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2011 Income Taxes

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2011 Income Taxes

2011 income taxes Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. 2011 income taxes Employee-owners. 2011 income taxes Other rules. 2011 income taxes Other rules. 2011 income taxes Property Exchanged for StockNonqualified preferred stock. 2011 income taxes Liabilities. 2011 income taxes Election to reduce basis. 2011 income taxes Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. 2011 income taxes S. 2011 income taxes Real Property Interest Accounting MethodsSection 481(a) adjustment. 2011 income taxes Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. 2011 income taxes Business formed before 1997. 2011 income taxes   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. 2011 income taxes Business formed after 1996. 2011 income taxes   The following businesses formed after 1996 are taxed as corporations. 2011 income taxes A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. 2011 income taxes A business formed under a state law that refers to it as a joint-stock company or joint-stock association. 2011 income taxes An insurance company. 2011 income taxes Certain banks. 2011 income taxes A business wholly owned by a state or local government. 2011 income taxes A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 2011 income taxes Certain foreign businesses. 2011 income taxes Any other business that elects to be taxed as a corporation. 2011 income taxes For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. 2011 income taxes For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. 2011 income taxes S corporations. 2011 income taxes   Some corporations may meet the qualifications for electing to be S corporations. 2011 income taxes For information on S corporations, see the instructions for Form 1120S, U. 2011 income taxes S. 2011 income taxes Income Tax Return for an S Corporation. 2011 income taxes Personal service corporations. 2011 income taxes   A corporation is a personal service corporation if it meets all of the following requirements. 2011 income taxes Its principal activity during the “testing period” is performing personal services (defined later). 2011 income taxes Generally, the testing period for any tax year is the prior tax year. 2011 income taxes If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. 2011 income taxes Its employee-owners substantially perform the services in (1), above. 2011 income taxes This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. 2011 income taxes Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. 2011 income taxes Personal services. 2011 income taxes   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. 2011 income taxes Employee-owners. 2011 income taxes   A person is an employee-owner of a personal service corporation if both of the following apply. 2011 income taxes He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. 2011 income taxes He or she owns any stock in the corporation at any time during the testing period. 2011 income taxes Other rules. 2011 income taxes   For other rules that apply to personal service corporations see Accounting Periods, later. 2011 income taxes Closely held corporations. 2011 income taxes   A corporation is closely held if all of the following apply. 2011 income taxes It is not a personal service corporation. 2011 income taxes At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. 2011 income taxes “Individual” includes certain trusts and private foundations. 2011 income taxes Other rules. 2011 income taxes   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. 2011 income taxes Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. 2011 income taxes This rule applies both to individuals and to groups who transfer property to a corporation. 2011 income taxes It also applies whether the corporation is being formed or is already operating. 2011 income taxes It does not apply in the following situations. 2011 income taxes The corporation is an investment company. 2011 income taxes You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. 2011 income taxes The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. 2011 income taxes Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. 2011 income taxes For more information, see section 1. 2011 income taxes 351-3 of the Regulations. 2011 income taxes Control of a corporation. 2011 income taxes   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. 2011 income taxes Example 1. 2011 income taxes You and Bill Jones buy property for $100,000. 2011 income taxes You both organize a corporation when the property has a fair market value of $300,000. 2011 income taxes You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. 2011 income taxes No gain is recognized by you, Bill, or the corporation. 2011 income taxes Example 2. 2011 income taxes You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. 2011 income taxes This represents only 75% of each class of stock of the corporation. 2011 income taxes The other 25% was already issued to someone else. 2011 income taxes You and Bill recognize a taxable gain of $200,000 on the transaction. 2011 income taxes Services rendered. 2011 income taxes   The term property does not include services rendered or to be rendered to the issuing corporation. 2011 income taxes The value of stock received for services is income to the recipient. 2011 income taxes Example. 2011 income taxes You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. 2011 income taxes Right after the exchange, you own 85% of the outstanding stock. 2011 income taxes No gain is recognized on the exchange of property. 2011 income taxes However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. 2011 income taxes Property of relatively small value. 2011 income taxes   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. 2011 income taxes   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. 2011 income taxes Stock received in disproportion to property transferred. 2011 income taxes   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. 2011 income taxes If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. 2011 income taxes It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. 2011 income taxes Money or other property received. 2011 income taxes   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. 2011 income taxes You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. 2011 income taxes The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. 2011 income taxes If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. 2011 income taxes See chapter 3 of Publication 544. 2011 income taxes No loss is recognized. 2011 income taxes Nonqualified preferred stock. 2011 income taxes   Nonqualified preferred stock is treated as property other than stock. 2011 income taxes Generally, it is preferred stock with any of the following features. 