Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

2012 1040 Forms

2012 Taxes1080ez2008 Amended Tax ReturnFree State Returns Taxes FilingHow To File 2009 Taxes In 2013Students Filing TaxesIrs Tax ExtentionTax Form 1040aHow To File 2011 Taxes For Free2013 Amended Tax ReturnAmended TaxIt 1040xEfiling Income TaxTurbotax For Students FreeAmended Tax Return Form 2011Irs Forms2010 Federal Tax Forms InstructionsFile State Tax FreeMyfreetaxes.com/everettFederal And State Income Tax FormsSearch Free Tax UsaFree Tax Filing For Low IncomeIrs Form 1040 Ez InstructionsState Taxes For Free2011 10401040ezHow To Amend Your Tax Return OnlineHow To Amend Previous Tax ReturnsFile A 1040ez OnlineFile My State Tax Return FreeMypay Dfas Mil MypayClaim Social Security Income TaxesFree State Tax Filing OnlineTaxact Login Tax Return Taxact Login PagePrintable 1040ez Tax FormHow To Amend Taxes With TurbotaxFile 2010 Tax ReturnIrs Tax TablesAmend My 2012 Tax ReturnTax Forms 1040 Ez

2012 1040 Forms

2012 1040 forms 3. 2012 1040 forms   Farm Income Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Schedule F (Form 1040) Sales of Farm ProductsSchedule F. 2012 1040 forms Form 4797. 2012 1040 forms Sales Caused by Weather-Related Conditions Rents (Including Crop Shares)Crop Shares Agricultural Program PaymentsCommodity Credit Corporation (CCC) Loans Conservation Reserve Program (CRP) Crop Insurance and Crop Disaster Payments Feed Assistance and Payments Cost-Sharing Exclusion (Improvements) Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 Tobacco Quota Buyout Program Payments Other Payments Payment to More Than One Person Income From CooperativesPatronage Dividends Per-Unit Retain Certificates Cancellation of DebtGeneral Rule Exceptions Exclusions Income From Other SourcesSod. 2012 1040 forms Granting the right to remove deposits. 2012 1040 forms Income Averaging for FarmersElected Farm Income (EFI) How To Figure the Tax Effect on Other Tax Determinations Tax for Certain Children Who Have Unearned Income Alternative Minimum Tax (AMT) Schedule J Introduction You may receive income from many sources. 2012 1040 forms You must report the income from all the different sources on your tax return, unless it is excluded by law. 2012 1040 forms Where you report the income on your tax return depends on its source. 2012 1040 forms This chapter discusses farm income you report on Schedule F (Form 1040), Profit or Loss From Farming. 2012 1040 forms For information on where to report other income, see the Instructions for Form 1040, U. 2012 1040 forms S. 2012 1040 forms Individual Income Tax Return. 2012 1040 forms Accounting method. 2012 1040 forms   The rules discussed in this chapter assume you use the cash method of accounting. 2012 1040 forms Under the cash method, you generally include an item of income in gross income in the year you receive it. 2012 1040 forms See Cash Method in chapter 2. 2012 1040 forms   If you use an accrual method of accounting, different rules may apply to your situation. 2012 1040 forms See Accrual Method in chapter 2. 2012 1040 forms Topics - This chapter discusses: Schedule F Sales of farm products Rents (including crop shares) Agricultural program payments Income from cooperatives Cancellation of debt Income from other sources Income averaging for farmers Useful Items - You may want to see: Publication 525 Taxable and Nontaxable Income 550 Investment Income and Expenses 908 Bankruptcy Tax Guide 925 Passive Activity and At-Risk Rules 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Form (and Instructions) 982 Reduction of Tax Attributes Due to Discharge of Indebtedness Sch E (Form 1040) Supplemental Income and Loss Sch J (Form 1040) Income Averaging for Farmers and Fishermen 1099-G Certain Government Payments 1099-PATR Taxable Distributions Received From Cooperatives 4797 Sales of Business Property 4835 Farm Rental Income and Expenses See chapter 16 for information about getting publications and forms. 2012 1040 forms Schedule F (Form 1040) Individuals, trusts, and partnerships report farm income on Schedule F (Form 1040), Profit or Loss From Farming. 2012 1040 forms Use this schedule to figure the net profit or loss from regular farming operations. 2012 1040 forms Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. 2012 1040 forms This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. 2012 1040 forms It also includes income from the sale of crop shares if you materially participate in producing the crop. 2012 1040 forms See Rents (Including Crop Shares) , later. 2012 1040 forms Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. 2012 1040 forms Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets. 2012 1040 forms Land. 2012 1040 forms Depreciable farm equipment. 2012 1040 forms Buildings and structures. 2012 1040 forms Livestock held for draft, breeding, sport, or dairy purposes. 2012 1040 forms Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. 2012 1040 forms Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11. 2012 1040 forms Sales of Farm Products Where to report. 2012 1040 forms    Table 3-1 shows where to report the sale of farm products on your tax return. 2012 1040 forms Schedule F. 2012 1040 forms   Amounts received from the sales of products you raised on your farm for sale (or bought for resale), such as livestock, produce, or grains, are reported on Schedule F. 2012 1040 forms This includes money and the fair market value of any property or services you receive. 2012 1040 forms When you sell farm products bought for resale, your profit or loss is the difference between your selling price (money plus the fair market value of any property) and your basis in the item (usually the cost). 2012 1040 forms See chapter 6 for information on the basis of assets. 2012 1040 forms You generally report these amounts on Schedule F for the year you receive payment. 2012 1040 forms Example. 2012 1040 forms In 2012, you bought 20 feeder calves for $11,000 for resale. 2012 1040 forms You sold them in 2013 for $21,000. 2012 1040 forms You report the $21,000 sales price on Schedule F, line 1b, subtract your $11,000 basis on line 1d, and report the resulting $10,000 profit on line 1e. 2012 1040 forms Form 4797. 2012 1040 forms   Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. 2012 1040 forms In either case, you should always report these sales on Form 4797 instead of Schedule F. 2012 1040 forms See Livestock under Ordinary or Capital Gain or Loss in chapter 8. 2012 1040 forms Animals you do not hold primarily for sale are considered business assets of your farm. 2012 1040 forms Table 3-1. 2012 1040 forms Where To Report Sales of Farm Products Item Sold Schedule F Form 4797 Farm products raised for sale X   Farm products bought for resale X   Farm assets not held primarily for sale, such as livestock held for draft, breeding, sport, or dairy purposes (bought or raised)   X Sale by agent. 2012 1040 forms   If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. 2012 1040 forms This applies even if your agent pays you in a later year. 2012 1040 forms For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. 2012 1040 forms Sales Caused by Weather-Related Conditions If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year. 2012 1040 forms You must meet all the following conditions to qualify. 2012 1040 forms Your principal trade or business is farming. 2012 1040 forms You use the cash method of accounting. 2012 1040 forms You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition. 2012 1040 forms The weather-related condition caused an area to be designated as eligible for assistance by the federal government. 2012 1040 forms Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. 2012 1040 forms The designation can be made by the President, the Department of Agriculture (or any of its agencies), or by other federal departments or agencies. 2012 1040 forms A weather-related sale or exchange of livestock (other than poultry) held for draft, breeding, or dairy purposes may be an involuntary conversion. 2012 1040 forms See Other Involuntary Conversions in chapter 11. 2012 1040 forms Usual business practice. 2012 1040 forms   You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. 2012 1040 forms Do this by considering all the facts and circumstances, but do not take into account your sales in any earlier year for which you postponed the gain. 2012 1040 forms If you have not yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. 2012 1040 forms Connection with affected area. 2012 1040 forms   The livestock does not have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. 2012 1040 forms However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. 2012 1040 forms This requirement generally will not be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition are not substantial in relation to the total costs of holding the livestock. 2012 1040 forms Classes of livestock. 2012 1040 forms   You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. 2012 1040 forms Do not separate animals into classes based on age, sex, or breed. 2012 1040 forms Amount to be postponed. 2012 1040 forms   Follow these steps to figure the amount of gain to be postponed for each class of animals. 2012 1040 forms Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. 2012 1040 forms For this purpose, do not treat any postponed gain from the previous year as income received from the sale of livestock. 2012 1040 forms Multiply the result in (1) by the excess number of such livestock sold solely because of weather-related conditions. 2012 1040 forms Example. 2012 1040 forms You are a calendar year taxpayer and you normally sell 100 head of beef cattle a year. 2012 1040 forms As a result of drought, you sold 135 head during 2012. 2012 1040 forms You realized $70,200 from the sale. 2012 1040 forms On August 9, 2012, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. 2012 1040 forms The income you can postpone until 2013 is $18,200 [($70,200 ÷ 135) × 35]. 2012 1040 forms How to postpone gain. 2012 1040 forms   To postpone gain, attach a statement to your tax return for the year of the sale. 2012 1040 forms The statement must include your name and address and give the following information for each class of livestock for which you are postponing gain. 2012 1040 forms A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e). 2012 1040 forms Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. 2012 1040 forms A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock. 2012 1040 forms The number of animals sold in each of the 3 preceding years. 2012 1040 forms The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. 2012 1040 forms The total number of animals sold and the number sold because of weather-related conditions during the tax year. 2012 1040 forms A computation, as described above, of the income to be postponed for each class of livestock. 2012 1040 forms   Generally, you must file the statement and the return by the due date of the return, including extensions. 2012 1040 forms However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you can file this statement at any time during the replacement period. 2012 1040 forms For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). 2012 1040 forms Attach the statement to the amended return and write “Filed pursuant to section 301. 2012 1040 forms 9100-2” at the top of the amended return. 2012 1040 forms File the amended return at the same address you filed the original return. 2012 1040 forms Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. 2012 1040 forms Rents (Including Crop Shares) The rent you receive for the use of your farmland is generally rental income, not farm income. 2012 1040 forms However, if you materially participate in farming operations on the land, the rent is farm income. 2012 1040 forms See Landlord Participation in Farming in chapter 12. 2012 1040 forms Pasture income and rental. 2012 1040 forms   If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. 2012 1040 forms You must enter it as Other income on Schedule F. 2012 1040 forms If you simply rent your pasture for a flat cash amount without providing services, report the income as rent on Part I of Schedule E (Form 1040), Supplemental Income and Loss. 2012 1040 forms Crop Shares You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. 