qualified reservist distribution. 2011 1040a Most of these exceptions are discussed earlier in chapter 1 under Early Distributions . 2011 1040a Please click here for the text description of the image. 2011 1040a Is Roth Distributions a Qualified Distribution? Ordering Rules for Distributions If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. 2011 1040a There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. 2011 1040a For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much ). 2011 1040a Order the distributions as follows. 2011 1040a Regular contributions. 2011 1040a Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). 2011 1040a See Aggregation (grouping and adding) rules, later. 2011 1040a Take these conversion and rollover contributions into account as follows: Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the Nontaxable portion. 2011 1040a Earnings on contributions. 2011 1040a Disregard rollover contributions from other Roth IRAs for this purpose. 2011 1040a Aggregation (grouping and adding) rules. 2011 1040a   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows. 2011 1040a Add all distributions from all your Roth IRAs during the year together. 2011 1040a Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. 2011 1040a Add this total to the total undistributed regular contributions made in prior years. 2011 1040a Add all conversion and rollover contributions made during the year together. 2011 1040a For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2013 and the conversion or rollover contribution is made in 2014, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2014. 2011 1040a Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA. 2011 1040a   Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. 2011 1040a Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose. 2011 1040a Example. 2011 1040a On October 15, 2009, Justin converted all $80,000 in his traditional IRA to his Roth IRA. 2011 1040a His Forms 8606 from prior years show that $20,000 of the amount converted is his basis. 2011 1040a Justin included $60,000 ($80,000 − $20,000) in his gross income. 2011 1040a On February 23, 2013, Justin made a regular contribution of $5,000 to a Roth IRA. 2011 1040a On November 8, 2013, at age 60, Justin took a $7,000 distribution from his Roth IRA. 2011 1040a The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income. 2011 1040a The next $2,000 of the distribution is not includible in income because it was included previously. 2011 1040a Figuring your recapture amount. 2011 1040a   If you had an early distribution from your Roth IRAs in 2013, you must allocate the early distribution by using the Recapture Amount—Allocation Chart, later. 2011 1040a Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19   Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. 2011 1040a   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). 2011 1040a The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. 2011 1040a Note. 2011 1040a Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. 2011 1040a See the Example , earlier. 2011 1040a Tax Year Your Form 2013 Form 8606, line 20   Form 8606, line 22   1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18   Form 8606, line 17   2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. 2011 1040a  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. 2011 1040a Amount to include on Form 5329, line 1. 2011 1040a   Include on line 1 of your 2013 Form 5329 the following four amounts from the Recapture Amount—Allocation Chart that you filled out. 2011 1040a The amount you allocated to line 20 of your 2013 Form 8606. 2011 1040a The amount(s) allocated to your 2009 through 2013 Forms 8606, line 18, and your 2010 Form 8606, line 23. 2011 1040a The amount(s) allocated to your 2009, 2011, 2012, and 2013 Forms 1040, line 16b; Forms 1040A, line 12b; and Forms 1040NR, line 17b. 2011 1040a The amount from your 2013 Form 8606, line 25. 2011 1040a   Also, include any amount you allocated to line 20 of your 2013 Form 8606 on your 2013 Form 5329, line 2, and enter exception number 09. 2011 1040a Example. 2011 1040a Ishmael, age 32, opened a Roth IRA in 2000. 2011 1040a He made the maximum contributions to it every year. 2011 1040a In addition, he made the following transactions into his Roth IRA. 2011 1040a In 2005, he converted $10,000 from his traditional IRA into his Roth IRA. 2011 1040a He filled out a 2005 Form 8606 and attached it with his 2005 Form 1040. 2011 1040a He entered $0 on line 17 of Form 8606 because he took a deduction for all the contributions to the traditional IRA, therefore he has no basis. 2011 1040a He entered $10,000 on line 18 of Form 8606. 2011 1040a In 2011, he rolled over the entire balance of his qualified retirement plan, $20,000, into a Roth IRA when he changed jobs. 2011 1040a He used a 2011 Form 1040 to file his taxes. 2011 1040a He entered $20,000 on line 16a of Form 1040 because that was the amount reported in box 1 of his 2011 Form 1099-R. 2011 1040a Box 5 of his 2011 Form 1099-R reported $0 since he did not make any after-tax contributions to the qualified retirement plan. 2011 1040a He entered $20,000 on line 16b of Form 1040 since that is the taxable amount that was rolled over in 2011. 2011 1040a The total balance in his Roth IRA as of January 1, 2013 was $105,000 ($50,000 in contributions from 2000 through 2012 + $10,000 from the 2005 conversion + $20,000 from the 2011 rollover + $25,000 from earnings). 2011 1040a He has not taken any early distribution from his Roth IRA before 2013. 2011 1040a In 2013, he made the maximum contribution of $5,500 to his Roth IRA. 2011 1040a In August of 2013, he took a $85,500 early distribution from his Roth IRA to use as a down payment on the purchase of his first home. 2011 1040a See his filled out Illustrated Recapture Amount—Allocation Chart, later, to see how he allocated the amounts from the above transactions. 2011 1040a Based on his allocation, he would enter $20,000 on his 2013 Form 5329, line 1 (see Amount to include on Form 5329, line 1 , above). 2011 1040a He should also report $10,000 on his 2013 Form 5329, line 2, and enter exception 09 since that amount is not subject to the 10% additional tax on early distributions. 2011 1040a Illustrated Recapture Amount—Allocation Chart Enter the amount from your 2013 Form 8606, line 19 $85,500 Before you begin: You will need your prior year Form(s) 8606 and income tax return(s) if you entered an amount on any line(s) as indicated below. 2011 1040a   You will now allocate the amount you entered above (2013 Form 8606, line 19) in the order shown, to the amounts on the lines listed below (to the extent a prior year distribution was not allocable to the amount). 