2011 income taxes The holder has the right to require the issuer or a related person to redeem or buy the stock. 2011 income taxes The issuer or a related person is required to redeem or buy the stock. 2011 income taxes The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. 2011 income taxes The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. 2011 income taxes For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. 2011 income taxes Liabilities. 2011 income taxes   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. 2011 income taxes There are two exceptions to this treatment. 2011 income taxes If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. 2011 income taxes However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. 2011 income taxes If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. 2011 income taxes For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. 2011 income taxes Example. 2011 income taxes You transfer property to a corporation for stock. 2011 income taxes Immediately after the transfer, you control the corporation. 2011 income taxes You also receive $10,000 in the exchange. 2011 income taxes Your adjusted basis in the transferred property is $20,000. 2011 income taxes The stock you receive has a fair market value (FMV) of $16,000. 2011 income taxes The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. 2011 income taxes Gain is realized as follows. 2011 income taxes FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. 2011 income taxes The recognized gain is limited to $10,000, the cash received. 2011 income taxes Loss on exchange. 2011 income taxes   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. 2011 income taxes For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 2011 income taxes Basis of stock or other property received. 2011 income taxes   The basis of the stock you receive is generally the adjusted basis of the property you transfer. 2011 income taxes Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. 2011 income taxes Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. 2011 income taxes Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. 2011 income taxes    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. 2011 income taxes This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. 2011 income taxes The basis of any other property you receive is its fair market value on the date of the trade. 2011 income taxes Basis of property transferred. 2011 income taxes   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. 2011 income taxes However, the increase for the gain recognized may be limited. 2011 income taxes For more information, see section 362 of the Internal Revenue Code. 2011 income taxes Election to reduce basis. 2011 income taxes   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. 2011 income taxes The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. 2011 income taxes However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. 2011 income taxes R. 2011 income taxes B. 2011 income taxes 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. 2011 income taxes    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. 2011 income taxes Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. 2011 income taxes Paid-in capital. 2011 income taxes   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. 2011 income taxes These contributions are not taxable to the corporation. 2011 income taxes Basis. 2011 income taxes   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. 2011 income taxes However, the increase for the gain recognized may be limited. 2011 income taxes For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. 2011 income taxes   The basis of property contributed to capital by a person other than a shareholder is zero. 2011 income taxes   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. 2011 income taxes If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. 2011 income taxes Depreciable property. 2011 income taxes Amortizable property. 2011 income taxes Property subject to cost depletion but not to percentage depletion. 2011 income taxes All other remaining properties. 2011 income taxes   Reduce the basis of property in each category to zero before going on to the next category. 2011 income taxes   There may be more than one piece of property in each category. 2011 income taxes Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. 2011 income taxes The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. 2011 income taxes Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. 2011 income taxes A corporation generally must make estimated tax payments as it earns or receives income during its tax year. 2011 income taxes After the end of the year, the corporation must file an income tax return. 2011 income taxes This section will help you determine when and how to pay and file corporate income taxes. 2011 income taxes For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. 2011 income taxes The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. 2011 income taxes For more information, visit www. 2011 income taxes irs. 2011 income taxes gov/newsroom/article/0,,id=108362. 2011 income taxes 00. 2011 income taxes Income Tax Return This section will help you determine when and how to report a corporation's income tax. 2011 income taxes Who must file. 2011 income taxes   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. 2011 income taxes Which form to file. 2011 income taxes   A corporation generally must file Form 1120, U. 2011 income taxes S. 2011 income taxes Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. 2011 income taxes Certain organizations and entities must file special returns. 2011 income taxes For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. 2011 income taxes Electronic filing. 2011 income taxes   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. 2011 income taxes Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. 2011 income taxes However, in certain instances, these corporations can request a waiver. 2011 income taxes For more information regarding electronic filing, visit www. 2011 income taxes irs. 2011 income taxes gov/efile. 2011 income taxes When to file. 2011 income taxes   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. 2011 income taxes A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. 2011 income taxes A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. 2011 income taxes Example 1. 2011 income taxes A corporation's tax year ends December 31. 2011 income taxes It must file its income tax return by March 15th. 2011 income taxes Example 2. 2011 income taxes A corporation's tax year ends June 30. 2011 income taxes It must file its income tax return by September 15th. 2011 income taxes   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. 2011 income taxes Extension of time to file. 2011 income taxes   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. 