2012 1040 forms It does not matter whether you use the cash method of accounting or an accrual method of accounting. 2012 1040 forms If you materially participate in operating a farm from which you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income. 2012 1040 forms See Landlord Participation in Farming in chapter 12. 2012 1040 forms Report the rental income on Schedule F. 2012 1040 forms If you do not materially participate in operating the farm, report this income on Form 4835 and carry the net income or loss to Schedule E (Form 1040). 2012 1040 forms The income is not included in self-employment income. 2012 1040 forms Crop shares you use to feed livestock. 2012 1040 forms   Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. 2012 1040 forms You must include the fair market value of the crop shares in income at that time. 2012 1040 forms You are entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. 2012 1040 forms Although these two transactions cancel each other for figuring adjusted gross income on Form 1040, they may be necessary to figure your self-employment tax. 2012 1040 forms See  chapter 12. 2012 1040 forms Crop shares you give to others (gift). 2012 1040 forms   Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. 2012 1040 forms You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. 2012 1040 forms Example. 2012 1040 forms A tenant farmed part of your land under a crop-share arrangement. 2012 1040 forms The tenant harvested and delivered the crop in your name to an elevator company. 2012 1040 forms Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. 2012 1040 forms They sell their crop shares in the following year and the elevator company makes payments directly to your children. 2012 1040 forms In this situation, you are considered to have received rental income and then made a gift of that income. 2012 1040 forms You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. 2012 1040 forms Crop share loss. 2012 1040 forms   If you are involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. 2012 1040 forms See Publication 925 for information on these rules. 2012 1040 forms Agricultural Program Payments You must include in income most government payments, such as those for approved conservation practices, direct payments, and counter-cyclical payments, whether you receive them in cash, materials, services, or commodity certificates. 2012 1040 forms However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. 2012 1040 forms See Cost-Sharing Exclusion (Improvements) , later. 2012 1040 forms Report the agricultural program payment on the appropriate line of Schedule F, Part I. 2012 1040 forms Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation (CCC) loan. 2012 1040 forms However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. 2012 1040 forms Claim the deduction on Schedule F for the year of repayment or reduction. 2012 1040 forms Commodity Credit Corporation (CCC) Loans Generally, you do not report loans you receive as income. 2012 1040 forms However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them. 2012 1040 forms You do not need approval from the IRS to adopt this method of reporting CCC loans. 2012 1040 forms Once you report a CCC loan as income for the year received, you generally must report all CCC loans in that year and later years in the same way. 2012 1040 forms However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan. 2012 1040 forms For more information, see Part I of the Instructions for Form 3115 and Revenue Procedure 2008-52. 2012 1040 forms Revenue Procedure 2008-52, 2008-36 I. 2012 1040 forms R. 2012 1040 forms B. 2012 1040 forms 587, is available at  www. 2012 1040 forms irs. 2012 1040 forms gov/irb/2008-36_IRB/ar09. 2012 1040 forms html. 2012 1040 forms You can request income tax withholding from CCC loan payments you receive. 2012 1040 forms Use Form W-4V, Voluntary Withholding Request. 2012 1040 forms See chapter 16 for information about ordering the form. 2012 1040 forms To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F, line 7a, for the year you receive it. 2012 1040 forms Attach a statement to your return showing the details of the loan. 2012 1040 forms You must file the statement and the return by the due date of the return, including extensions. 2012 1040 forms If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2012 1040 forms Attach the statement to the amended return and write “Filed pursuant to section 301. 2012 1040 forms 9100-2” at the top of the return. 2012 1040 forms File the amended return at the same address you filed the original return. 2012 1040 forms When you make this election, the amount you report as income becomes your basis in the commodity. 2012 1040 forms See chapter 6 for information on the basis of assets. 2012 1040 forms If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. 2012 1040 forms If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. 2012 1040 forms If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. 2012 1040 forms If you did not report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. 2012 1040 forms Form 1099-A. 2012 1040 forms   If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A, Acquisition or Abandonment of Secured Property. 2012 1040 forms “CCC” should be shown in box 6. 2012 1040 forms The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. 2012 1040 forms Market Gain Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment. 2012 1040 forms If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. 2012 1040 forms Whether you use cash or CCC certificates to repay the loan, you will receive a Form 1099-G showing the market gain you realized. 2012 1040 forms Market gain should be reported as follows. 2012 1040 forms If you elected to include the CCC loan in income in the year you received it, do not include the market gain in income. 2012 1040 forms However, adjust the basis of the commodity for the amount of the market gain. 2012 1040 forms If you did not include the CCC loan in income in the year received, include the market gain in your income. 2012 1040 forms The following examples show how to report market gain. 2012 1040 forms Example 1. 2012 1040 forms Mike Green is a cotton farmer. 2012 1040 forms He uses the cash method of accounting and files his tax return on a calendar year basis. 2012 1040 forms He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. 2012 1040 forms In 2012, Mike pledged 1,000 pounds of cotton as collateral for a CCC loan of $2,000 (a loan rate of $2. 2012 1040 forms 00 per pound). 2012 1040 forms In 2013, he repaid the loan and redeemed the cotton for $1,500 when the world price was $1. 2012 1040 forms 50 per pound (lower than the loan amount). 2012 1040 forms Later in 2013, he sold the cotton for $2,500. 2012 1040 forms The market gain on the redemption was $. 2012 1040 forms 50 ($2. 2012 1040 forms 00 – $1. 2012 1040 forms 50) per pound. 2012 1040 forms Mike realized total market gain of $500 ($. 2012 1040 forms 50 x 1,000 pounds). 2012 1040 forms How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in 2012. 2012 1040 forms Included CCC loan. 2012 1040 forms   Mike reported the $2,000 CCC loan as income for 2012 on Schedule F, line 1b, so he is treated as if he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when he redeemed it. 2012 1040 forms The $500 market gain is not recognized on the redemption. 2012 1040 forms He reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. 2012 1040 forms   Mike's basis in the cotton after he redeemed it was $1,500, which is the redemption (repurchase) price paid for the cotton. 2012 1040 forms His gain from the sale is $1,000 ($2,500 – $1,500). 2012 1040 forms He reports the $1,000 gain as income for 2013 on Schedule F, line 1b. 2012 1040 forms Excluded CCC loan. 2012 1040 forms   Mike has income of $500 from market gain in 2013. 2012 1040 forms He reports it on Schedule F, lines 4a and 4b. 2012 1040 forms His basis in the cotton is zero, so his gain from its sale is $2,500. 2012 1040 forms He reports the $2,500 gain as income for 2013 on Schedule F, line 1b. 2012 1040 forms Example 2. 2012 1040 forms The facts are the same as in Example 1 except that, instead of selling the cotton for $2,500 after redeeming it, Mike entered into an option-to-purchase contract with a cotton buyer before redeeming the cotton. 2012 1040 forms Under that contract, Mike authorized the cotton buyer to pay the CCC loan on Mike's behalf. 2012 1040 forms In 2013, the cotton buyer repaid the loan for $1,500 and immediately exercised his option, buying the cotton for $1,500. 2012 1040 forms How Mike reports the $500 market gain on the redemption of the cotton and figures his gain or loss from its sale depends on whether he included CCC loans in income in 2012. 2012 1040 forms Included CCC loan. 2012 1040 forms   As in Example 1, Mike is treated as though he sold the cotton for $2,000 when he pledged it and repurchased the cotton for $1,500 when the cotton buyer redeemed it for him. 2012 1040 forms The $500 market gain is not recognized on the redemption. 2012 1040 forms Mike reports it for 2013 as an agricultural program payment on Schedule F, line 4a, but does not include it as a taxable amount on line 4b. 2012 1040 forms   Also, as in Example 1, Mike's basis in the cotton when the cotton buyer redeemed it for him was $1,500. 2012 1040 forms Mike has no gain or loss on its sale to the cotton buyer for that amount. 2012 1040 forms Excluded CCC loan. 2012 1040 forms   As in Example 1, Mike has income of $500 from market gain in 2013. 2012 1040 forms He reports it on Schedule F, lines 4a and 4b. 2012 1040 forms His basis in the cotton is zero, so his gain from its sale is $1,500. 2012 1040 forms He reports the $1,500 gain as income for 2013 on Schedule F, line 1b. 2012 1040 forms Conservation Reserve Program (CRP) Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland. 2012 1040 forms You must include the annual rental payments and any one-time incentive payment you receive under the program on Schedule F, lines 4a and 4b. 2012 1040 forms Cost-share payments you receive may qualify for the cost-sharing exclusion. 2012 1040 forms See Cost-Sharing Exclusion (Improvements) , later. 2012 1040 forms CRP payments are reported to you on Form 1099-G. 2012 1040 forms Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. 2012 1040 forms See the instructions for Schedule SE (Form 1040). 2012 1040 forms Crop Insurance and Crop Disaster Payments You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. 2012 1040 forms You generally include them in the year you receive them. 2012 1040 forms Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster. 2012 1040 forms You can request income tax withholding from crop disaster payments you receive from the federal government. 2012 1040 forms Use Form W-4V, Voluntary Withholding Request. 2012 1040 forms See chapter 16 for information about ordering the form. 2012 1040 forms Election to postpone reporting until the following year. 2012 1040 forms   You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions. 2012 1040 forms You use the cash method of accounting. 2012 1040 forms You receive the crop insurance proceeds in the same tax year the crops are damaged. 2012 1040 forms You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. 2012 1040 forms   Deferral is not permitted for proceeds received from revenue insurance policies. 2012 1040 forms   To postpone reporting some or all crop insurance proceeds received in 2013, report the amount you received on Schedule F, line 6a, but do not include it as a taxable amount on line 6b. 2012 1040 forms Check the box on line 8c and attach a statement to your tax return. 2012 1040 forms The statement must include your name and address and contain the following information. 2012 1040 forms A statement that you are making an election under IRC section 451(d) and Regulations section 1. 2012 1040 forms 451-6. 2012 1040 forms The specific crop or crops physically destroyed or damaged. 2012 1040 forms A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged. 2012 1040 forms The cause of the physical destruction or damage and the date or dates it occurred. 2012 1040 forms The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. 