2011 1040a The maximum amount you can enter on each line below is the amount entered on the referenced lines of the form for that year. 2011 1040a Note. 2011 1040a Once you have allocated the full amount from your 2013 Form 8606, line 19, STOP. 2011 1040a See the Example , earlier. 2011 1040a Tax Year Your Form 2013 Form 8606, line 20 $10,000 Form 8606, line 22 $55,500 1998 Form 8606, line 16   Form 8606, line 15   1999 Form 8606, line 16   Form 8606, line 15   2000 Form 8606, line 16   Form 8606, line 15   2001 Form 8606, line 18   Form 8606, line 17   2002 Form 8606, line 18   Form 8606, line 17   2003 Form 8606, line 18   Form 8606, line 17   2004 Form 8606, line 18   Form 8606, line 17   2005 Form 8606, line 18 $10,000 Form 8606, line 17 $-0- 2006 Form 8606, line 18   Form 8606, line 17   2007 Form 8606, line 18   Form 8606, line 17   2008 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2009 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2010 Form 8606, lines 18 and 23   Form 8606, lines 17 and 22   2011 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b* $10,000 Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2012 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 18  and  Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b*   Form 8606, line 17  and  Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a**   2013 Form 8606, line 25       *Only include those amounts rolled over to a Roth IRA. 2011 1040a  **Only include any contributions (usually Form 1099-R, box 5) that were taxable to you when made and rolled over to a Roth IRA. 2011 1040a How Do You Figure the Taxable Part? To figure the taxable part of a distribution that is not a qualified distribution, complete Form 8606, Part III. 2011 1040a Must You Withdraw or Use Assets? You are not required to take distributions from your Roth IRA at any age. 2011 1040a The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. 2011 1040a However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death . 2011 1040a Minimum distributions. 2011 1040a   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. 2011 1040a Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. 2011 1040a See Distributions to beneficiaries , later. 2011 1040a Recognizing Losses on Investments If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. 2011 1040a Your basis is the total amount of contributions in your Roth IRAs. 2011 1040a You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A (Form 1040). 2011 1040a Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax. 2011 1040a Distributions After Owner's Death If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. 2011 1040a See When Can You Withdraw or Use Assets? in chapter 1. 2011 1040a Distributions to beneficiaries. 2011 1040a   Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. 2011 1040a (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. 2011 1040a )   If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. 2011 1040a Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent. 2011 1040a   If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½ or treat the Roth IRA as his or her own. 2011 1040a Combining with other Roth IRAs. 2011 1040a   A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either: Inherited the other Roth IRA from the same decedent, or Was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA. 2011 1040a Distributions that are not qualified distributions. 2011 1040a   If a distribution to a beneficiary is not a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive. 2011 1040a   If the owner of a Roth IRA dies before the end of: The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA, each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. 2011 1040a See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable. 2011 1040a Example. 2011 1040a When Ms. 2011 1040a Hibbard died in 2013, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2009, and earnings of $2,000. 2011 1040a No distributions had been made from her IRA. 2011 1040a She had no basis in the conversion contribution in 2009. 2011 1040a When she established this Roth IRA (her first) in 2009, she named each of her four children as equal beneficiaries. 2011 1040a Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. 2011 1040a An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings. 2011 1040a In this case, because the distributions are made before the end of the applicable 5-year period for a qualified distribution, each beneficiary includes $500 in income for 2013. 2011 1040a The 10% additional tax on early distributions does not apply because the distribution was made to the beneficiaries as a result of the death of the IRA owner. 2011 1040a If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. 2011 1040a For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. 2011 1040a If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion. 2011 1040a Prev  Up  Next   Home   More Online Publications
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The 2011 1040a

2011 1040a 3. 2011 1040a   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. 2011 1040a Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. 2011 1040a Certain contracts held by a charitable remainder trust. 2011 1040a Excise Taxes. 2011 1040a Indoor tanning services. 2011 1040a Application for Recognition of ExemptionPolitical activity. 2011 1040a Private delivery service. 2011 1040a Amendments to organizing documents required. 2011 1040a How to show reasonable action and good faith. 2011 1040a Not acting reasonably and in good faith. 2011 1040a Prejudicing the interest of the Government. 2011 1040a Procedure for requesting extension. 2011 1040a More information. 2011 1040a Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. 2011 1040a Grass roots expenditures. 2011 1040a Lobbying nontaxable amount. 2011 1040a Grass roots nontaxable amount. 2011 1040a Organization that no longer qualifies. 2011 1040a Tax on organization. 2011 1040a Tax on managers. 2011 1040a Taxes on organizations. 2011 1040a Taxes on managers. 2011 1040a Political expenditures. 2011 1040a Correction of expenditure. 2011 1040a Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. 2011 1040a Religious. 2011 1040a Charitable. 2011 1040a Scientific. 2011 1040a Testing for public safety. 2011 1040a Literary. 2011 1040a Educational. 2011 1040a Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). 2011 1040a The prevention of cruelty to children or animals. 2011 1040a To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. 2011 1040a A trust is a fund or foundation and will qualify. 2011 1040a However, an individual or a partnership will not qualify. 2011 1040a Examples. 2011 1040a   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. 2011 1040a Child care organizations. 