2011 income taxes The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. 2011 income taxes   Form 7004 does not extend the time for paying the tax due on the return. 2011 income taxes Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. 2011 income taxes The interest is figured from the original due date of the return to the date of payment. 2011 income taxes   For more information, see the instructions for Form 7004. 2011 income taxes How to pay your taxes. 2011 income taxes   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. 2011 income taxes Electronic Federal Tax Payment System (EFTPS). 2011 income taxes   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). 2011 income taxes For more information on EFTPS and enrollment, visit www. 2011 income taxes eftps. 2011 income taxes gov or call 1-800-555-4477. 2011 income taxes Also see Publication 966, The Secure Way to Pay Your Federal Taxes. 2011 income taxes Note. 2011 income taxes Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. 2011 income taxes Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. 2011 income taxes Do not attach an explanation when the corporation's return is filed. 2011 income taxes See the instructions for your income tax return. 2011 income taxes Late filing of return. 2011 income taxes    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. 2011 income taxes If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. 2011 income taxes The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. 2011 income taxes The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. 2011 income taxes Late payment of tax. 2011 income taxes    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. 2011 income taxes The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. 2011 income taxes Trust fund recovery penalty. 2011 income taxes   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. 2011 income taxes The penalty is the full amount of the unpaid trust fund tax. 2011 income taxes This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. 2011 income taxes   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. 2011 income taxes   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. 2011 income taxes A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. 2011 income taxes   Willfully means voluntarily, consciously, and intentionally. 2011 income taxes A responsible person acts willfully if the person knows the required actions are not taking place. 2011 income taxes   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. 2011 income taxes Other penalties. 2011 income taxes   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. 2011 income taxes See sections 6662, 6662A, and 6663 of the Internal Revenue Code. 2011 income taxes Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. 2011 income taxes If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. 2011 income taxes This section will explain how to avoid this penalty. 2011 income taxes When to pay estimated tax. 2011 income taxes   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 2011 income taxes Example 1. 2011 income taxes Your corporation's tax year ends December 31. 2011 income taxes Installment payments are due on April 15, June 15, September 15, and December 15. 2011 income taxes Example 2. 2011 income taxes Your corporation's tax year ends June 30. 2011 income taxes Installment payments are due on October 15, December 15, March 15, and June 15. 2011 income taxes   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. 2011 income taxes How to figure each required installment. 2011 income taxes   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. 2011 income taxes You will generally use one of the following two methods to figure each required installment. 2011 income taxes You should use the method that yields the smallest installment payments. 2011 income taxes Note. 2011 income taxes In these discussions, “return” generally refers to the corporation's original return. 2011 income taxes However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. 2011 income taxes Method 1. 2011 income taxes   Each required installment is 25% of the income tax the corporation will show on its return for the current year. 2011 income taxes Method 2. 2011 income taxes   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. 2011 income taxes   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). 2011 income taxes Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. 2011 income taxes   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. 2011 income taxes Other methods. 2011 income taxes   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. 2011 income taxes The annualized income installment method. 2011 income taxes The adjusted seasonal installment method. 2011 income taxes Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. 2011 income taxes Refiguring required installments. 2011 income taxes   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. 2011 income taxes An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. 2011 income taxes Underpayment penalty. 2011 income taxes   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. 2011 income taxes The penalty is figured separately for each installment due date. 2011 income taxes The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. 2011 income taxes This is true even if the corporation is due a refund when its return is filed. 2011 income taxes Form 2220. 2011 income taxes   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. 2011 income taxes   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. 2011 income taxes The amount of the underpayment. 2011 income taxes The period during which the underpayment was due and unpaid. 2011 income taxes The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. 2011 income taxes   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. 2011 income taxes However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. 2011 income taxes The annualized income installment method was used to figure any required installment. 2011 income taxes The adjusted seasonal installment method was used to figure any required installment. 2011 income taxes The corporation is a large corporation figuring its first required installment based on the prior year's tax. 2011 income taxes How to pay estimated tax. 2011 income taxes   A corporation is generally required to use EFTPS to pay its taxes. 2011 income taxes See Electronic Federal Tax Payment System (EFTPS), earlier. 2011 income taxes Also see the Instructions for Form 1120-W. 2011 income taxes Quick refund of overpayments. 2011 income taxes   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. 2011 income taxes Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. 2011 income taxes A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. 2011 income taxes Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. 2011 income taxes File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. 