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2011 taxes free 1. 2011 taxes free   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). 2011 taxes free  You can set up and make contributions to an IRA if you receive taxable compensation. 2011 taxes free Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. 2011 taxes free For more information about IRAs, see Publication 590. 2011 taxes free Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. 2011 taxes free The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. 2011 taxes free Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. 2011 taxes free Many types of educational assistance are tax free if they meet the requirements discussed here. 2011 taxes free Special rules apply to U. 2011 taxes free S. 2011 taxes free citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. 2011 taxes free For information about these rules, see Publication 54, Tax Guide for U. 2011 taxes free S. 2011 taxes free Citizens and Resident Aliens Abroad. 2011 taxes free Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. 2011 taxes free A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. 2011 taxes free Amount of scholarship or fellowship. 2011 taxes free   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. 2011 taxes free This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. 2011 taxes free The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. 2011 taxes free Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. 2011 taxes free Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. 2011 taxes free A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. 2011 taxes free (But for exceptions, see Payment for services,later. 2011 taxes free Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. 2011 taxes free Candidate for a degree. 2011 taxes free   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. 2011 taxes free Eligible educational institution. 2011 taxes free   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 2011 taxes free Qualified education expenses. 2011 taxes free   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. 2011 taxes free These items must be required of all students in your course of instruction. 2011 taxes free Expenses that do not qualify. 2011 taxes free   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. 2011 taxes free Payment for services. 2011 taxes free   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. 2011 taxes free This applies even if all candidates for a degree must perform the services to receive the degree. 2011 taxes free (See exceptions next. 2011 taxes free ) Exceptions. 2011 taxes free   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 2011 taxes free Example 1. 2011 taxes free You received a scholarship of $2,500. 2011 taxes free The scholarship was not received under either of the exceptions mentioned above. 2011 taxes free As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. 2011 taxes free Of the $2,500 scholarship, $1,000 represents payment for teaching. 2011 taxes free The provider of your scholarship gives you a Form W-2 showing $1,000 as income. 2011 taxes free Your qualified education expenses were at least $1,500. 2011 taxes free Assuming that all other conditions are met, $1,500 of your scholarship is tax free. 2011 taxes free The $1,000 you received for teaching is taxable. 2011 taxes free Example 2. 2011 taxes free You are a candidate for a degree at a medical school. 2011 taxes free You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. 2011 taxes free The terms of your scholarship require you to perform future services. 2011 taxes free A substantial penalty applies if you do not comply. 2011 taxes free The entire amount of your grant is taxable as payment for services in the year it is received. 2011 taxes free Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. 2011 taxes free Worksheet 1-1. 2011 taxes free    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. 2011 taxes free    Worksheet 1-1. 2011 taxes free Taxable Scholarship and Fellowship Income 1. 2011 taxes free Enter the total amount of any scholarship or fellowship for 2013. 2011 taxes free See Amount of scholarship or fellowship, earlier. 2011 taxes free 1. 2011 taxes free       If you are a degree candidate at an eligible educational institution, go to line 2. 2011 taxes free If you are not a degree candidate at an eligible educational institution, stop here. 2011 taxes free The entire amount is taxable. 2011 taxes free For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. 2011 taxes free       2. 2011 taxes free Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. 2011 taxes free (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. 2011 taxes free ) 2. 2011 taxes free     3. 2011 taxes free Subtract line 2 from line 1 3. 2011 taxes free     4. 2011 taxes free Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. 2011 taxes free     5. 2011 taxes free Subtract line 4 from line 3 5. 2011 taxes free     6. 2011 taxes free Enter the amount of your qualified education expenses 6. 2011 taxes free     7. 2011 taxes free Enter the smaller of line 5 or line 6. 2011 taxes free This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. 2011 taxes free     8. 2011 taxes free Subtract line 7 from line 5 8. 2011 taxes free     9. 2011 taxes free Taxable part. 2011 taxes free Add lines 2, 4, and 8. 2011 taxes free See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. 2011 taxes free     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. 2011 taxes free You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. 2011 taxes free Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. 2011 taxes free If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. 2011 taxes free If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. 2011 taxes free You must report the taxable amount whether or not you received a Form W-2. 2011 taxes free If you receive an incorrect Form W-2, ask the payer for a corrected one. 2011 taxes free For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. 2011 taxes free How To Report How you report any taxable scholarship or fellowship income depends on which return you file. 2011 taxes free Form 1040EZ. 2011 taxes free   If you file Form 1040EZ, include the taxable amount in the total on line 1. 2011 taxes free If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. 2011 taxes free Form 1040A. 2011 taxes free   If you file Form 1040A, include the taxable amount in the total on line 7. 2011 taxes free If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. 2011 taxes free Form 1040. 2011 taxes free   If you file Form 1040, include the taxable amount in the total on line 7. 2011 taxes free If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. 2011 taxes free Schedule SE (Form 1040). 2011 taxes free   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. 2011 taxes free If your net earnings are $400 or more, you must pay self-employment tax. 2011 taxes free Use Schedule SE, Self-Employment Tax, to figure this tax. 2011 taxes free Form 1040NR. 2011 taxes free   If you file Form 1040NR, report the taxable amount on line 12. 2011 taxes free Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. 2011 taxes free S. 2011 taxes free Source Income Subject to Withholding. 2011 taxes free See the Instructions for Form 1040NR for more information. 2011 taxes free Form 1040NR-EZ. 2011 taxes free   If you file Form 1040NR-EZ, report the taxable amount on line 5. 2011 taxes free Generally, you must report the amount shown in box 2 of Form(s) 1042-S. 2011 taxes free See the Instructions for Form 1040NR-EZ for more information. 2011 taxes free Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. 2011 taxes free Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. 2011 taxes free Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. 2011 taxes free They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. 2011 taxes free Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. 2011 taxes free Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. 2011 taxes free Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. 2011 taxes free Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. 2011 taxes free Do not include these payments as income on your federal tax return. 2011 taxes free If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. 2011 taxes free This applies only to the part of your VA payments that is required to be used for education expenses. 2011 taxes free You may want to visit the Veteran's Administration website at www. 2011 taxes free gibill. 2011 taxes free va. 2011 taxes free gov for specific information about the various VA benefits for education. 2011 taxes free Example. 2011 taxes free You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. 2011 taxes free Neither of these benefits is taxable and you do not report them on your tax return. 2011 taxes free You also want to claim an American opportunity credit on your return. 2011 taxes free You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). 2011 taxes free To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. 2011 taxes free You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. 2011 taxes free Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. 2011 taxes free This is called a “tuition reduction. 2011 taxes free ” You do not have to include a qualified tuition reduction in your income. 2011 taxes free A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. 2011 taxes free You do not have to use the tuition reduction at the eligible educational institution from which you received it. 2011 taxes free In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. 2011 taxes free The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. 2011 taxes free You must include in your income any tuition reduction you receive that is payment for your services. 2011 taxes free Eligible educational institution. 2011 taxes free   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. 2011 taxes free Officers, owners, and highly compensated employees. 2011 taxes free   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. 2011 taxes free This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. 2011 taxes free The group must be defined under a reasonable classification set up by the employer. 2011 taxes free The classification must not discriminate in favor of owners, officers, or highly compensated employees. 2011 taxes free Payment for services. 2011 taxes free   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. 2011 taxes free This applies even if all candidates for a degree must perform the services to receive the degree. 2011 taxes free (See below for exceptions. 2011 taxes free ) Exceptions. 2011 taxes free   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. 2011 taxes free Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. 2011 taxes free You are an employee of the eligible educational institution. 2011 taxes free You were an employee of the eligible educational institution, but you retired or left on disability. 2011 taxes free You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. 2011 taxes free You are the dependent child or spouse of an individual described in (1) through (3), above. 2011 taxes free Child of deceased parents. 2011 taxes free   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. 2011 taxes free Child of divorced parents. 2011 taxes free   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. 2011 taxes free Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. 2011 taxes free It is provided by an eligible educational institution. 2011 taxes free You are a graduate student who performs teaching or research activities for the educational institution. 2011 taxes free You must include in income any other tuition reductions for graduate education that you receive. 2011 taxes free How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. 2011 taxes free Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). 2011 taxes free Prev  Up  Next   Home   More Online Publications
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IRS Bars Appraisers from Valuing Facade Easements for Federal Tax Purposes for Five Years

