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

Form 1040ez 2011 Instructions

Free Tax EstimatorFederal Tax PreparationFree Efile Of State TaxesFree Tax Preperation140xFree 1040ezFiling Back Taxes OnlineFile A 1040x Online For FreeWww.irs.gov1040xEz FormWhat Can Students Write Off On Taxes2011 1040ez Federal Income Tax Filing OnlineHow To Amend A Prior Year Tax Return2011 Tax Form1040nr Ez InstructionsFiling Taxes While UnemployedFile State Tax Return Online FreeFiling 2011 Taxes For FreeTurbotax Amended Return 2013Filing Past Years TaxesHow To File An Amended 2011 Tax ReturnIncome TaxWww FreetaxusaTaxslayer 2011State Taxes FormsHow To Get 2012 Tax FormsTax Form 1040x More:label_tax_20form_201040x More:bizfinanceHrblock At HomeHow Do I File My 2010 Taxes For FreeHow To Fill Out An Amended Tax ReturnFile Taxes OnlineAmend Tax Return For FreeHow Do You File A Tax Amendment2012 Tax Form 1040ezHow Much Does H&r Block Charge To Prepare TaxesTax Forms 10401040x FreeTurbotax Deluxe Federal E File State 2012Irs GovFile State Tax Free

Form 1040ez 2011 Instructions

Form 1040ez 2011 instructions Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Form 1040ez 2011 instructions The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Form 1040ez 2011 instructions If you are requesting relief for more than three tax years, you must file an additional Form 8857. Form 1040ez 2011 instructions The IRS will review your Form 8857 and let you know if you qualify. Form 1040ez 2011 instructions A completed Form 8857 is shown later. Form 1040ez 2011 instructions When to file Form 8857. Form 1040ez 2011 instructions   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Form 1040ez 2011 instructions The following are some of the ways you may become aware of such a liability. Form 1040ez 2011 instructions The IRS is examining your tax return and proposing to increase your tax liability. Form 1040ez 2011 instructions The IRS sends you a notice. Form 1040ez 2011 instructions   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Form 1040ez 2011 instructions (But see the exceptions below for different filing deadlines that apply. Form 1040ez 2011 instructions ) For this reason, do not delay filing because you do not have all the documentation. Form 1040ez 2011 instructions   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Form 1040ez 2011 instructions The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Form 1040ez 2011 instructions This includes the filing of a proof of claim in a bankruptcy proceeding. Form 1040ez 2011 instructions The filing of a suit by the United States against you to collect the joint liability. Form 1040ez 2011 instructions The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Form 1040ez 2011 instructions The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Form 1040ez 2011 instructions Exception for equitable relief. Form 1040ez 2011 instructions   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Form 1040ez 2011 instructions irs. Form 1040ez 2011 instructions gov/irb/2011-32_IRB/ar11. Form 1040ez 2011 instructions html) expanding the amount of time to request equitable relief. Form 1040ez 2011 instructions The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Form 1040ez 2011 instructions Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Form 1040ez 2011 instructions In certain cases, the 10-year period is suspended. Form 1040ez 2011 instructions The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Form 1040ez 2011 instructions See Pub. Form 1040ez 2011 instructions 594, The IRS Collection Process, for details. Form 1040ez 2011 instructions Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Form 1040ez 2011 instructions But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Form 1040ez 2011 instructions See Pub. Form 1040ez 2011 instructions 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Form 1040ez 2011 instructions Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Form 1040ez 2011 instructions Exception for relief based on community property laws. Form 1040ez 2011 instructions   If you are requesting relief based on community property laws, a different filing deadline applies. Form 1040ez 2011 instructions See Relief from liability arising from community property law discussed later under Community Property Laws . Form 1040ez 2011 instructions Form 8857 filed by or on behalf of a decedent. Form 1040ez 2011 instructions   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Form 1040ez 2011 instructions An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Form 1040ez 2011 instructions For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Form 1040ez 2011 instructions Situations in which you are not entitled to relief. Form 1040ez 2011 instructions   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Form 1040ez 2011 instructions In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Form 1040ez 2011 instructions In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Form 1040ez 2011 instructions You entered into an offer in compromise with the IRS. Form 1040ez 2011 instructions You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Form 1040ez 2011 instructions Exception for agreements relating to TEFRA partnership proceedings. Form 1040ez 2011 instructions   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Form 1040ez 2011 instructions (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Form 1040ez 2011 instructions ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Form 1040ez 2011 instructions Transferee liability not affected by innocent spouse relief provisions. Form 1040ez 2011 instructions   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Form 1040ez 2011 