2011 income taxes Do not file Form 4466 before the end of the corporation's tax year. 2011 income taxes An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. 2011 income taxes The IRS will act on the form within 45 days from the date you file it. 2011 income taxes U. 2011 income taxes S. 2011 income taxes Real Property Interest If a domestic corporation acquires a U. 2011 income taxes S. 2011 income taxes real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. 2011 income taxes The amount paid includes cash, the fair market value of other property, and any assumed liability. 2011 income taxes If a domestic corporation distributes a U. 2011 income taxes S. 2011 income taxes real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. 2011 income taxes A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. 2011 income taxes For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. 2011 income taxes S. 2011 income taxes Withholding Tax Return for Dispositions by Foreign Persons of U. 2011 income taxes S. 2011 income taxes Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. 2011 income taxes S. 2011 income taxes Real Property Interests. 2011 income taxes Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. 2011 income taxes Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. 2011 income taxes In all cases, the method used must clearly show taxable income. 2011 income taxes Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. 2011 income taxes Accrual method. 2011 income taxes   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. 2011 income taxes A corporation engaged in farming operations also must use the accrual method. 2011 income taxes   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. 2011 income taxes However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. 2011 income taxes   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. 2011 income taxes   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. 2011 income taxes   There are exceptions to the economic performance rule for certain items, including recurring expenses. 2011 income taxes See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. 2011 income taxes Nonaccrual experience method. 2011 income taxes   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. 2011 income taxes   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. 2011 income taxes Percentage of completion method. 2011 income taxes   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. 2011 income taxes Mark-to-market accounting method. 2011 income taxes   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. 2011 income taxes Under this method any security held by a dealer as inventory must be included in inventory at its FMV. 2011 income taxes Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. 2011 income taxes Any gain or loss must be taken into account in determining gross income. 2011 income taxes The gain or loss taken into account is treated as ordinary gain or loss. 2011 income taxes   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. 2011 income taxes Change in accounting method. 2011 income taxes   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). 2011 income taxes The corporation must file Form 3115, Application for Change in Accounting Method. 2011 income taxes For more information, see Form 3115 and Publication 538. 2011 income taxes Section 481(a) adjustment. 2011 income taxes   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. 2011 income taxes The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. 2011 income taxes However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. 2011 income taxes The corporation must complete the appropriate lines of Form 3115 to make the election. 2011 income taxes See the Instructions for Form 3115. 2011 income taxes Accounting Periods A corporation must figure its taxable income on the basis of a tax year. 2011 income taxes A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. 2011 income taxes Generally, corporations can use either a calendar year or a fiscal year as its tax year. 2011 income taxes Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. 2011 income taxes For more information, see Publication 538. 2011 income taxes Personal service corporation. 2011 income taxes   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. 2011 income taxes See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. 2011 income taxes Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. 2011 income taxes   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. 2011 income taxes See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. 2011 income taxes Change of tax year. 2011 income taxes   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. 2011 income taxes However, under certain conditions, a corporation can change its tax year without getting the consent. 2011 income taxes For more information, see Form 1128 and Publication 538. 2011 income taxes Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. 2011 income taxes Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. 2011 income taxes Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. 2011 income taxes The corporation should keep copies of all filed returns. 2011 income taxes They help in preparing future and amended returns and in the calculation of earnings and profits. 2011 income taxes Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. 2011 income taxes However, the following special provisions apply only to corporations. 2011 income taxes Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. 2011 income taxes However, a corporation can elect to deduct a limited amount of start-up or organizational costs. 2011 income taxes Any costs not deducted can be amortized. 2011 income taxes Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. 2011 income taxes Organizational costs are the direct costs of creating the corporation. 2011 income taxes For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. 2011 income taxes Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. 2011 income taxes Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. 2011 income taxes Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. 2011 income taxes If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. 2011 income taxes These rules also deny the deduction of losses on the sale or exchange of property between related persons. 2011 income taxes Related persons. 2011 income taxes   For purposes of this rule, the following persons are related to a corporation. 2011 income taxes Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). 2011 income taxes An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. 2011 income taxes A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. 2011 income taxes An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. 2011 income taxes A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. 2011 income taxes Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. 