2012 1040 forms The name of each insurance carrier from whom you received payments. 2012 1040 forms   One election covers all crops representing a single trade or business. 2012 1040 forms If you have more than one farming business, make a separate election for each one. 2012 1040 forms For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms. 2012 1040 forms   An election is binding for the year unless the IRS approves your request to change it. 2012 1040 forms To request IRS approval to change your election, write to the IRS at the following address giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. 2012 1040 forms Ogden Submission Processing Center P. 2012 1040 forms O. 2012 1040 forms Box 9941 Ogden, UT 84409 Feed Assistance and Payments The Disaster Assistance Act of 1988 authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists. 2012 1040 forms These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. 2012 1040 forms They also include the donation or sale at a below-market price of feed owned by the Commodity Credit Corporation. 2012 1040 forms Include in income: The market value of donated feed, The difference between the market value and the price you paid for feed you buy at below-market prices, and Any cost reimbursement you receive. 2012 1040 forms You must include these benefits in income in the year you receive them. 2012 1040 forms You cannot postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. 2012 1040 forms Report the benefits on Schedule F, Part I, as agricultural program payments. 2012 1040 forms You can usually take a current deduction for the same amount as a feed expense. 2012 1040 forms Cost-Sharing Exclusion (Improvements) You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. 2012 1040 forms A payment is any economic benefit you get as a result of an improvement. 2012 1040 forms However, this exclusion applies only to that part of a payment that meets all three of the following tests. 2012 1040 forms It was for a capital expense. 2012 1040 forms You cannot exclude any part of a payment for an expense you can deduct in the year you pay or incur it. 2012 1040 forms You must include the payment for a deductible expense in income, and you can take any offsetting deduction. 2012 1040 forms See chapter 5 for information on deducting soil and water conservation expenses. 2012 1040 forms It does not substantially increase your annual income from the property for which it is made. 2012 1040 forms An increase in annual income is substantial if it is more than the greater of the following amounts. 2012 1040 forms 10% of the average annual income derived from the affected property before receiving the improvement. 2012 1040 forms $2. 2012 1040 forms 50 times the number of affected acres. 2012 1040 forms The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. 2012 1040 forms Qualifying programs. 2012 1040 forms   If the three tests listed above are met, you can exclude part or all of the payments from the following programs. 2012 1040 forms The rural clean water program authorized by the Federal Water Pollution Control Act. 2012 1040 forms The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of 1977. 2012 1040 forms The water bank program authorized by the Water Bank Act. 2012 1040 forms The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978. 2012 1040 forms The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. 2012 1040 forms The great plains conservation program authorized by the Soil Conservation and Domestic Policy Act. 2012 1040 forms The resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act. 2012 1040 forms Certain small watershed programs, listed later. 2012 1040 forms Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife. 2012 1040 forms Several state programs have been approved. 2012 1040 forms For information about the status of those programs, contact the state offices of the Farm Service Agency (FSA) and the Natural Resources and Conservation Service (NRCS). 2012 1040 forms Small watershed programs. 2012 1040 forms   If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. 2012 1040 forms The programs under the Watershed Protection and Flood Prevention Act. 2012 1040 forms The flood prevention projects under the Flood Control Act of 1944. 2012 1040 forms The Emergency Watershed Protection Program under the Flood Control Act of 1950. 2012 1040 forms Certain programs under the Colorado River Basin Salinity Control Act. 2012 1040 forms The Wetlands Reserve Program authorized by the Food Security Act of 1985, the Federal Agriculture Improvement and Reform Act of 1996 and the Farm Security and Rural Investment Act of 2002. 2012 1040 forms The Environmental Quality Incentives Program (EQIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. 2012 1040 forms The Wildlife Habitat Incentives Program (WHIP) authorized by the Federal Agriculture Improvement and Reform Act of 1996. 2012 1040 forms The Soil and Water Conservation Assistance Program authorized by the Agricultural Risk Protection Act of 2000. 2012 1040 forms The Agricultural Management Assistance Program authorized by the Agricultural Risk Protection Act of 2000. 2012 1040 forms The Conservation Reserve Program authorized by the Food Security Act of 1985 and the Federal Agriculture Improvement and Reform Act of 1996. 2012 1040 forms The Forest Land Enhancement Program authorized under the Farm Security and Rural Investment Act of 2002. 2012 1040 forms The Conservation Security Program authorized by the Food Security Act of 1985. 2012 1040 forms The Forest Health Protection Program (FHPP) authorized by the Cooperative Forestry Assistance Act of 1978. 2012 1040 forms Income realized. 2012 1040 forms   The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any). 2012 1040 forms Value of the improvement. 2012 1040 forms   You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. 2012 1040 forms The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items. 2012 1040 forms Any government payments under a program not listed earlier. 2012 1040 forms Any part of a government payment under a program listed earlier that the Secretary of Agriculture has not certified as primarily for conservation. 2012 1040 forms Any government payment to you for rent or for your services. 2012 1040 forms The denominator of the fraction is the total cost of the improvement. 2012 1040 forms Excludable portion. 2012 1040 forms   The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. 2012 1040 forms 10% of the prior average annual income from the affected acreage. 2012 1040 forms The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. 2012 1040 forms $2. 2012 1040 forms 50 times the number of affected acres. 2012 1040 forms The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication. 2012 1040 forms You may need to consult your tax advisor for assistance. 2012 1040 forms Example. 2012 1040 forms One hundred acres of your land was reclaimed under a rural abandoned mine program contract with the Natural Resources Conservation Service of the USDA. 2012 1040 forms The total cost of the improvement was $500,000. 2012 1040 forms The USDA paid $490,000. 2012 1040 forms You paid $10,000. 2012 1040 forms The value of the cost-sharing improvement is $15,000. 2012 1040 forms The present fair market value of the right to receive the annual income described in (1) above is $1,380, and the present fair market value of the right to receive the annual income described in (2) is $1,550. 2012 1040 forms The excludable portion is the greater amount, $1,550. 2012 1040 forms You figure the amount to include in gross income as follows: Value of cost-sharing improvement $15,000 Minus: Your share $10,000     Excludable portion 1,550 11,550 Amount included in income $ 3,450 Effects of the exclusion. 2012 1040 forms   When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. 2012 1040 forms Any payment excluded from income is not part of your basis. 2012 1040 forms In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450. 2012 1040 forms   In addition, you cannot take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income. 2012 1040 forms How to report the exclusion. 2012 1040 forms   Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. 2012 1040 forms The statement must include the following information. 2012 1040 forms The dollar amount of the cost funded by the government payment. 2012 1040 forms The value of the improvement. 2012 1040 forms The amount you are excluding. 2012 1040 forms   Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. 2012 1040 forms Recapture. 2012 1040 forms   If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. 2012 1040 forms In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. 2012 1040 forms You must report the recapture on Form 4797. 2012 1040 forms See Section 1255 property under Other Gains in chapter 9. 2012 1040 forms Electing not to exclude payments. 2012 1040 forms   You can elect not to exclude all or part of any payments you receive under these programs. 2012 1040 forms If you make this election for all of these payments, none of the above restrictions and rules apply. 2012 1040 forms You must make this election by the due date, including extensions, for filing your return. 2012 1040 forms In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. 2012 1040 forms If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). 2012 1040 forms Write “Filed pursuant to section 301. 2012 1040 forms 9100-2” at the top of the amended return and file it at the same address you filed the original return. 2012 1040 forms Payments Under the Farm Security and Rural Investment Act of 2002 and Under the Food, Conservation, and Energy Act of 2008 The Farm Security and Rural Investment Act of 2002 created two new types of payments—direct and counter-cyclical payments. 2012 1040 forms You must include these payments on Schedule F, lines 4a and 4b. 2012 1040 forms The Food, Conservation, and Energy Act of 2008 provides for direct and counter-cyclical payments (DCP) as well as Average Crop Revenue Election (ACRE) payments. 2012 1040 forms You must include these payments on Schedule F, lines 6a and 6b. 2012 1040 forms The American Taxpayer Relief Act of 2012, enacted on January 2, 2013, amends the Food, Conservation, and Energy Act of 2008 and provided a one-year extension for these payments. 2012 1040 forms Tobacco Quota Buyout Program Payments The Fair and Equitable Tobacco Reform Act of 2004, title VI of the American Jobs Creation Act of 2004, terminated the tobacco marketing quota program and the tobacco price support program. 2012 1040 forms As a result, the USDA offered to enter into contracts with eligible tobacco quota holders and growers to provide compensation for the lost value of the quotas and related price support. 2012 1040 forms If you are an eligible tobacco quota holder, your contract entitles you to receive total payments of $7 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. 2012 1040 forms If you are an eligible tobacco grower, your contract entitles you to receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014. 2012 1040 forms Tobacco Quota Holders Contract payments you receive are considered proceeds from a sale of your tobacco quota as of the date on which you and the USDA enter into the contract. 2012 1040 forms Your taxable gain or loss is the total amount received for your quota reduced by any amount treated as interest (discussed below), over your adjusted basis. 2012 1040 forms The gain or loss is capital or ordinary depending on how you used the quota. 2012 1040 forms See Capital or ordinary gain or loss , later. 2012 1040 forms Report the entire gain on your income tax return for the tax year that includes the date you entered into the contract if you elect not to use the installment method. 2012 1040 forms Adjusted basis. 2012 1040 forms   The adjusted basis of your quota is determined differently depending on how you obtained the quota. 2012 1040 forms The basis of a quota derived from an original grant by the federal government is zero. 2012 1040 forms The basis of a purchased quota is the purchase price. 2012 1040 forms The basis of a quota received as a gift is generally the same as the donor's basis. 