2011 1040a   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. 2011 1040a Instrumentalities. 2011 1040a   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). 2011 1040a Examples of a qualifying instrumentality might include state schools, universities, or hospitals. 2011 1040a However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. 2011 1040a A state or municipality itself does not qualify for exemption. 2011 1040a Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. 2011 1040a Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. 2011 1040a Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. 2011 1040a Fundraising events. 2011 1040a   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. 2011 1040a This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. 2011 1040a   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. 2011 1040a If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. 2011 1040a You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. 2011 1040a See Disclosure of Quid Pro Quo Contributions in chapter 2. 2011 1040a Exemption application not filed. 2011 1040a   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. 2011 1040a Separate fund—contributions that are deductible. 2011 1040a   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. 2011 1040a   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. 2011 1040a A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. 2011 1040a Personal benefit contracts. 2011 1040a   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. 2011 1040a   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. 2011 1040a Certain annuity contracts. 2011 1040a   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). 2011 1040a Certain contracts held by a charitable remainder trust. 2011 1040a   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. 2011 1040a Excise tax. 2011 1040a   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. 2011 1040a The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. 2011 1040a Excise Taxes. 2011 1040a   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. 2011 1040a Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. 2011 1040a Indoor tanning services. 2011 1040a   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. 2011 1040a For more information, go to IRS. 2011 1040a gov and select Affordable Care Act Tax Provisions. 2011 1040a Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. 2011 1040a For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. 2011 1040a See the organization headings that follow for specific information your organization may need to provide. 2011 1040a Form 1023. 2011 1040a   Your organization must file its application for recognition of exemption on Form 1023. 2011 1040a See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. 2011 1040a Some organizations are not required to file Form 1023. 2011 1040a See Organizations Not Required To File Form 1023, later. 2011 1040a    Additional information to help you complete your application can be found online. 2011 1040a Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. 2011 1040a See Exemption Requirements - Section 501(c)(3) Organizations. 2011 1040a   Form 1023 and accompanying statements must show that all of the following are true. 2011 1040a The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. 2011 1040a ) specified in the introduction to this chapter. 2011 1040a No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. 2011 1040a You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. 2011 1040a The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. 2011 1040a See Political activity, next, and Lobbying Expenditures , near the end of this chapter. 2011 1040a Political activity. 2011 1040a   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). 2011 1040a Such participation or intervention includes the publishing or distributing of statements. 2011 1040a   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. 2011 1040a Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. 2011 1040a Effective date of exemption. 2011 1040a   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. 2011 1040a These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. 2011 1040a If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. 2011 1040a Otherwise, exemption will be recognized only from the date of receipt. 2011 1040a The date of receipt is the date of the U. 2011 1040a S. 2011 1040a postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. 2011 1040a Private delivery service. 2011 1040a   If a private delivery service designated by the IRS, rather than the U. 2011 1040a S. 2011 1040a Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. 2011 1040a The following private delivery services have been designated by the IRS. 2011 1040a DHL Express (DHL): DHL “Same Day” Service. 2011 1040a Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. 2011 1040a United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 2011 1040a M. 2011 1040a , UPS Worldwide Express Plus, and UPS Worldwide Express. 2011 1040a Amendments to organizing documents required. 2011 1040a   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. 2011 1040a If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. 2011 1040a Extensions of time for filing. 2011 1040a   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. 2011 1040a Automatic 12-month extension. 2011 1040a Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. 2011 1040a To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. 2011 1040a 9100-2. 2011 1040a ” Discretionary extensions. 2011 1040a An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. 2011 1040a How to show reasonable action and good faith. 2011 1040a   An organization acted reasonably and showed good faith if at least one of the following is true. 2011 1040a The organization requests relief before its failure to file is discovered by the IRS. 2011 1040a The organization failed to file because of intervening events beyond its control. 2011 1040a The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. 2011 1040a The organization reasonably relied upon the written advice of the IRS. 2011 1040a The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. 2011 1040a An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. 2011 1040a Not acting reasonably and in good faith. 2011 1040a   An organization has not acted reasonably and in good faith under the following circumstances. 2011 1040a It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. 2011 1040a It was informed of the requirement to file and related tax consequences, but chose not to file. 2011 1040a It uses hindsight in requesting relief. 2011 1040a The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. 2011 1040a Prejudicing the interest of the Government. 