2011 income taxes Ownership of stock. 2011 income taxes   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. 2011 income taxes Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. 2011 income taxes An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. 2011 income taxes Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. 2011 income taxes Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. 2011 income taxes To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. 2011 income taxes But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. 2011 income taxes Reallocation of income and deductions. 2011 income taxes   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. 2011 income taxes Complete liquidations. 2011 income taxes   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. 2011 income taxes More information. 2011 income taxes   For more information about the related person rules, see Publication 544. 2011 income taxes Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. 2011 income taxes If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. 2011 income taxes Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. 2011 income taxes A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. 2011 income taxes A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. 2011 income taxes For more information regarding the election, see Form 8902. 2011 income taxes Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. 2011 income taxes The deduction is allowed for the year in which the property is placed in service. 2011 income taxes A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. 2011 income taxes For more information, see section 179C of the Internal Revenue Code and the related Regulations. 2011 income taxes Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). 2011 income taxes A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. 2011 income taxes For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. 2011 income taxes Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. 2011 income taxes In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. 2011 income taxes 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. 2011 income taxes The deduction is limited to $1. 2011 income taxes 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. 2011 income taxes Other rules and limitations apply. 2011 income taxes The corporation must reduce the basis of any property by any deduction taken. 2011 income taxes The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. 2011 income taxes For more information, see section 179D of the Internal Revenue Code. 2011 income taxes Also see Notice 2006-52, 2006-26 I. 2011 income taxes R. 2011 income taxes B. 2011 income taxes 1175, clarified and amplified by Notice 2008-40, 2008-14 I. 2011 income taxes R. 2011 income taxes B. 2011 income taxes 725, and any successor. 2011 income taxes Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. 2011 income taxes These items are known as corporate preference items and they include the following. 2011 income taxes Gain on the disposition of section 1250 property. 2011 income taxes For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. 2011 income taxes Percentage depletion for iron ore and coal (including lignite). 2011 income taxes For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. 2011 income taxes Amortization of pollution control facilities. 2011 income taxes For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. 2011 income taxes Mineral exploration and development costs. 2011 income taxes For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. 2011 income taxes For more information on corporate preference items, see section 291 of the Internal Revenue Code. 2011 income taxes Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. 2011 income taxes This section discusses the general rules that apply. 2011 income taxes The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. 2011 income taxes For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. 2011 income taxes Dividends from domestic corporations. 2011 income taxes   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. 2011 income taxes If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. 2011 income taxes Ownership. 2011 income taxes   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. 2011 income taxes Small business investment companies. 2011 income taxes   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. 2011 income taxes Dividends from regulated investment companies. 2011 income taxes   Regulated investment company dividends received are subject to certain limits. 2011 income taxes Capital gain dividends received from a regulated investment company do not qualify for the deduction. 2011 income taxes For more information, see section 854 of the Internal Revenue Code. 2011 income taxes No deduction allowed for certain dividends. 2011 income taxes   Corporations cannot take a deduction for dividends received from the following entities. 2011 income taxes A real estate investment trust (REIT). 2011 income taxes A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. 2011 income taxes A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. 2011 income taxes Ex-dividend means the holder has no rights to the dividend. 2011 income taxes A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. 2011 income taxes Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. 2011 income taxes Dividends on deposits. 2011 income taxes   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. 2011 income taxes They do not qualify for this deduction. 2011 income taxes Limit on deduction for dividends. 2011 income taxes   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). 2011 income taxes Figuring the limit. 2011 income taxes   In figuring the limit, determine taxable income without the following items. 2011 income taxes The net operating loss deduction. 2011 income taxes The domestic production activities deduction. 2011 income taxes The deduction for dividends received. 2011 income taxes Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). 2011 income taxes Any capital loss carryback to the tax year. 2011 income taxes Effect of net operating loss. 2011 income taxes   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. 2011 income taxes To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. 2011 income taxes Example 1. 2011 income taxes A corporation loses $25,000 from operations. 2011 income taxes It receives $100,000 in dividends from a 20%-owned corporation. 2011 income taxes Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. 2011 income taxes If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). 2011 income taxes Therefore, the 80% of taxable income limit does not apply. 2011 income taxes The corporation can deduct the full $80,000. 2011 income taxes Example 2. 2011 income taxes Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. 