2012 1040 forms However, under certain circumstances, the basis is increased by the amount of gift taxes paid. 2012 1040 forms If the basis is greater than the fair market value of the quota at the time of the gift, the basis for determining loss is the fair market value. 2012 1040 forms The basis of an inherited quota is generally the fair market value of the quota at the time of the decedent's death. 2012 1040 forms Reduction of basis. 2012 1040 forms   You are required to reduce the basis of your tobacco quota by the following amounts. 2012 1040 forms Deductions you took for amortization, depletion, or depreciation. 2012 1040 forms Amounts you previously deducted as a loss because of a reduction in the number of pounds of tobacco allowable under the quota. 2012 1040 forms The entire cost of a purchased quota you deducted in an earlier year (which reduces your basis to zero). 2012 1040 forms Amount treated as interest. 2012 1040 forms   You must reduce your tobacco quota buyout program payment by the amount treated as interest. 2012 1040 forms The interest is reportable as ordinary income. 2012 1040 forms If payments total $3,000 or less, your total quota buyout program payment does not include any amount treated as interest and you are not required to reduce the total payment you receive. 2012 1040 forms   In all other cases, a portion of each payment may be treated as interest for federal tax purposes. 2012 1040 forms You may be required to reduce your total quota buyout program payment before you calculate your gain or loss. 2012 1040 forms For more information, see Notice 2005-57, 2005-32 I. 2012 1040 forms R. 2012 1040 forms B. 2012 1040 forms 267, available at www. 2012 1040 forms irs. 2012 1040 forms gov/irb/2005-32_IRB/ar13. 2012 1040 forms html. 2012 1040 forms Installment method. 2012 1040 forms   You may use the installment method to report a gain if you receive at least one payment after the close of your tax year. 2012 1040 forms Under the installment method, a portion of the gain is taken into account in each year in which a payment is received. 2012 1040 forms See chapter 10 for more information. 2012 1040 forms Capital or ordinary gain or loss. 2012 1040 forms   Whether your gain or loss is ordinary or capital depends on how you used the quota. 2012 1040 forms Quota used in the trade or business of farming. 2012 1040 forms   If you used the quota in the trade or business of farming and you held it for more than one year, you report the transaction as a section 1231 transaction on Form 4797. 2012 1040 forms See Section 1231 transactions in the Instructions for Form 4797 for detailed information on reporting section 1231 transactions. 2012 1040 forms Quota held for investment. 2012 1040 forms   If you held the quota for investment purposes, any gain or loss is capital gain or loss. 2012 1040 forms The same result also applies if you held the quota for the production of income, though not connected with a trade or business. 2012 1040 forms Gain treated as ordinary income. 2012 1040 forms   If you previously deducted any of the following items, some or all of the capital gain must be recharacterized and reported as ordinary income. 2012 1040 forms Any resulting capital gain is taxed as ordinary income up to the amount previously deducted. 2012 1040 forms The cost of acquiring a quota. 2012 1040 forms Amounts for amortization, depletion, or depreciation. 2012 1040 forms Amounts to reflect a reduction in the quota pounds. 2012 1040 forms   You should include the ordinary income on your return for the tax year even if you use the installment method to report the remainder of the gain. 2012 1040 forms Self-employment income. 2012 1040 forms   The tobacco quota buyout payments are not self-employment income. 2012 1040 forms Income averaging for farmers. 2012 1040 forms   The gain or loss resulting from the quota payments does not qualify for income averaging. 2012 1040 forms A tobacco quota is considered an interest in land. 2012 1040 forms Income averaging is not available for gain or loss arising from the sale or other disposition of land. 2012 1040 forms Involuntary conversion. 2012 1040 forms   The buyout of the tobacco quota is not an involuntary conversion. 2012 1040 forms Form 1099-S. 2012 1040 forms   A tobacco quota is considered an interest in land, so the USDA will generally report the total amount you receive under a contract on Form 1099-S, Proceeds From Real Estate Transactions, if the amount is $600 or more. 2012 1040 forms The USDA will generally report any portion of a payment treated as interest of $600 or more to you on Form 1099-INT, Interest Income, for the year in which the payment is made. 2012 1040 forms Like-kind exchange of quota. 2012 1040 forms   You may postpone reporting the gain or loss from tobacco quota buyout payments by entering into a like-kind exchange if you comply with the requirements of section 1031 and the regulations thereunder. 2012 1040 forms See Notice 2005-57 for more information. 2012 1040 forms Tobacco Growers Contract payments you receive are determined by reference to the amount of quota under which you produced (or planted) quota tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that you produced (or planted) quota tobacco during those years. 2012 1040 forms Taxation of payments to tobacco growers. 2012 1040 forms   Payments to growers replace ordinary income that would have been earned had the tobacco marketing quota and price support programs continued. 2012 1040 forms Individuals will generally report the payments as an Agricultural program payment on Schedule F. 2012 1040 forms If you are a landowner who does not materially participate in the operation or management of the farm and are receiving the grower payment because your farm rental income is based on the tobacco grown by a tenant, the grower payment should be reported on Form 4835. 2012 1040 forms Self-employment income. 2012 1040 forms   Payments to growers generally represent self-employment income. 2012 1040 forms If the grower is an individual carrying on a trade or business and deriving income (other than farm rental income properly reported on Form 4835) from that trade or business, the payments are net earnings from self-employment. 2012 1040 forms Income averaging for farmers. 2012 1040 forms   Payments to growers who are individuals qualify for farm income averaging. 2012 1040 forms Form 1099-G. 2012 1040 forms   If the amount received in a taxable year is $600 or more, the amount will generally be reported by the USDA on a Form 1099-G. 2012 1040 forms Other Payments You must include most other government program payments in income. 2012 1040 forms Fertilizer and Lime Include in income the value of fertilizer or lime you receive under a government program. 2012 1040 forms How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. 2012 1040 forms Improvements If government payments are based on improvements, such as a pollution control facility, you must include them in income. 2012 1040 forms You must also capitalize the full cost of the improvement. 2012 1040 forms Since you have included the payments in income, they do not reduce your basis. 2012 1040 forms However, see Cost-Sharing Exclusion (Improvements) , earlier, for additional information. 2012 1040 forms National Tobacco Growers' Settlement Trust Fund Payments If you are a producer, landowner, or tobacco quota owner who receives money from the National Tobacco Growers' Settlement Trust Fund, you must report those payments as income. 2012 1040 forms You should receive a Form 1099-MISC, Miscellaneous Income, that shows the payment amount. 2012 1040 forms If you produce a tobacco crop, report the payments as income from farming on your Schedule F. 2012 1040 forms If you are a landowner or tobacco quota owner who leases tobacco-related property but you do not produce the crop, report the payments as farm rental income on Form 4835. 2012 1040 forms Payment to More Than One Person The USDA reports program payments to the IRS. 2012 1040 forms It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment (payee of record). 2012 1040 forms If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. 2012 1040 forms You should file Form 1099-G to report the identity of the actual recipient to the IRS. 2012 1040 forms You should also give this information to the recipient. 2012 1040 forms You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. 2012 1040 forms Report the total amount reported to you as the payee of record on Schedule F, line 4a or 6a. 2012 1040 forms However, do not report as a taxable amount on line 4b or 6b any amount belonging to someone else. 2012 1040 forms See chapter 16 for information about ordering Form 1099-G. 2012 1040 forms Income From Cooperatives If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends (refunds). 2012 1040 forms If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. 2012 1040 forms Form 1099-PATR. 2012 1040 forms   The cooperative will report the income to you on Form 1099-PATR or a similar form and send a copy to the IRS. 2012 1040 forms Form 1099-PATR may also show an alternative minimum tax adjustment that you must include on Form 6251, Alternative Minimum Tax—Individuals, if you are required to file the form. 2012 1040 forms For information on the alternative minimum tax, see the Instructions for Form 6251. 2012 1040 forms Patronage Dividends You generally report patronage dividends as income on Schedule F, lines 3a and 3b, for the tax year you receive them. 2012 1040 forms They include the following items. 2012 1040 forms Money paid as a patronage dividend, including cash advances received (for example, from a marketing cooperative). 2012 1040 forms The stated dollar value of qualified written notices of allocation. 2012 1040 forms The fair market value of other property. 2012 1040 forms Do not report as income on line 3b any patronage dividends you receive from expenditures that were not deductible, such as buying personal or family items, capital assets, or depreciable property. 2012 1040 forms You must reduce the cost or other basis of these items by the amount of such patronage dividends received. 2012 1040 forms Personal items include fuel purchased for personal use, basic local telephone service, and personal long distance calls. 2012 1040 forms If you cannot determine what the dividend is for, report it as income on lines 3a and 3b. 2012 1040 forms Qualified written notice of allocation. 2012 1040 forms   If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F, lines 3a and 3b, in the year you receive it. 2012 1040 forms A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met. 2012 1040 forms The notice must be redeemable in cash for at least 90 days after it is issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. 2012 1040 forms You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. 2012 1040 forms Signing and giving a written agreement to the cooperative. 2012 1040 forms Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. 2012 1040 forms The cooperative must notify you in writing of this bylaw and give you a copy. 2012 1040 forms Endorsing and cashing a qualified check paid as part of the same patronage dividend. 2012 1040 forms You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid. 2012 1040 forms Qualified check. 2012 1040 forms   A qualified check is any instrument that is redeemable in money and meets both of the following requirements. 2012 1040 forms It is part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2(c), above. 2012 1040 forms It is imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend. 2012 1040 forms Loss on redemption. 2012 1040 forms   You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. 2012 1040 forms The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. 2012 1040 forms Nonqualified notice of allocation. 2012 1040 forms   Do not include the stated dollar value of any nonqualified notice of allocation in income when you receive it. 2012 1040 forms Your basis in the notice is zero. 2012 1040 forms You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. 2012 1040 forms Report that amount, up to the stated dollar value of the notice, on Schedule F, lines 3a and 3b. 2012 1040 forms However, do not include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. 