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SOI Tax Stats - Exempt Organizations' Unrelated Business Income (UBI) Tax Statistics

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Snapshot of Unrelated Business Income Tax Statistics

Because tax-exempt organizations generally operate for charitable or other beneficial purposes, most income that they receive is exempt from tax under the Internal Revenue Code. Tax-exempt organizations are permitted to engage in income-producing activities that are considered to be unrelated to their exempt purposes. However, income from these activities may be taxable. This study measures income, deductions, and tax imposed on tax-exempt corporate and trust entities' unrelated business income. Data are compiled from Form 990-T, Exempt Organization Business Income Tax Return.

Statistical Tables    Publications and Papers    Other IRS Data
 

For information about selected terms and concepts, a description of the data sources and limitations, and links to recent revisions of Form 990-T, please visit the Exempt Organizations' Unrelated Business Income (UBI) Tax Metadata page.


Statistical Tables

The following are available as Microsoft Excel® files. A free Excel viewer is available for download, if needed.

All Organizations:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
 
Classified by: Internal Revenue Code Section
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Size of Unrelated Business Taxable Income or Deficit
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Sources of Gross UBI
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992
 
Types of Deductions
Classified by: Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Organizations with Positive Unrelated Business Taxable Income:
Number of Returns, Gross UBI, Total Deductions, and Tax Items
Classified by: Type of Entity and Size of Gross UBI
Tax Years: 2010  2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1995  1994  1993  1992

 
Section 501(c)(3) Organizations Only:
Classified by: Primary Unrelated Business Activity or Industrial Grouping
Tax Years: 2009  2008  2007  2006

 
Historical Table:
Table 16: Nonprofit Charitable Organization and Domestic Private Foundation Information Returns, and Exempt Organization Business Income Tax Returns: Selected Financial Data, Expanded
Published as: SOI Bulletin Historical Table 16


Projections
For selected tax returns, including the Form 990-T, IRS's Office of Research produces annual forecasts of the number of returns that will be filed in future years.
      Projections of Returns to be Filed in Future Calendar Years

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Publications and Papers

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Other IRS Data and Related Links

For tax administration data on this topic, as well as other types of taxes, choose from the links below.

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Page Last Reviewed or Updated: 27-Feb-2014