2011 income taxes Its taxable income is $85,000 before the deduction for dividends received. 2011 income taxes After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. 2011 income taxes Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). 2011 income taxes Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. 2011 income taxes The nontaxed part is any dividends-received deduction allowable for the dividends. 2011 income taxes Extraordinary dividend. 2011 income taxes   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. 2011 income taxes The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. 2011 income taxes Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. 2011 income taxes Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. 2011 income taxes Disqualified preferred stock. 2011 income taxes   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. 2011 income taxes   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. 2011 income taxes The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. 2011 income taxes The issue price of the stock exceeds its liquidation rights or stated redemption price. 2011 income taxes The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. 2011 income taxes   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. 2011 income taxes More information. 2011 income taxes   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. 2011 income taxes Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. 2011 income taxes A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 2011 income taxes A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. 2011 income taxes Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 2011 income taxes Foregone interest. 2011 income taxes   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 2011 income taxes See Below-market loans, in chapter 4 of Publication 535 for more information. 2011 income taxes Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. 2011 income taxes The contribution is deductible if made to, or for the use of, a qualified organization. 2011 income taxes For more information on qualified organizations, see Publication 526, Charitable Contributions. 2011 income taxes Also see, Exempt Organizations Select Check (EO Select Check) at www. 2011 income taxes irs. 2011 income taxes gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. 2011 income taxes Note. 2011 income taxes You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. 2011 income taxes Cash method corporation. 2011 income taxes   A corporation using the cash method of accounting deducts contributions in the tax year paid. 2011 income taxes Accrual method corporation. 2011 income taxes   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. 2011 income taxes Make the choice by reporting the contribution on the corporation's return for the tax year. 2011 income taxes A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. 2011 income taxes The declaration must include the date the resolution was adopted. 2011 income taxes Limitations on deduction. 2011 income taxes   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. 2011 income taxes Figure taxable income for this purpose without the following. 2011 income taxes The deduction for charitable contributions. 2011 income taxes The dividends-received deduction. 2011 income taxes The deduction allowed under section 249 of the Internal Revenue Code. 2011 income taxes The domestic production activities deduction. 2011 income taxes Any net operating loss carryback to the tax year. 2011 income taxes Any capital loss carryback to the tax year. 2011 income taxes Farmers and ranchers. 2011 income taxes    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. 2011 income taxes Carryover of excess contributions. 2011 income taxes   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. 2011 income taxes You lose any excess not used within that period. 2011 income taxes For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. 2011 income taxes Any excess not used in 2015 is lost. 2011 income taxes Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). 2011 income taxes You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. 2011 income taxes Cash contributions. 2011 income taxes   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. 2011 income taxes The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. 2011 income taxes Keep the record of the contribution with the other corporate records. 2011 income taxes Do not attach the records to the corporation's return. 2011 income taxes For more information on cash contributions, see Publication 526. 2011 income taxes Gifts of $250 or more. 2011 income taxes   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. 2011 income taxes The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. 2011 income taxes The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. 2011 income taxes Keep the acknowledgement with other corporate records. 2011 income taxes Do not attach the acknowledgement to the return. 2011 income taxes Contributions of property other than cash. 2011 income taxes   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. 2011 income taxes In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. 2011 income taxes   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. 2011 income taxes For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. 2011 income taxes   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. 2011 income taxes A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. 2011 income taxes The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. 2011 income taxes   See Form 8283 for more information. 2011 income taxes Qualified conservation contributions. 2011 income taxes   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. 2011 income taxes For more information, see section 170(h) of the Internal Revenue Code. 2011 income taxes Contributions of used vehicles. 2011 income taxes   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. 2011 income taxes The deduction is limited, and other special rules apply. 2011 income taxes For more information, see Publication 526. 2011 income taxes Reduction for contributions of certain property. 2011 income taxes   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. 2011 income taxes   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. 2011 income taxes Larger deduction. 2011 income taxes   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. 2011 income taxes This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. 2011 income taxes Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. 2011 income taxes The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. 2011 income taxes Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. 2011 income taxes Contributions to organizations conducting lobbying activities. 2011 income taxes   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. 2011 income taxes More information. 