2012 1040 forms   If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. 2012 1040 forms For example, if it represents interest income, report it on your return as interest. 2012 1040 forms Buying or selling capital assets or depreciable property. 2012 1040 forms   Do not include in income patronage dividends from buying capital assets or depreciable property used in your business. 2012 1040 forms You must, however, reduce the basis of these assets by the dividends. 2012 1040 forms This reduction is taken into account as of the first day of the tax year in which the dividends are received. 2012 1040 forms If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F, line 3a, for the tax year you receive them. 2012 1040 forms   This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. 2012 1040 forms Example. 2012 1040 forms On July 1, 2012, Mr. 2012 1040 forms Brown, a patron of a cooperative association, bought a machine for his dairy farm business from the association for $2,900. 2012 1040 forms The machine has a life of 7 years under MACRS (as provided in the Table of Class Lives and Recovery Periods in Appendix B of Publication 946, Depreciation and Amortization). 2012 1040 forms Mr. 2012 1040 forms Brown files his return on a calendar year basis. 2012 1040 forms For 2012, he claimed a depreciation deduction of $311, using the 10. 2012 1040 forms 71% depreciation rate from the 150% declining balance, half-year convention table (shown in Table A-14 in Appendix A of Publication 946). 2012 1040 forms On July 2, 2013, the cooperative association paid Mr. 2012 1040 forms Brown a $300 cash patronage dividend for buying the machine. 2012 1040 forms Mr. 2012 1040 forms Brown adjusts the basis of the machine and figures his depreciation deduction for 2013 (and later years) as follows. 2012 1040 forms Cost of machine on July 1, 2012 $2,900 Minus: 2012 depreciation $311     2013 cash dividend 300 611 Adjusted basis for  depreciation for 2013: $2,289 Depreciation rate: 1 ÷ 6½ (remaining recovery period as of 1/1/2012) = 15. 2012 1040 forms 38% × 1. 2012 1040 forms 5 = 23. 2012 1040 forms 07% Depreciation deduction for 2013 ($2,289 × 23. 2012 1040 forms 07%) $528 Exceptions. 2012 1040 forms   If the dividends are for buying or selling capital assets or depreciable property you did not own at any time during the year you received the dividends, you must include them on Schedule F, lines 3a and 3b, unless one of the following rules applies. 2012 1040 forms If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. 2012 1040 forms If the dividends relate to a capital asset for which a loss was not or would not have been deductible, do not report them as income (ordinary or capital gain). 2012 1040 forms   If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale. 2012 1040 forms Personal purchases. 2012 1040 forms   Because you cannot deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F, line 3b, any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). 2012 1040 forms This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. 2012 1040 forms Per-Unit Retain Certificates A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. 2012 1040 forms A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. 2012 1040 forms These allocations can be paid in money, other property, or qualified certificates. 2012 1040 forms Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. 2012 1040 forms Qualified certificates. 2012 1040 forms   Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. 2012 1040 forms The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. 2012 1040 forms If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, lines 3a and 3b, for the tax year you receive them. 2012 1040 forms Nonqualified certificates. 2012 1040 forms   Do not include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. 2012 1040 forms Your basis in the certificate is zero. 2012 1040 forms You must include in income any amount you receive from its sale, redemption, or other disposition. 2012 1040 forms Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. 2012 1040 forms Cancellation of Debt This section explains the general rule for including canceled debt in income and the exceptions to the general rule. 2012 1040 forms For more information on canceled debt, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. 2012 1040 forms General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. 2012 1040 forms Discharge of qualified farm indebtedness (defined below) is one of the exceptions to the general rule. 2012 1040 forms It is excluded from taxable income (see Exclusions , later). 2012 1040 forms Report the canceled amount on Schedule F, line 8, if you incurred the debt in your farming business. 2012 1040 forms If the debt is a nonbusiness debt, report the canceled amount as other income on Form 1040, line 21. 2012 1040 forms Election to defer income from discharge of indebtedness. 2012 1040 forms   You can elect to defer income from a discharge of business indebtedness that occurred after 2008 and before 2011. 2012 1040 forms Generally, if the election is made, the deferred income is included in gross income ratably over a 5-year period beginning in 2014 (for calendar year taxpayers) and the exclusions listed below do not apply. 2012 1040 forms See IRC section 108(i) and Publication 4681 for details. 2012 1040 forms Form 1099-C. 2012 1040 forms   If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. 2012 1040 forms The amount of debt canceled is shown in box 2. 2012 1040 forms Exceptions The following discussion covers some exceptions to the general rule for canceled debt. 2012 1040 forms These exceptions apply before the exclusions discussed below. 2012 1040 forms Price reduced after purchase. 2012 1040 forms   If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you are not insolvent and the reduction does not occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. 2012 1040 forms Reduce your basis in the property by the amount of the reduction in the debt. 2012 1040 forms The rules that apply to bankruptcy and insolvency are explained below under Exclusions . 2012 1040 forms Deductible debt. 2012 1040 forms   You do not realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. 2012 1040 forms This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. 2012 1040 forms Example. 2012 1040 forms You get accounting services for your farm on credit. 2012 1040 forms Later, you have trouble paying your farm debts, but you are not bankrupt or insolvent. 2012 1040 forms Your accountant forgives part of the amount you owe for the accounting services. 2012 1040 forms How you treat the canceled debt depends on your method of accounting. 2012 1040 forms Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. 2012 1040 forms Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. 2012 1040 forms Exclusions Do not include canceled debt in income in the following situations. 2012 1040 forms The cancellation takes place in a bankruptcy case under title 11 of the U. 2012 1040 forms S. 2012 1040 forms Code. 2012 1040 forms The cancellation takes place when you are insolvent. 2012 1040 forms The canceled debt is a qualified farm debt. 2012 1040 forms The canceled debt is a qualified real property business debt (in the case of a taxpayer other than a C corporation). 2012 1040 forms See Publication 334, Tax Guide for Small Business, chapter 5. 2012 1040 forms The canceled debt is qualified principal residence indebtedness which is discharged after 2006 and before 2014. 2012 1040 forms The exclusions do not apply in the following situations: If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations (2), (3), (4), and (5) do not apply. 2012 1040 forms If a canceled debt is excluded from income because it takes place when you are insolvent, the exclusions in situations (3) and (4) do not apply to the extent you are insolvent. 2012 1040 forms If a canceled debt is excluded from income because it is qualified principal residence indebtedness, the exclusion in situation (2) does not apply unless you elect to apply situation (2) instead of the exclusion for qualified principal residence indebtedness. 2012 1040 forms See Form 982 , later, for information on how to claim an exclusion for a canceled debt. 2012 1040 forms Debt. 2012 1040 forms   For this discussion, debt includes any debt for which you are liable or that attaches to property you hold. 2012 1040 forms Bankruptcy and Insolvency You can exclude a canceled debt from income if you are bankrupt or to the extent you are insolvent. 2012 1040 forms Bankruptcy. 2012 1040 forms   A bankruptcy case is a case under title 11 of the U. 2012 1040 forms S. 2012 1040 forms Code if you are under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. 2012 1040 forms   Do not include debt canceled in a bankruptcy case in your income in the year it is canceled. 2012 1040 forms Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes . 2012 1040 forms Insolvency. 2012 1040 forms   You are insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. 2012 1040 forms   You can exclude canceled debt from gross income up to the amount by which you are insolvent. 2012 1040 forms If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference. 2012 1040 forms Otherwise, you include the difference in gross income. 2012 1040 forms Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes . 2012 1040 forms You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt. 2012 1040 forms Example. 2012 1040 forms You had a $15,000 debt that was not qualified principal residence debt canceled outside of bankruptcy. 2012 1040 forms Immediately before the cancellation, your liabilities totaled $80,000 and your assets totaled $75,000. 2012 1040 forms Since your liabilities were more than your assets, you were insolvent to the extent of $5,000 ($80,000 − $75,000). 2012 1040 forms You can exclude this amount from income. 2012 1040 forms The remaining canceled debt ($10,000) may be subject to the qualified farm debt or qualified real property business debt rules. 2012 1040 forms If not, you must include it in income. 2012 1040 forms Reduction of tax attributes. 2012 1040 forms   If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. 2012 1040 forms Order of reduction. 2012 1040 forms   You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. 2012 1040 forms Net operating loss (NOL). 2012 1040 forms Reduce any NOL for the tax year of the debt cancellation, and then any NOL carryover to that year. 2012 1040 forms Reduce the NOL or NOL carryover one dollar for each dollar of excluded canceled debt. 2012 1040 forms General business credit carryover. 2012 1040 forms Reduce the credit carryover to or from the tax year of the debt cancellation. 2012 1040 forms Reduce the carryover 331/3 cents for each dollar of excluded canceled debt. 2012 1040 forms Minimum tax credit. 2012 1040 forms Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. 2012 1040 forms Reduce the credit 331/3 cents for each dollar of excluded canceled debt. 2012 1040 forms Capital loss. 2012 1040 forms Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. 2012 1040 forms Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. 2012 1040 forms Basis. 2012 1040 forms Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. 2012 1040 forms Real property (except inventory) used in your trade or business or held for investment that secured the canceled debt. 2012 1040 forms Personal property (except inventory and accounts and notes receivable) used in your trade or business or held for investment that secured the canceled debt. 2012 1040 forms Other property (except inventory and accounts and notes receivable) used in your trade or business or held for investment. 2012 1040 forms Inventory and accounts and notes receivable. 2012 1040 forms Other property. 2012 1040 forms Reduce the basis one dollar for each dollar of excluded canceled debt. 2012 1040 forms However, the reduction cannot be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. 2012 1040 forms For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1. 2012 1040 forms 1017-1(b)(2). 2012 1040 forms Also see Electing to reduce the basis of depreciable property
Español

U.S. Government Podcast Directory

Podcasts from the U.S. government.