The Aarp Free Tax Preparation

Aarp free tax preparation 2. Aarp free tax preparation   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Aarp free tax preparation Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Aarp free tax preparation S. Aarp free tax preparation or foreign source income. Aarp free tax preparation This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Aarp free tax preparation S. Aarp free tax preparation Virgin Islands (USVI). Aarp free tax preparation Generally, the same rules that apply for determining U. Aarp free tax preparation S. Aarp free tax preparation source income also apply for determining possession source income. Aarp free tax preparation However, there are some important exceptions to these rules. Aarp free tax preparation Both the general rules and the exceptions are discussed in this chapter. Aarp free tax preparation U. Aarp free tax preparation S. Aarp free tax preparation income rule. Aarp free tax preparation   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Aarp free tax preparation Table 2-1 shows the general rules for determining whether income is from sources within the United States. Aarp free tax preparation Table 2-1. Aarp free tax preparation General Rules for Determining U. Aarp free tax preparation S. Aarp free tax preparation Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Aarp free tax preparation Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Aarp free tax preparation For more information, see Regulations section 1. Aarp free tax preparation 863-1(b). Aarp free tax preparation Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Aarp free tax preparation Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Aarp free tax preparation Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Aarp free tax preparation It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Aarp free tax preparation Services performed wholly within a relevant possession. Aarp free tax preparation   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Aarp free tax preparation However, there is an exception for income earned as a member of the U. Aarp free tax preparation S. Aarp free tax preparation Armed Forces or a civilian spouse. Aarp free tax preparation U. Aarp free tax preparation S. Aarp free tax preparation Armed Forces. Aarp free tax preparation   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Aarp free tax preparation However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Aarp free tax preparation Civilian spouse of active duty member of the U. Aarp free tax preparation S. Aarp free tax preparation Armed Forces. Aarp free tax preparation   If you are a bona fide resident of a U. Aarp free tax preparation S. Aarp free tax preparation possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Aarp free tax preparation Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Aarp free tax preparation S. Aarp free tax preparation possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Aarp free tax preparation Services performed partly inside and partly outside a relevant possession. Aarp free tax preparation   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Aarp free tax preparation Compensation (other than certain fringe benefits) is sourced on a time basis. Aarp free tax preparation Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Aarp free tax preparation   Or, you may be permitted to use an alternative basis to determine the source of compensation. Aarp free tax preparation See Alternative basis , later. Aarp free tax preparation   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Aarp free tax preparation In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Aarp free tax preparation Time basis. Aarp free tax preparation   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Aarp free tax preparation Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Aarp free tax preparation The time period for which the income is made does not have to be a year. Aarp free tax preparation Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Aarp free tax preparation Example. Aarp free tax preparation In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Aarp free tax preparation Your Puerto Rico source income is $60,000, figured as follows. Aarp free tax preparation       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Aarp free tax preparation   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Aarp free tax preparation Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Aarp free tax preparation You determine the period to which the income is attributable based on the facts and circumstances of your case. Aarp free tax preparation For more information on multi-year compensation, see Treasury Decision (T. Aarp free tax preparation D. Aarp free tax preparation ) 9212 and Regulations section 1. Aarp free tax preparation 861-4, 2005-35 I. Aarp free tax preparation R. Aarp free tax preparation B. Aarp free tax preparation 429, available at www. Aarp free tax preparation irs. Aarp free tax preparation gov/irb/2005-35_IRB/ar14. Aarp free tax preparation html. Aarp free tax preparation Certain fringe benefits sourced on a geographical basis. Aarp free tax preparation   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Aarp free tax preparation Housing. Aarp free tax preparation Education. Aarp free tax preparation Local transportation. Aarp free tax preparation Tax reimbursement. Aarp free tax preparation Hazardous or hardship duty pay. Aarp free tax preparation Moving expense reimbursement. Aarp free tax preparation For information on determining the source of the fringe benefits listed above, see Regulations section 1. Aarp free tax preparation 861-4. Aarp free tax preparation Alternative basis. Aarp free tax preparation   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Aarp free tax preparation If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Aarp free tax preparation De minimis exception. Aarp free tax preparation   There is an exception to the rule for determining the source of income earned in a possession. Aarp free tax preparation Generally, you will not have income from a possession if during a tax year you: Are a U. Aarp free tax preparation S. Aarp free tax preparation citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Aarp free tax preparation This exception began with income earned during your 2008 tax year. Aarp free tax preparation Pensions. Aarp free tax preparation   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Aarp free tax preparation The contribution portion is sourced according to where services were performed that earned the pension. Aarp free tax preparation The investment earnings portion is sourced according to the location of the pension trust. Aarp free tax preparation Example. Aarp free tax preparation You are a U. Aarp free tax preparation S. Aarp free tax preparation citizen who worked in Puerto Rico for a U. Aarp free tax preparation S. Aarp free tax preparation company. Aarp free tax preparation All services were performed in Puerto Rico. Aarp free tax preparation Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Aarp free tax preparation S. Aarp free tax preparation pension trust of your employer. Aarp free tax preparation Distributions from the U. Aarp free tax preparation S. Aarp free tax preparation pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Aarp free tax preparation S. Aarp free tax preparation source income. Aarp free tax preparation Investment Income This category includes such income as interest, dividends, rents, and royalties. Aarp free tax preparation Interest income. Aarp free tax preparation   The source of interest income is generally determined by the residence of the payer. Aarp free tax preparation Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Aarp free tax preparation   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Aarp free tax preparation See Regulations section 1. Aarp free tax preparation 937-2(i) for more information. Aarp free tax preparation Dividends. Aarp free tax preparation   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Aarp free tax preparation There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Aarp free tax preparation For more information, see Regulations section 1. Aarp free tax preparation 937-2(g). Aarp free tax preparation Rental income. Aarp free tax preparation   Rents from property located in a relevant possession are treated as income from sources within that possession. Aarp free tax preparation Royalties. Aarp free tax preparation   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Aarp free tax preparation   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Aarp free tax preparation Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Aarp free tax preparation The most common situations