2011 income taxes   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. 2011 income taxes Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. 2011 income taxes In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. 2011 income taxes Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. 2011 income taxes A capital loss is carried to other years in the following order. 2011 income taxes 3 years prior to the loss year. 2011 income taxes 2 years prior to the loss year. 2011 income taxes 1 year prior to the loss year. 2011 income taxes Any loss remaining is carried forward for 5 years. 2011 income taxes When you carry a net capital loss to another tax year, treat it as a short-term loss. 2011 income taxes It does not retain its original identity as long term or short term. 2011 income taxes Example. 2011 income taxes A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. 2011 income taxes The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. 2011 income taxes The corporation treats this $6,000 as a short-term loss when carried back or forward. 2011 income taxes The corporation carries the $6,000 short-term loss back 3 years. 2011 income taxes In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. 2011 income taxes It subtracts the $6,000 short-term loss first from the net short-term gain. 2011 income taxes This results in a net capital gain for year 1 of $7,000. 2011 income taxes This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. 2011 income taxes S corporation status. 2011 income taxes   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. 2011 income taxes Rules for carryover and carryback. 2011 income taxes   When carrying a capital loss from one year to another, the following rules apply. 2011 income taxes When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. 2011 income taxes In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. 2011 income taxes If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. 2011 income taxes You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. 2011 income taxes Refunds. 2011 income taxes   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. 2011 income taxes If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. 2011 income taxes S. 2011 income taxes Corporation Income Tax Return, to apply for a refund. 2011 income taxes Form 1139. 2011 income taxes    A corporation can get a refund faster by using Form 1139. 2011 income taxes It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. 2011 income taxes Form 1120X. 2011 income taxes   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. 2011 income taxes The corporation must file the Form 1120X within 3 years of the due date, includin
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The 2011 Income Taxes

2011 income taxes Publication 971 - Additional Material Table of Contents How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 2011 income taxes Questions & AnswersThis section answers questions commonly asked by taxpayers about innocent spouse relief. 2011 income taxes . 2011 income taxes What is joint and several liability? . 2011 income taxes How can I get relief from joint and several liability? . 2011 income taxes What are the rules for innocent spouse relief? . 2011 income taxes What are erroneous items? . 2011 income taxes What is an understated tax? . 2011 income taxes Will I qualify for innocent spouse relief in any situation where there is an understated tax? . 2011 income taxes What are the rules for separation of liability relief? . 2011 income taxes Why would a request for separation of liability relief be denied? . 2011 income taxes What are the rules for equitable relief? . 2011 income taxes How do state community property laws affect my ability to qualify for relief? . 2011 income taxes How do I request relief? . 2011 income taxes When should I file Form 8857? . 2011 income taxes Where should I file Form 8857? . 2011 income taxes I am currently undergoing an examination of my return. 2011 income taxes How do I request innocent spouse relief? . 2011 income taxes What if the IRS has given me notice that it will levy my account for the tax liability and I decide to request relief? . 2011 income taxes What is injured spouse relief? . 2011 income taxes What is joint and several liability? When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. 2011 income taxes This is called joint and several liability. 2011 income taxes Joint and several liability applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to the income, deductions, or credits of your spouse or former spouse. 2011 income taxes You remain jointly and severally liable for taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax. 2011 income taxes There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. 2011 income taxes ” Each type has different requirements. 2011 income taxes They are explained separately below. 2011 income taxes To qualify for innocent spouse relief, you must meet all of the following conditions. 2011 income taxes You must have filed a joint return which has an understated tax. 2011 income taxes The understated tax must be due to erroneous items of your spouse (or former spouse). 2011 income taxes You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. 2011 income taxes Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. 2011 income taxes You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. 2011 income taxes You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. 2011 income taxes For example, you reported total tax on your 2008 return of $2,500. 2011 income taxes IRS determined in an audit of your 2008 return that the total tax should be $3,000. 2011 income taxes You have a $500 understated tax. 2011 income taxes No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes How can I get relief from joint and several liability? There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. 2011 income taxes ” Each type has different requirements. 2011 income taxes They are explained separately below. 2011 income taxes To qualify for innocent spouse relief, you must meet all of the following conditions. 2011 income taxes You must have filed a joint return which has an understated tax. 2011 income taxes The understated tax must be due to erroneous items of your spouse (or former spouse). 2011 income taxes You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. 2011 income taxes Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. 2011 income taxes You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. 2011 income taxes You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. 2011 income taxes For example, you reported total tax on your 2008 return of $2,500. 2011 income taxes IRS determined in an audit of your 2008 return that the total tax should be $3,000. 2011 income taxes You have a $500 understated tax. 2011 income taxes No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes What are the rules for innocent spouse relief? To qualify for innocent spouse relief, you must meet all of the following conditions. 