2011 1040a   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. 2011 1040a Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. 2011 1040a The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. 2011 1040a The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. 2011 1040a Procedure for requesting extension. 2011 1040a   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. 2011 1040a A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. 2011 1040a Any documents relevant to the application. 2011 1040a An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. 2011 1040a If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. 2011 1040a This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. 2011 1040a ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. 2011 1040a This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. 2011 1040a The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. 2011 1040a These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. 2011 1040a ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. 2011 1040a The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. 2011 1040a The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. 2011 1040a   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. 2011 1040a Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. 2011 1040a More information. 2011 1040a   For more information about these procedures, see Regulations sections 301. 2011 1040a 9100-1, 301. 2011 1040a 9100-2, 301. 2011 1040a 9100-3, Revenue Procedure 2013-4, section 6. 2011 1040a 04, 2013-1 I. 2011 1040a R. 2011 1040a B. 2011 1040a 126, and Revenue Procedure 2013-8, 2013-1 I. 2011 1040a R. 2011 1040a B. 2011 1040a 237. 2011 1040a See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. 2011 1040a Notification from the IRS. 2011 1040a   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. 2011 1040a Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. 2011 1040a These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. 2011 1040a Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). 2011 1040a These organizations are exempt automatically if they meet the requirements of section 501(c)(3). 2011 1040a Filing Form 1023 to establish exemption. 2011 1040a   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. 2011 1040a By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. 2011 1040a A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. 2011 1040a Private foundations. 2011 1040a   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. 2011 1040a Gross receipts test. 2011 1040a   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. 2011 1040a   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. 2011 1040a For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. 2011 1040a The organization must file Form 1023 within 90 days after the end of its second tax year. 2011 1040a   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. 2011 1040a However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. 2011 1040a Example. 2011 1040a   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. 2011 1040a It was incorporated on January 1, 2009, and files returns on a calendar-year basis. 2011 1040a It did not file a Form 1023. 2011 1040a The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. 2011 1040a Therefore, it did not have to file Form 1023 and is exempt for those years. 2011 1040a However, for 2010, 2011, and 2012 the total gross receipts were $15,900. 2011 1040a Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. 2011 1040a If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. 2011 1040a The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. 2011 1040a   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. 2011 1040a See the procedures for this extension discussed earlier. 2011 1040a Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. 2011 1040a This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. 2011 1040a Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. 2011 1040a These conditions for exemption are referred to as the organizational test. 2011 1040a Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. 2011 1040a Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). 2011 1040a The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. 2011 1040a Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. 2011 1040a Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. 2011 1040a In interpreting an organization's articles, the law of the state where the organization was created is controlling. 2011 1040a If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. 2011 1040a The following are examples illustrating the organizational test. 2011 1040a Example 1. 2011 1040a Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). 2011 1040a These articles appropriately limit the organization's purposes. 2011 1040a The organization meets the organizational test. 2011 1040a Example 2. 2011 1040a An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. 2011 1040a The organization will not be properly limited as to its purposes since all research is not scientific. 2011 1040a The organization does not meet the organizational test. 2011 1040a Example 3. 2011 1040a An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). 2011 1040a The organization meets the organizational test. 2011 1040a Example 4. 2011 1040a If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. 2011 1040a Example 5. 2011 1040a If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. 2011 1040a On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. 2011 1040a Example 6. 2011 1040a If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. 2011 1040a Such purposes are vague and may be accomplished other than in an exempt manner. 2011 1040a Example 7. 2011 1040a A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. 2011 1040a A hospital may or may not be exempt depending on the manner in which it is operated. 2011 1040a Example 8. 2011 1040a An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. 2011 1040a Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. 2011 1040a This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. 2011 1040a If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. 2011 1040a Dedication. 2011 1040a   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. 2011 1040a Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. 2011 1040a Distribution. 2011 1040a   Revenue Procedure 82-2, 1982-1 C. 2011 1040a B. 2011 1040a 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. 2011 1040a The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. 2011 1040a   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. 2011 1040a Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. 2011 1040a Sample articles of organization. 