are discussed below. Aarp free tax preparation Real property. Aarp free tax preparation   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Aarp free tax preparation The location of the property generally determines the source of income from the sale. Aarp free tax preparation For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Aarp free tax preparation If, however, the home you sold was located in the United States, the gain is U. Aarp free tax preparation S. Aarp free tax preparation source income. Aarp free tax preparation Personal property. Aarp free tax preparation   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Aarp free tax preparation Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Aarp free tax preparation If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Aarp free tax preparation   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Aarp free tax preparation The rules applying to sales of inventory are discussed below. Aarp free tax preparation For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Aarp free tax preparation Inventory. Aarp free tax preparation   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Aarp free tax preparation The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Aarp free tax preparation Purchased. Aarp free tax preparation   Income from the sale of inventory that you purchased is sourced where you sell the property. Aarp free tax preparation Generally, this is where title to the property passes to the buyer. Aarp free tax preparation Produced. Aarp free tax preparation   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Aarp free tax preparation For information on making the allocation, see Regulations section 1. Aarp free tax preparation 863-3(f). Aarp free tax preparation Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Aarp free tax preparation S. Aarp free tax preparation citizen or resident alien prior to becoming a bona fide resident of a possession. Aarp free tax preparation You are subject to these special rules if you meet both of the following conditions. Aarp free tax preparation For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Aarp free tax preparation For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Aarp free tax preparation If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Aarp free tax preparation Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Aarp free tax preparation S. Aarp free tax preparation tax return. Aarp free tax preparation (See chapter 3 for additional filing information. Aarp free tax preparation ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Aarp free tax preparation These rules apply to dispositions after April 11, 2005. Aarp free tax preparation For details, see Regulations section 1. Aarp free tax preparation 937-2(f)(1) and Examples 1 and 2 of section 1. Aarp free tax preparation 937-2(k). Aarp free tax preparation Example 1. Aarp free tax preparation In 2007, Cheryl Jones, a U. Aarp free tax preparation S. Aarp free tax preparation citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Aarp free tax preparation S. Aarp free tax preparation corporation listed on the New York Stock Exchange. Aarp free tax preparation On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Aarp free tax preparation Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Aarp free tax preparation On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Aarp free tax preparation On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Aarp free tax preparation Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Aarp free tax preparation The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Aarp free tax preparation This existing special rule applies if you are a U. Aarp free tax preparation S. Aarp free tax preparation citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Aarp free tax preparation S. Aarp free tax preparation assets during the 10-year period beginning when you became a bona fide resident. Aarp free tax preparation The gain is U. Aarp free tax preparation S. Aarp free tax preparation source income that generally is subject to U. Aarp free tax preparation S. Aarp free tax preparation tax if the property is either (1) located in the United States; (2) stock issued by a U. Aarp free tax preparation S. Aarp free tax preparation corporation or a debt obligation of a U. Aarp free tax preparation S. Aarp free tax preparation person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Aarp free tax preparation See chapter 3 for filing information. Aarp free tax preparation Special election. Aarp free tax preparation   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Aarp free tax preparation Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Aarp free tax preparation This election overrides both of the special rules discussed earlier. Aarp free tax preparation   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Aarp free tax preparation Marketable securities. Aarp free tax preparation   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Aarp free tax preparation Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Aarp free tax preparation S. Aarp free tax preparation holding periods. Aarp free tax preparation   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Aarp free tax preparation The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Aarp free tax preparation This is your gain (or loss) that is treated as being from sources within the relevant possession. Aarp free tax preparation If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Aarp free tax preparation Example 2. Aarp free tax preparation Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Aarp free tax preparation S. Aarp free tax preparation and possession holding periods. Aarp free tax preparation Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Aarp free tax preparation Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Aarp free tax preparation By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Aarp free tax preparation Other personal property. Aarp free tax preparation   For personal property other than marketable securities, use a time-based allocation. Aarp free tax preparation Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Aarp free tax preparation      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Aarp free tax preparation Example 3. Aarp free tax preparation In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Aarp free tax preparation On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Aarp free tax preparation On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Aarp free tax preparation She had owned the interest for a total of 1,720 days. Aarp free tax preparation Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Aarp free tax preparation The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Aarp free tax preparation By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Aarp free tax preparation Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Aarp free tax preparation Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Aarp free tax preparation These rules do not apply to amounts paid as salary or other compensation for services. Aarp free tax preparation See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Aarp free tax preparation Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Aarp free tax preparation These circumstances are listed below. Aarp free tax preparation You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Aarp free tax preparation That office or place of business is a material factor in producing the income. Aarp free tax preparation The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Aarp free tax preparation An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Aarp free tax preparation The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Aarp free tax preparation Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Aarp free tax preparation Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Aarp free tax preparation Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Aarp free tax preparation Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Aarp free tax preparation Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Aarp free tax preparation Example. Aarp free tax preparation Marcy Jackson is a bona fide resident of American Samoa. Aarp free tax preparation Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Aarp free tax preparation A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Aarp free tax preparation Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Aarp free tax preparation The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Aarp free tax preparation However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Aarp free tax preparation Prev  Up  Next   Home   More Online Publications