2011 income taxes You must have filed a joint return which has an understated tax. 2011 income taxes The understated tax must be due to erroneous items of your spouse (or former spouse). 2011 income taxes You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. 2011 income taxes Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. 2011 income taxes You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. 2011 income taxes You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. 2011 income taxes For example, you reported total tax on your 2008 return of $2,500. 2011 income taxes IRS determined in an audit of your 2008 return that the total tax should be $3,000. 2011 income taxes You have a $500 understated tax. 2011 income taxes No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes What are “erroneous items”? Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. 2011 income taxes You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. 2011 income taxes For example, you reported total tax on your 2008 return of $2,500. 2011 income taxes IRS determined in an audit of your 2008 return that the total tax should be $3,000. 2011 income taxes You have a $500 understated tax. 2011 income taxes No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes What is an “understated tax”? You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. 2011 income taxes For example, you reported total tax on your 2008 return of $2,500. 2011 income taxes IRS determined in an audit of your 2008 return that the total tax should be $3,000. 2011 income taxes You have a $500 understated tax. 2011 income taxes No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes Will I qualify for innocent spouse relief in any situation where there is an understated tax? No. 2011 income taxes There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. 2011 income taxes For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. 2011 income taxes You are not eligible for innocent spouse relief because you have knowledge of the understated tax. 2011 income taxes Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes What are the rules for separation of liability relief? Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). 2011 income taxes The understated tax allocated to you is generally the amount you are responsible for. 2011 income taxes To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. 2011 income taxes You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. 2011 income taxes (Under this rule, you are no longer married if you are widowed. 2011 income taxes ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. 2011 income taxes In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. 2011 income taxes Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes Why would a request for separation of liability relief be denied? Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. 2011 income taxes The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. 2011 income taxes The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). 2011 income taxes Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. 2011 income taxes Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes What are the rules for equitable relief? Equitable relief is only available if you meet all of the following conditions. 2011 income taxes You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. 2011 income taxes You have an understated tax or underpaid tax. 2011 income taxes See Note later. 2011 income taxes You did not pay the tax. 2011 income taxes However, see Refunds , earlier, for exceptions. 2011 income taxes The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. 2011 income taxes You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. 2011 income taxes Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. 2011 income taxes You did not file or fail to file your return with the intent to commit fraud. 2011 income taxes The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. 2011 income taxes For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. 2011 income taxes You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. 2011 income taxes Note. 2011 income taxes Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. 2011 income taxes (An underpaid tax is tax that is properly shown on the return, but has not been paid. 2011 income taxes ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or resume collecting from you. 2011 income taxes The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. 2011 income taxes See Publication 594 for more information. 2011 income taxes Injured spouse relief is different from innocent spouse relief. 2011 income taxes When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. 2011 income taxes The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. 2011 income taxes You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). 2011 income taxes You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. 2011 income taxes You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. 2011 income taxes Note. 2011 income taxes If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. 2011 income taxes . 2011 income taxes How do state community property laws affect my ability to qualify for relief? Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. 2011 income taxes Generally, community property laws require you to allocate community income and expenses equally between both spouses. 2011 income taxes However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. 2011 income taxes      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. 2011 income taxes You must file an additional Form 8857 if you are requesting relief for more than three years. 2011 income taxes If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. 2011 income taxes If you are requesting equitable relief, see Exception for equitable relief. 2011 income taxes under How To Request Relief, earlier, for when to file Form 8857. 2011 income taxes If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. 2011 income taxes Use the address or fax number shown in the Instructions for Form 8857. 2011 income taxes File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. 2011 income taxes Do not file it with the employee assigned to examine your return. 2011 income taxes Generally, the IRS has 10 years to collect an amount you owe. 2011 income taxes This is the collection statute of limitations. 2011 income taxes By law, the IRS is not allowed to collect from you after the 10-year period ends. 2011 income taxes If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. 2011 income taxes But interest and penalties continue to accrue. 2011 income taxes Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. 2011 income taxes This includes the time the Tax Court is considering your request. 2011 income taxes After your case is resolved, the IRS can begin or