The 2012 1040 Forms

2012 1040 forms Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. 2012 1040 forms S. 2012 1040 forms Taxpayer Identification NumbersUnexpected payment. 2012 1040 forms Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. 2012 1040 forms Electronic reporting. 2012 1040 forms Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. 2012 1040 forms S. 2012 1040 forms Real Property InterestForeign corporations. 2012 1040 forms Domestic corporations. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms real property holding corporations. 2012 1040 forms Partnerships. 2012 1040 forms Trusts and estates. 2012 1040 forms Domestically controlled QIE. 2012 1040 forms Late filing of certifications or notices. 2012 1040 forms Certifications. 2012 1040 forms Liability of agent or qualified substitute. 2012 1040 forms Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 2012 1040 forms Withholding of Tax In most cases, a foreign person is subject to U. 2012 1040 forms S. 2012 1040 forms tax on its U. 2012 1040 forms S. 2012 1040 forms source income. 2012 1040 forms Most types of U. 2012 1040 forms S. 2012 1040 forms source income received by a foreign person are subject to U. 2012 1040 forms S. 2012 1040 forms tax of 30%. 2012 1040 forms A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. 2012 1040 forms The tax is generally withheld (NRA withholding) from the payment made to the foreign person. 2012 1040 forms The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. 2012 1040 forms In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. 2012 1040 forms S. 2012 1040 forms source income. 2012 1040 forms Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. 2012 1040 forms NRA withholding does not include withholding under section 1445 of the Code (see U. 2012 1040 forms S. 2012 1040 forms Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). 2012 1040 forms A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. 2012 1040 forms However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. 2012 1040 forms S. 2012 1040 forms person is not required to withhold. 2012 1040 forms In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. 2012 1040 forms Withholding Agent You are a withholding agent if you are a U. 2012 1040 forms S. 2012 1040 forms or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. 2012 1040 forms A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. 2012 1040 forms S. 2012 1040 forms branch of certain foreign banks and insurance companies. 2012 1040 forms You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. 2012 1040 forms Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. 2012 1040 forms In most cases, the U. 2012 1040 forms S. 2012 1040 forms person who pays an amount subject to NRA withholding is the person responsible for withholding. 2012 1040 forms However, other persons may be required to withhold. 2012 1040 forms For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. 2012 1040 forms In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. 2012 1040 forms Liability for tax. 2012 1040 forms   As a withholding agent, you are personally liable for any tax required to be withheld. 2012 1040 forms This liability is independent of the tax liability of the foreign person to whom the payment is made. 2012 1040 forms If you fail to withhold and the foreign payee fails to satisfy its U. 2012 1040 forms S. 2012 1040 forms tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. 2012 1040 forms   The applicable tax will be collected only once. 2012 1040 forms If the foreign person satisfies its U. 2012 1040 forms S. 2012 1040 forms tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. 2012 1040 forms Determination of amount to withhold. 2012 1040 forms   You must withhold on the gross amount subject to NRA withholding. 2012 1040 forms You cannot reduce the gross amount by any deductions. 2012 1040 forms However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. 2012 1040 forms   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. 2012 1040 forms In no case, however, should you withhold more than 30% of the total amount paid. 2012 1040 forms Or, you may make a reasonable estimate of the amount from U. 2012 1040 forms S. 2012 1040 forms sources and put a corresponding part of the amount due in escrow until the amount from U. 2012 1040 forms S. 2012 1040 forms sources can be determined, at which time withholding becomes due. 2012 1040 forms When to withhold. 2012 1040 forms   Withholding is required at the time you make a payment of an amount subject to withholding. 2012 1040 forms A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. 2012 1040 forms A payment is considered made to a person if it is paid for that person's benefit. 2012 1040 forms For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. 2012 1040 forms A payment also is considered made to a person if it is made to that person's agent. 2012 1040 forms   A U. 2012 1040 forms S. 2012 1040 forms partnership should withhold when any distributions that include amounts subject to withholding are made. 2012 1040 forms However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. 2012 1040 forms S. 2012 1040 forms partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. 2012 1040 forms If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. 2012 1040 forms A U. 2012 1040 forms S. 2012 1040 forms trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. 2012 1040 forms To the extent a U. 2012 1040 forms S. 2012 1040 forms trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. 2012 1040 forms Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. 2012 1040 forms (See Returns Required , later. 2012 1040 forms ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. 2012 1040 forms Form 1099 reporting and backup withholding. 2012 1040 forms    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. 2012 1040 forms S. 2012 1040 forms person. 2012 1040 forms You must withhold 28% (backup withholding rate) from a reportable payment made to a U. 2012 1040 forms S. 2012 1040 forms person that is subject to Form 1099 reporting if any of the following apply. 2012 1040 forms The U. 2012 1040 forms S. 2012 1040 forms person has not provided its taxpayer identification number (TIN) in the manner required. 2012 1040 forms The IRS notifies you that the TIN furnished by the payee is incorrect. 2012 1040 forms There has been a notified payee underreporting. 2012 1040 forms There has been a payee certification failure. 2012 1040 forms In most cases, a TIN must be provided by a U. 2012 1040 forms S. 2012 1040 forms non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. 2012 1040 forms A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. 2012 1040 forms You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. 2012 1040 forms S. 2012 1040 forms person. 2012 1040 forms For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. 2012 1040 forms S. 2012 1040 forms person subject to Form 1099 reporting. 2012 1040 forms See Identifying the Payee , later, for more information. 2012 1040 forms Also see Section S. 2012 1040 forms Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. 2012 1040 forms Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. 2012 1040 forms Wages paid to employees. 2012 1040 forms   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. 2012 1040 forms See Pay for Personal Services Performed , later. 2012 1040 forms Effectively connected income by partnerships. 2012 1040 forms   A withholding agent that is a partnership (whether U. 2012 1040 forms S. 2012 1040 forms or foreign) is also responsible for withholding on its income effectively connected with a U. 2012 1040 forms S. 2012 1040 forms trade or business that is allocable to foreign partners. 2012 1040 forms See Partnership Withholding on Effectively Connected Income , later, for more information. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms real property interest. 2012 1040 forms   A withholding agent also may be responsible for withholding if a foreign person transfers a U. 2012 1040 forms S. 2012 1040 forms real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. 2012 1040 forms S. 2012 1040 forms real property interest to a shareholder, partner, or beneficiary that is a foreign person. 2012 1040 forms See U. 2012 1040 forms S. 2012 1040 forms Real Property Interest , later. 2012 1040 forms Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. 2012 1040 forms It does not apply to payments made to U. 2012 1040 forms S. 2012 1040 forms persons. 2012 1040 forms Usually, you determine the payee's status as a U. 2012 1040 forms S. 2012 1040 forms or foreign person based on the documentation that person provides. 2012 1040 forms See Documentation , later. 2012 1040 forms However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. 2012 1040 forms Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. 2012 1040 forms However, there are situations in which the payee is a person other than the one to whom you actually make a payment. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms agent of foreign person. 2012 1040 forms   If you make a payment to a U. 2012 1040 forms S. 2012 1040 forms person and you have actual knowledge that the U. 2012 1040 forms S. 2012 1040 forms person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. 2012 1040 forms However, if the U. 2012 1040 forms S. 2012 1040 forms person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. 2012 1040 forms   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. 2012 1040 forms S. 2012 1040 forms person and not as a payment to a foreign person. 2012 1040 forms You may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2012 1040 forms Disregarded entities. 2012 1040 forms   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. 2012 1040 forms The payee of a payment made to a disregarded entity is the owner of the entity. 2012 1040 forms   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. 2012 1040 forms   If the owner is a U. 2012 1040 forms S. 2012 1040 forms person, you do not apply NRA withholding. 2012 1040 forms However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2012 1040 forms You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. 2012 1040 forms Flow-Through Entities The payees of payments (other than income effectively connected with a U. 2012 1040 forms S. 2012 1040 forms trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. 2012 1040 forms This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2012 1040 forms Income that is, or is deemed to be, effectively connected with the conduct of a U. 2012 1040 forms S. 2012 1040 forms trade or business of a flow-through entity is treated as paid to the entity. 2012 1040 forms All of the following are flow-through entities. 2012 1040 forms A foreign partnership (other than a withholding foreign partnership). 2012 1040 forms A foreign simple or foreign grantor trust (other than a withholding foreign trust). 2012 1040 forms A fiscally transparent entity receiving income for which treaty benefits are claimed. 2012 1040 forms See Fiscally transparent entity , later. 2012 1040 forms In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. 2012 1040 forms You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. 2012 1040 forms You must determine whether the owners or beneficiaries of a flow-through entity are U. 2012 1040 forms S. 2012 1040 forms or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. 2012 1040 forms You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. 2012 1040 forms If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. 2012 1040 forms See Documentation and Presumption Rules , later. 2012 1040 forms Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. 2012 1040 forms Foreign partnerships. 2012 1040 forms    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. 2012 1040 forms If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. 2012 1040 forms However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2012 1040 forms If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. 2012 1040 forms Example 1. 2012 1040 forms A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. 2012 1040 forms S. 2012 1040 forms citizen. 2012 1040 forms You make a payment of U. 2012 1040 forms S. 2012 1040 forms source interest to the partnership. 2012 1040 forms It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. 2012 1040 forms S. 2012 1040 forms citizen. 2012 1040 forms The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. 2012 1040 forms You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. 2012 1040 forms Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. 2012 1040 forms Report the payment to the U. 2012 1040 forms S. 2012 1040 forms citizen on Form 1099-INT. 2012 1040 forms Example 2. 2012 1040 forms A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. 2012 1040 forms The second partnership has two partners, both nonresident alien individuals. 2012 1040 forms You make a payment of U. 2012 1040 forms S. 2012 1040 forms source interest to the first partnership. 2012 1040 forms It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. 2012 1040 forms In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. 2012 1040 forms The Forms W-8IMY from the partnerships have complete withholding statements associated with them. 2012 1040 forms Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. 2012 1040 forms Example 3. 2012 1040 forms You make a payment of U. 2012 1040 forms S. 2012 1040 forms source dividends to a withholding foreign partnership. 2012 1040 forms The partnership has two partners, both foreign corporations. 2012 1040 forms You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. 2012 1040 forms You must treat the partnership as the payee of the dividends. 2012 1040 forms Foreign simple and grantor trust. 2012 1040 forms   A trust is foreign unless it meets both of the following tests. 2012 1040 forms A court within the United States is able to exercise primary supervision over the administration of the trust. 2012 1040 forms One or more U. 2012 1040 forms S. 2012 1040 forms persons have the authority to control all substantial decisions of the trust. 2012 1040 forms   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. 2012 1040 forms A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. 2012 1040 forms   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. 2012 1040 forms The payees of a payment made to a foreign grantor trust are the owners of the trust. 2012 1040 forms However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2012 1040 forms If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. 2012 1040 forms Example. 2012 1040 forms A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. 2012 1040 forms S. 2012 1040 forms citizen. 2012 1040 forms You make a payment of interest to the foreign trust. 2012 1040 forms It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. 2012 1040 forms S. 2012 1040 forms citizen. 2012 1040 forms The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. 2012 1040 forms You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. 