2011 1040a   See sample articles of organization in the Appendix in the back of this publication. 2011 1040a Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. 2011 1040a In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. 2011 1040a You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. 2011 1040a If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. 2011 1040a See also Private Schools , discussed later. 2011 1040a Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. 2011 1040a Advocacy of a position. 2011 1040a   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. 2011 1040a The mere presentation of unsupported opinion is not educational. 2011 1040a Method not educational. 2011 1040a   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). 2011 1040a The following factors may indicate that the method is not educational. 2011 1040a The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. 2011 1040a The facts that purport to support the viewpoint are distorted. 2011 1040a The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. 2011 1040a The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. 2011 1040a   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. 2011 1040a Qualifying organizations. 2011 1040a   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. 2011 1040a College book stores, cafeterias, restaurants, etc. 2011 1040a   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. 2011 1040a Alumni association. 2011 1040a   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. 2011 1040a If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . 2011 1040a Athletic organization. 2011 1040a   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. 2011 1040a If it is not so engaged, your organization may be exempt as a social club described in chapter 4. 2011 1040a Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. 2011 1040a If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. 2011 1040a Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. 2011 1040a The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. 2011 1040a (This information also must be projected, so far as may be feasible, for the next academic year. 2011 1040a ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. 2011 1040a A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. 2011 1040a A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. 2011 1040a The public school district and county in which the school is located. 2011 1040a How to determine racial composition. 2011 1040a   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. 2011 1040a Nevertheless, a statement of the method by which the racial composition was determined must be supplied. 2011 1040a The identity of individual students or members of the faculty and administrative staff should not be included with this information. 2011 1040a   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. 2011 1040a Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. 2011 1040a Also, the school must circulate information that clearly states the school's admission policies. 2011 1040a A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. 2011 1040a The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. 2011 1040a The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. 2011 1040a Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. 2011 1040a A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. 2011 1040a A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. 2011 1040a Policy statement. 2011 1040a   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. 2011 1040a Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. 2011 1040a Publicity requirement. 2011 1040a   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. 2011 1040a Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. 2011 1040a To satisfy this requirement, the school must use one of the following two methods. 2011 1040a Method one. 2011 1040a   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. 2011 1040a Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. 2011 1040a When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. 2011 1040a If this method is used, the notice must meet the following printing requirements. 2011 1040a It must appear in a section of the newspaper likely to be read by prospective students and their families. 2011 1040a It must occupy at least 3 column inches. 2011 1040a It must have its title printed in at least 12 point bold face type. 2011 1040a It must have the remaining text printed in at least 8 point type. 2011 1040a The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. 2011 1040a It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. 2011 1040a   Method two. 2011 1040a   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. 2011 1040a If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. 2011 1040a In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. 2011 1040a The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. 2011 1040a Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. 2011 1040a Exceptions. 2011 1040a   The publicity requirements will not apply in the following situations. 2011 1040a First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. 2011 1040a These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. 2011 1040a If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. 2011 1040a Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . 2011 1040a   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. 2011 1040a The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. 2011 1040a   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. 2011 1040a Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. 2011 1040a   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. 2011 1040a The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. 2011 1040a In this regard, it is each school's responsibility to determine whether either of the exceptions applies. 2011 1040a Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. 2011 1040a Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. 2011 1040a Facilities and programs. 2011 1040a   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. 2011 1040a Scholarship and loan programs. 2011 1040a   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. 2011 1040a This must be known throughout the general community being served by the school and should be referred to in its publicity. 2011 1040a Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. 2011 1040a Certification. 2011 1040a   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. 2011 1040a   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. 2011 1040a Recordkeeping requirements. 2011 1040a With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. 2011 1040a Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. 