IR-2014-31, March 19, 2014

WASHINGTON — The Internal Revenue Service today announced its Office of Professional Responsibility (OPR) has entered into a settlement agreement with a group of appraisers from the same firm accused of aiding in the understatement of federal tax liabilities by overvaluing facade easements for charitable donation purposes.

Under the settlement agreement, the appraisers admitted to violating relevant sections of Circular 230 related to due diligence and submitting accurate documents to the government.

The appraisers agreed to a five-year suspension of valuing facade easements and undertaking any appraisal services that could subject them to penalties under the Internal Revenue Code. The appraisers also agreed to abide by all applicable provisions of Circular 230.

“Appraisers need to understand that they are subject to Circular 230, and must exercise due diligence in the preparation of documents relating to federal tax matters,” said Karen L. Hawkins, Director of OPR. “Taxpayers expect advice rendered with competence and diligence that goes beyond the mere mechanical application of a rule of thumb based on conjecture and unsupported conclusions.”

Failure to comply with terms of the settlement would result in the appraiser’s disqualification, which would include a ban from presenting any evidence or testimony in administrative proceedings before the Department of the Treasury, and renders any appraisal given after disqualification without probative effect.

The appraisers prepared reports valuing facade easements donated over several tax years. On behalf of each donating taxpayer, an appraiser completed Part III, Declaration of Appraiser, of Form 8283, Noncash Charitable Contributions, certifying that the appraiser did not fraudulently or falsely overstate the value of such facade easement. In valuing the facade easements, the appraisers applied a flat percentage diminution, generally 15 percent, to the fair market values of the underlying properties prior to the easement’s donation.

Specifically, the appraisers admitted violating Circular 230, Section 10.22(a)(1), for failing to exercise due diligence in the preparation of documents relating to IRS matters, and Section 10.22(a)(2) for failing to determine the correctness of written representations made to the Department of the Treasury.

OPR’s settlement agreement with the appraisers includes a disclosure authorization that allows this press release.

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Page Last Reviewed or Updated: 19-Mar-2014

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