2012 1040 forms Report the payment to the nonresident aliens on Forms 1042-S. 2012 1040 forms Report the payment to the U. 2012 1040 forms S. 2012 1040 forms citizen on Form 1099-INT. 2012 1040 forms Fiscally transparent entity. 2012 1040 forms   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. 2012 1040 forms The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. 2012 1040 forms ). 2012 1040 forms The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. 2012 1040 forms An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. 2012 1040 forms Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. 2012 1040 forms   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. 2012 1040 forms Example. 2012 1040 forms Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. 2012 1040 forms A has two interest holders, B and C. 2012 1040 forms B is a corporation organized under the laws of country Y. 2012 1040 forms C is a corporation organized under the laws of country Z. 2012 1040 forms Both countries Y and Z have an income tax treaty in force with the United States. 2012 1040 forms A receives royalty income from U. 2012 1040 forms S. 2012 1040 forms sources that is not effectively connected with the conduct of a trade or business in the United States. 2012 1040 forms For U. 2012 1040 forms S. 2012 1040 forms income tax purposes, A is treated as a partnership. 2012 1040 forms Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. 2012 1040 forms The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. 2012 1040 forms Accordingly, A is fiscally transparent in its jurisdiction, country X. 2012 1040 forms B and C are not fiscally transparent under the laws of their respective countries of incorporation. 2012 1040 forms Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. 2012 1040 forms Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. 2012 1040 forms S. 2012 1040 forms source royalty income for purposes of the U. 2012 1040 forms S. 2012 1040 forms -Y income tax treaty. 2012 1040 forms Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. 2012 1040 forms Therefore, A is not treated as fiscally transparent under the laws of country Z. 2012 1040 forms Accordingly, C is not treated as deriving its share of the U. 2012 1040 forms S. 2012 1040 forms source royalty income for purposes of the U. 2012 1040 forms S. 2012 1040 forms -Z income tax treaty. 2012 1040 forms Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. 2012 1040 forms This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2012 1040 forms You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. 2012 1040 forms An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. 2012 1040 forms A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. 2012 1040 forms In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. 2012 1040 forms You must determine whether the customers or account holders of a foreign intermediary are U. 2012 1040 forms S. 2012 1040 forms or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. 2012 1040 forms You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. 2012 1040 forms If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. 2012 1040 forms See Documentation and Presumption Rules , later. 2012 1040 forms Nonqualified intermediary. 2012 1040 forms   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. 2012 1040 forms The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. 2012 1040 forms Example. 2012 1040 forms You make a payment of interest to a foreign bank that is a nonqualified intermediary. 2012 1040 forms The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. 2012 1040 forms S. 2012 1040 forms person for whom the bank is collecting the payments. 2012 1040 forms The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. 2012 1040 forms The account holders are the payees of the interest payment. 2012 1040 forms You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. 2012 1040 forms S. 2012 1040 forms person on Form 1099-INT. 2012 1040 forms Qualified intermediary. 2012 1040 forms   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. 2012 1040 forms S. 2012 1040 forms intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. 2012 1040 forms You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. 2012 1040 forms In this situation, the QI is required to withhold the tax. 2012 1040 forms You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. 2012 1040 forms   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. 2012 1040 forms If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. 2012 1040 forms S. 2012 1040 forms person. 2012 1040 forms Branches of financial institutions. 2012 1040 forms   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. 2012 1040 forms The countries with approved KYC rules are listed on IRS. 2012 1040 forms gov. 2012 1040 forms QI withholding agreement. 2012 1040 forms   Foreign financial institutions and foreign branches of U. 2012 1040 forms S. 2012 1040 forms financial institutions can enter into an agreement with the IRS to be a qualified intermediary. 2012 1040 forms   A QI is entitled to certain simplified withholding and reporting rules. 2012 1040 forms In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. 2012 1040 forms   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. 2012 1040 forms These forms, and the procedures required to obtain a QI withholding agreement are available at www. 2012 1040 forms irs. 2012 1040 forms gov/Businesses/Corporations/Qualified-Intermediaries-(QI). 2012 1040 forms Documentation. 2012 1040 forms   A QI is not required to forward documentation obtained from foreign account holders to the U. 2012 1040 forms S. 2012 1040 forms withholding agent from whom the QI receives a payment of U. 2012 1040 forms S. 2012 1040 forms source income. 2012 1040 forms The QI maintains such documentation at its location and provides the U. 2012 1040 forms S. 2012 1040 forms withholding agent with withholding rate pools. 2012 1040 forms A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. 2012 1040 forms   A QI is required to provide the U. 2012 1040 forms S. 2012 1040 forms withholding agent with information regarding U. 2012 1040 forms S. 2012 1040 forms persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. 2012 1040 forms   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. 2012 1040 forms This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. 2012 1040 forms Form 1042-S reporting. 2012 1040 forms   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. 2012 1040 forms Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). 2012 1040 forms Collective refund procedures. 2012 1040 forms   A QI may seek a refund on behalf of its direct account holders. 2012 1040 forms The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms branches of foreign banks and foreign insurance companies. 2012 1040 forms   Special rules apply to a U. 2012 1040 forms S. 2012 1040 forms branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. 2012 1040 forms If you agree to treat the branch as a U. 2012 1040 forms S. 2012 1040 forms person, you may treat the branch as a U. 2012 1040 forms S. 2012 1040 forms payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. 2012 1040 forms S. 2012 1040 forms branch on which the agreement is evidenced. 2012 1040 forms If you treat the branch as a U. 2012 1040 forms S. 2012 1040 forms payee, you are not required to withhold. 2012 1040 forms Even though you agree to treat the branch as a U. 2012 1040 forms S. 2012 1040 forms person, you must report the payment on Form 1042-S. 2012 1040 forms   A financial institution organized in a U. 2012 1040 forms S. 2012 1040 forms possession is treated as a U. 2012 1040 forms S. 2012 1040 forms branch. 2012 1040 forms The special rules discussed in this section apply to a possessions financial institution. 2012 1040 forms   If you are paying a U. 2012 1040 forms S. 2012 1040 forms branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. 2012 1040 forms S. 2012 1040 forms person for amounts subject to NRA withholding. 2012 1040 forms Consequently, amounts not subject to NRA withholding that are paid to a U. 2012 1040 forms S. 2012 1040 forms branch are not subject to Form 1099 reporting or backup withholding. 2012 1040 forms   Alternatively, a U. 2012 1040 forms S. 2012 1040 forms branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. 2012 1040 forms In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. 2012 1040 forms See Nonqualified Intermediaries under  Documentation, later. 2012 1040 forms   If the U. 2012 1040 forms S. 2012 1040 forms branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. 2012 1040 forms Withholding foreign partnership and foreign trust. 2012 1040 forms   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. 2012 1040 forms A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. 2012 1040 forms   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. 2012 1040 forms A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. 2012 1040 forms You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. 2012 1040 forms WP and WT withholding agreements. 2012 1040 forms   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. 2012 1040 forms Also see the following items. 2012 1040 forms Revenue Procedure 2004-21. 2012 1040 forms Revenue Procedure 2005-77. 2012 1040 forms Employer identification number (EIN). 2012 1040 forms   A completed Form SS-4 must be submitted with the application for being a WP or WT. 2012 1040 forms The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. 2012 1040 forms Documentation. 2012 1040 forms   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. 2012 1040 forms The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. 2012 1040 forms The Form W-8IMY must contain the WP-EIN or WT-EIN. 2012 1040 forms Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. 2012 1040 forms A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. 2012 1040 forms S. 2012 1040 forms person. 2012 1040 forms It also includes a foreign branch of a U. 2012 1040 forms S. 2012 1040 forms financial institution if the foreign branch is a qualified intermediary. 2012 1040 forms In most cases, the U. 2012 1040 forms S. 2012 1040 forms branch of a foreign corporation or partnership is treated as a foreign person. 2012 1040 forms Nonresident alien. 2012 1040 forms   A nonresident alien is an individual who is not a U. 2012 1040 forms S. 2012 1040 forms citizen or a resident alien. 2012 1040 forms A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. 2012 1040 forms Married to U. 2012 1040 forms S. 2012 1040 forms citizen or resident alien. 2012 1040 forms   Nonresident alien individuals married to U. 2012 1040 forms S. 2012 1040 forms citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. 2012 1040 forms However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. 2012 1040 forms Wages paid to these individuals are subject to graduated withholding. 2012 1040 forms See Wages Paid to Employees—Graduated Withholding . 2012 1040 forms Resident alien. 2012 1040 forms   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. 2012 1040 forms Green card test. 2012 1040 forms An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. 2012 1040 forms This is known as the green card test because these aliens hold immigrant visas (also known as green cards). 2012 1040 forms Substantial presence test. 2012 1040 forms An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. 2012 1040 forms Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. 2012 1040 forms   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. 2012 1040 forms This exception is for a limited period of time. 2012 1040 forms   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. 2012 1040 forms Note. 2012 1040 forms   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. 2012 1040 forms For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). 2012 1040 forms Resident of a U. 2012 1040 forms S. 2012 1040 forms possession. 2012 1040 forms   A bona fide resident of Puerto Rico, the U. 2012 1040 forms S. 2012 1040 forms Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. 2012 1040 forms S. 2012 1040 forms citizen or a U. 2012 1040 forms S. 2012 1040 forms national is treated as a nonresident alien for the withholding rules explained here. 2012 1040 forms A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. 2012 1040 forms   For more information, see Publication 570, Tax Guide for Individuals With Income From U. 2012 1040 forms S. 2012 1040 forms Possessions. 2012 1040 forms Foreign corporations. 2012 1040 forms   A foreign corporation is one that does not fit the definition of a domestic corporation. 2012 1040 forms A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. 2012 1040 forms Guam or Northern Mariana Islands corporations. 2012 1040 forms   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). 2012 1040 forms Note. 2012 1040 forms   The provisions discussed below under U. 2012 1040 forms S. 2012 1040 forms Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms Virgin Islands and American Samoa corporations. 2012 1040 forms   A corporation created or organized in, or under the laws of, the U. 2012 1040 forms S. 2012 1040 forms Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. 2012 1040 forms S. 2012 1040 forms Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. 2012 1040 forms S. 2012 1040 forms Virgin Islands, American Samoa, Guam, the CNMI, or the United States. 2012 1040 forms Foreign private foundations. 2012 1040 forms   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. 2012 1040 forms Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. 2012 1040 forms Other foreign organizations, associations, and charitable institutions. 2012 1040 forms   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. 2012 1040 forms In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. 2012 1040 forms   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. 2012 1040 forms   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms branches of foreign persons. 2012 1040 forms   In most cases, a payment to a U. 2012 1040 forms S. 2012 1040 forms branch of a foreign person is a payment made to the foreign person. 2012 1040 forms However, you may treat payments to U. 2012 1040 forms S. 2012 1040 forms branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. 2012 1040 forms S. 2012 1040 forms regulatory supervision as payments made to a U. 2012 1040 forms S. 2012 1040 forms person, if you and the U. 2012 1040 forms S. 2012 1040 forms branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. 2012 1040 forms For this purpose, a financial institution organized under the laws of a U. 2012 1040 forms S. 2012 1040 forms possession is treated as a U. 2012 1040 forms S. 2012 1040 forms branch. 2012 1040 forms Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. 2012 1040 forms The payee is a U. 2012 1040 forms S. 2012 1040 forms person. 2012 1040 forms The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. 2012 1040 forms In most cases, you must get the documentation before you make the payment. 2012 1040 forms The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. 2012 1040 forms See Standards of Knowledge , later. 2012 1040 forms If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. 