2011 1040a Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. 2011 1040a Copies of all materials used by or on behalf of the school to solicit contributions. 2011 1040a Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. 2011 1040a (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. 2011 1040a ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. 2011 1040a However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. 2011 1040a The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. 2011 1040a Similarly, the IRS does not require a school to keep records prohibited under state or federal law. 2011 1040a Exceptions. 2011 1040a   The school does not have to independently maintain these records for IRS use if both of the following are true. 2011 1040a Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. 2011 1040a The school maintains copies of these reports from which this information is readily obtainable. 2011 1040a If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. 2011 1040a Failure to maintain records. 2011 1040a   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. 2011 1040a Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. 2011 1040a However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. 2011 1040a Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). 2011 1040a Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. 2011 1040a Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. 2011 1040a Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. 2011 1040a The rest of this section contains a description of the information to be provided by certain specific organizations. 2011 1040a This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. 2011 1040a Each of the following organizations must submit the information described. 2011 1040a Charitable organization supporting education. 2011 1040a   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. 2011 1040a Scholarships. 2011 1040a   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. 2011 1040a Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. 2011 1040a How and by whom the recipients are or will be selected. 2011 1040a If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. 2011 1040a If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. 2011 1040a A copy of the scholarship application form and any brochures or literature describing the scholarship program. 2011 1040a Hospital. 2011 1040a   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. 2011 1040a   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. 2011 1040a You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. 2011 1040a Submit also an appraisal showing the fair rental value of the rented space. 2011 1040a Clinic. 2011 1040a   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. 2011 1040a Home for the aged. 2011 1040a   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. 2011 1040a Community nursing bureau. 2011 1040a   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. 2011 1040a Organization providing loans. 2011 1040a   If you make, or will make, loans for charitable and educational purposes, submit the following information. 2011 1040a An explanation of the circumstances under which such loans are, or will be, made. 2011 1040a Criteria for selection, including the rules of eligibility. 2011 1040a How and by whom the recipients are or will be selected. 2011 1040a Manner of repayment of the loan. 2011 1040a Security required, if any. 2011 1040a Interest charged, if any, and when payable. 2011 1040a Copies in duplicate of the loan application and any brochures or literature describing the loan program. 2011 1040a Public-interest law firms. 2011 1040a   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. 2011 1040a How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. 2011 1040a Whether the organization will accept fees for its services. 2011 1040a A description of the cases litigated or to be litigated and how they benefit the public generally. 2011 1040a Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. 2011 1040a Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. 2011 1040a Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. 2011 1040a Acceptance of attorneys' fees. 2011 1040a   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. 2011 1040a Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. 2011 1040a   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. 2011 1040a All fee awards must be paid to the organization and not to its individual staff attorneys. 2011 1040a Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. 2011 1040a Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. 2011 1040a   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. 2011 1040a   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. 2011 1040a Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. 2011 1040a That the particular religious beliefs of the organization are truly and sincerely held. 2011 1040a That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. 2011 1040a Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. 2011 1040a If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. 2011 1040a Churches. 2011 1040a   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. 2011 1040a In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. 2011 1040a   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. 2011 1040a Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. 2011 1040a The IRS considers the facts and circumstances of each organization applying for church status. 2011 1040a Convention or association of churches. 2011 1040a   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. 2011 1040a Integrated auxiliaries. 2011 1040a   An organization is an integrated auxiliary of a church if all the following are true. 2011 1040a The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). 2011 1040a It is affiliated with a church or a convention or association of churches. 2011 1040a It is internally supported. 2011 1040a An organization is internally supported unless both of the following are true. 2011 1040a It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). 2011 1040a It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. 2011 1040a Special rule. 2011 1040a   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. 2011 1040a   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. 2011 1040a   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. 2011 1040a Scientific Organizations You must show that your organization's research will be carried on in the public interest. 2011 1040a Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. 2011 1040a Aiding in the scientific education of college or university students. 2011 1040a Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th