2012 1040 forms For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. 2012 1040 forms The specific types of documentation are discussed in this section. 2012 1040 forms However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. 2012 1040 forms As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. 2012 1040 forms Section 1446 withholding. 2012 1040 forms   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. 2012 1040 forms In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. 2012 1040 forms This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. 2012 1040 forms Joint owners. 2012 1040 forms    If you make a payment to joint owners, you need to get documentation from each owner. 2012 1040 forms Form W-9. 2012 1040 forms   In most cases, you can treat the payee as a U. 2012 1040 forms S. 2012 1040 forms person if the payee gives you a Form W-9. 2012 1040 forms The Form W-9 can be used only by a U. 2012 1040 forms S. 2012 1040 forms person and must contain the payee's taxpayer identification number (TIN). 2012 1040 forms If there is more than one owner, you may treat the total amount as paid to a U. 2012 1040 forms S. 2012 1040 forms person if any one of the owners gives you a Form W-9. 2012 1040 forms See U. 2012 1040 forms S. 2012 1040 forms Taxpayer Identification Numbers , later. 2012 1040 forms U. 2012 1040 forms S. 2012 1040 forms persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. 2012 1040 forms Form W-8. 2012 1040 forms   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. 2012 1040 forms Until further notice, you can rely upon Forms W-8 that contain a P. 2012 1040 forms O. 2012 1040 forms box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. 2012 1040 forms S. 2012 1040 forms person and that a street address is available. 2012 1040 forms You may rely on Forms W-8 for which there is a U. 2012 1040 forms S. 2012 1040 forms mailing address provided you received the form prior to December 31, 2001. 2012 1040 forms   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. 2012 1040 forms You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. 2012 1040 forms S. 2012 1040 forms possession. 2012 1040 forms Other documentation. 2012 1040 forms   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. 2012 1040 forms The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 2012 1040 forms These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. 2012 1040 forms Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. 2012 1040 forms Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 2012 1040 forms   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. 2012 1040 forms   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. 2012 1040 forms For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. 2012 1040 forms Claiming treaty benefits. 2012 1040 forms   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. 2012 1040 forms S. 2012 1040 forms TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. 2012 1040 forms   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. 2012 1040 forms   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. 2012 1040 forms See Fiscally transparent entity discussed earlier under Flow-Through Entities. 2012 1040 forms   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. 2012 1040 forms For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. 2012 1040 forms   The exemptions from, or reduced rates of, U. 2012 1040 forms S. 2012 1040 forms tax vary under each treaty. 2012 1040 forms You must check the provisions of the tax treaty that apply. 2012 1040 forms Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. 2012 1040 forms   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. 2012 1040 forms You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. 2012 1040 forms Exceptions to TIN requirement. 2012 1040 forms   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. 2012 1040 forms Income from marketable securities (discussed next). 2012 1040 forms Unexpected payments to an individual (discussed under U. 2012 1040 forms S. 2012 1040 forms Taxpayer Identification Numbers ). 2012 1040 forms Marketable securities. 2012 1040 forms   A Form W-8BEN provided to claim treaty benefits does not need a U. 2012 1040 forms S. 2012 1040 forms TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. 2012 1040 forms For this purpose, income from a marketable security consists of the following items. 2012 1040 forms Dividends and interest from stocks and debt obligations that are actively traded. 2012 1040 forms Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). 2012 1040 forms Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. 2012 1040 forms Income related to loans of any of the above securities. 2012 1040 forms Offshore accounts. 2012 1040 forms   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. 2012 1040 forms   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. 2012 1040 forms However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. 2012 1040 forms An offshore account is an account maintained at an office or branch of a U. 2012 1040 forms S. 2012 1040 forms or foreign bank or other financial institution at any location outside the United States. 2012 1040 forms   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. 2012 1040 forms This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. 2012 1040 forms In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. 2012 1040 forms Documentary evidence. 2012 1040 forms   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. 2012 1040 forms To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. 2012 1040 forms Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. 2012 1040 forms Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. 2012 1040 forms In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. 2012 1040 forms Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. 2012 1040 forms   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. 2012 1040 forms (See Effectively Connected Income , later. 2012 1040 forms )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. 2012 1040 forms   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. 2012 1040 forms S. 2012 1040 forms trade or business is subject to withholding under section 1446. 2012 1040 forms If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. 2012 1040 forms    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. 2012 1040 forms Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. 2012 1040 forms   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. 2012 1040 forms S. 2012 1040 forms possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. 2012 1040 forms   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. 2012 1040 forms   See Foreign Governments and Certain Other Foreign Organizations , later. 2012 1040 forms Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. 2012 1040 forms The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. 2012 1040 forms The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. 2012 1040 forms Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. 2012 1040 forms S. 2012 1040 forms Branches for United States Tax Withholding. 2012 1040 forms   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. 2012 1040 forms S. 2012 1040 forms branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. 2012 1040 forms S. 2012 1040 forms branch of a foreign bank or insurance company and either is agreeing to be treated as a U. 2012 1040 forms S. 2012 1040 forms person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. 2012 1040 forms For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. 2012 1040 forms 1446-5. 2012 1040 forms Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. 2012 1040 forms A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. 2012 1040 forms The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. 2012 1040 forms The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. 2012 1040 forms Responsibilities. 2012 1040 forms   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. 2012 1040 forms However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. 2012 1040 forms Instead, it provides you with a withholding statement that contains withholding rate pool information. 2012 1040 forms A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. 2012 1040 forms A qualified intermediary is required to provide you with information regarding U. 2012 1040 forms S. 2012 1040 forms persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. 2012 1040 forms S. 2012 1040 forms person unless it has assumed Form 1099 reporting and backup withholding responsibility. 2012 1040 forms For the alternative procedure for providing rate pool information for U. 2012 1040 forms S. 2012 1040 forms non-exempt persons, see the Form W-8IMY instructions. 2012 1040 forms   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. 2012 1040 forms   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. 2012 1040 forms Primary responsibility not assumed. 2012 1040 forms   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. 2012 1040 forms Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. 2012 1040 forms S. 2012 1040 forms person subject to Form 1099 reporting and/or backup withholding. 2012 1040 forms The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2012 1040 forms Primary NRA withholding responsibility assumed. 2012 1040 forms   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. 2012 1040 forms S. 2012 1040 forms person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. 2012 1040 forms The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2012 1040 forms Primary NRA and Form 1099 responsibility assumed. 2012 1040 forms   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. 2012 1040 forms It is not necessary to associate the payment with withholding rate pools. 2012 1040 forms Example. 2012 1040 forms You make a payment of dividends to a QI. 2012 1040 forms It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. 2012 1040 forms S. 2012 1040 forms individual who provides it with a Form W-9. 2012 1040 forms Each customer is entitled to 20% of the dividend payment. 2012 1040 forms The QI does not assume any primary withholding responsibility. 2012 1040 forms The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. 2012 1040 forms S. 2012 1040 forms individual. 2012 1040 forms You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. 2012 1040 forms The part of the payment allocable to the U. 2012 1040 forms S. 2012 1040 forms individual (20%) is reportable on Form 1099-DIV. 2012 1040 forms Smaller partnerships and trusts. 2012 1040 forms   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. 2012 1040 forms It is a foreign partnership or foreign simple or grantor trust. 2012 1040 forms It is a direct account holder of the QI. 2012 1040 forms It does not have any partner, beneficiary, or owner that is a U. 2012 1040 forms S. 2012 1040 forms person or a pass- through partner, beneficiary, or owner. 2012 1040 forms   For information on these rules, see section 4A. 2012 1040 forms 01 of the QI agreement. 2012 1040 forms This is found in Appendix 3 of Revenue Procedure 2003-64. 2012 1040 forms Also see Revenue Procedure 2004-21. 2012 1040 forms Related partnerships and trusts. 2012 1040 forms    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. 2012 1040 forms It is a foreign partnership or foreign simple or grantor trust. 2012 1040 forms It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. 2012 1040 forms For information on these rules, see section 4A. 2012 1040 forms 02 of the QI agreement. 2012 1040 forms This is found in Appendix 3 of Revenue Procedure 2003-64. 2012 1040 forms Also see Revenue Procedure 2005-77. 2012 1040 forms Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. 2012 1040 forms S. 2012 1040 forms branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. 2012 1040 forms S. 2012 1040 forms branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. 2012 1040 forms The NQI, flow-through entity, or U. 2012 1040 forms S. 2012 1040 forms branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. 2012 1040 forms A withholding statement must be updated to keep the information accurate prior to each payment. 2012 1040 forms Withholding statement. 2012 1040 forms   In most cases, a withholding statement must contain the following information. 2012 1040 forms The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. 2012 1040 forms The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. 2012 1040 forms The status of the person for whom the documentation has been provided, such as whether the person is a U. 2012 1040 forms S. 2012 1040 forms exempt recipient (U. 2012 1040 forms S. 2012 1040 forms person exempt from Form 1099 reporting), U. 2012 1040 forms S. 2012 1040 forms non-exempt recipient (U. 2012 1040 forms S. 2012 1040 forms person subject to Form 1099 reporting), or a foreign person. 2012 1040 forms For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. 2012 1040 forms S. 2012 1040 forms branch. 2012 1040 forms The type of recipient the person is, based on the recipient codes used on Form 1042-S. 2012 1040 forms Information allocating each payment, by income type, to each payee (including U. 2012 1040 forms S. 2012 1040 forms exempt and U. 2012 1040 forms S. 2012 1040 forms non-exempt recipients) for whom documentation has been provided. 2012 1040 forms The rate of withholding that applies to each foreign person to whom a payment is allocated. 2012 1040 forms A foreign payee's country of residence. 2012 1040 forms If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. 2012 1040 forms ). 2012 1040 forms In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. 2012 1040 forms The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. 2012 1040 forms S. 2012 1040 forms branch from which the payee will directly receive a payment. 2012 1040 forms Any other information a withholding agent requests to fulfill its reporting and withholding obligations. 2012 1040 forms Alternative procedure. 2012 1040 forms   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. 2012 1040 forms S. 2012 1040 forms exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. 2012 1040 forms To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. 2012 1040 forms You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. 2012 1040 forms    This alternative procedure cannot be used for payments to U. 2012 1040 forms S. 2012 1040 forms non-exempt recipients. 2012 1040 forms Therefore, an NQI must always provide you with allocation information for all U. 2012 1040 forms S. 2012 1040 forms non-exempt recipients prior to a payment being made. 2012 1040 forms Pooled withholding information. 2012 1040 forms   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. 2012 1040 forms A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. 2012 1040 forms For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). 2012 1040 forms The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. 2012 1040 forms Failure to provide allocation information. 2012 1040 forms   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. 2012 1040 forms You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . 2012 1040 forms An NQI is deemed to have f