instructions Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Form 1040ez 2011 instructions Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Form 1040ez 2011 instructions In August 2010, the IRS assessed a deficiency for the 2008 return. Form 1040ez 2011 instructions The items causing the deficiency belong to Herb. Form 1040ez 2011 instructions Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Form 1040ez 2011 instructions However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Form 1040ez 2011 instructions The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Form 1040ez 2011 instructions There are no exceptions, even for victims of spousal abuse or domestic violence. Form 1040ez 2011 instructions We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Form 1040ez 2011 instructions If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Form 1040ez 2011 instructions However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Form 1040ez 2011 instructions If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Form 1040ez 2011 instructions Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Form 1040ez 2011 instructions The IRS sends you a final determination letter regarding your request for relief. Form 1040ez 2011 instructions You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Form 1040ez 2011 instructions If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Form 1040ez 2011 instructions The United States Tax Court is an independent judicial body and is not part of the IRS. Form 1040ez 2011 instructions You must file a petition with the United States Tax Court in order for it to review your request for relief. Form 1040ez 2011 instructions You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Form 1040ez 2011 instructions If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Form 1040ez 2011 instructions You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Form 1040ez 2011 instructions ustaxcourt. Form 1040ez 2011 instructions gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Form 1040ez 2011 instructions Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Form 1040ez 2011 instructions Generally, community property laws require you to allocate community income and expenses equally between both spouses. Form 1040ez 2011 instructions However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Form 1040ez 2011 instructions Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Form 1040ez 2011 instructions Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Form 1040ez 2011 instructions You did not file a joint return for the tax year. Form 1040ez 2011 instructions You did not include the item of community income in gross income. Form 1040ez 2011 instructions The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Form 1040ez 2011 instructions Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Form 1040ez 2011 instructions Your spouse's (or former spouse's) distributive share of partnership income. Form 1040ez 2011 instructions Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Form 1040ez 2011 instructions Use the appropriate community property law to determine what is separate property. Form 1040ez 2011 instructions Any other income that belongs to your spouse (or former spouse) under community property law. Form 1040ez 2011 instructions You establish that you did not know of, and had no reason to know of, that community income. Form 1040ez 2011 instructions See  Actual Knowledge or Reason To Know , below. Form 1040ez 2011 instructions Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Form 1040ez 2011 instructions See Indications of unfairness for liability arising from community property law, later. Form 1040ez 2011 instructions Actual knowledge or reason to know. Form 1040ez 2011 instructions   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Form 1040ez 2011 instructions Amount of community income unknown. Form 1040ez 2011 instructions   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Form 1040ez 2011 instructions Not knowing the specific amount is not a basis for relief. Form 1040ez 2011 instructions Reason to know. Form 1040ez 2011 instructions   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Form 1040ez 2011 instructions The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Form 1040ez 2011 instructions The financial situation of you and your spouse (or former spouse). Form 1040ez 2011 instructions Your educational background and business experience. Form 1040ez 2011 instructions Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Form 1040ez 2011 instructions Indications of unfairness for liability arising from community property law. Form 1040ez 2011 instructions   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Form 1040ez 2011 instructions   The following are examples of factors the IRS will consider. Form 1040ez 2011 instructions Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Form 1040ez 2011 instructions Whether your spouse (or former spouse) deserted you. Form 1040ez 2011 instructions Whether you and your spouse have been divorced or separated. Form 1040ez 2011 instructions  For other factors see Factors for Determining Whether To Grant Equitable Relief later. Form 1040ez 2011 instructions Benefit from omitted item of community income. Form 1040ez 2011 instructions   A benefit includes normal support, but does not include de minimis (small) amounts. Form 1040ez 2011 instructions Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Form 1040ez 2011 instructions   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Form 1040ez 2011 instructions Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Form 1040ez 2011 instructions How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Form 1040ez 2011 instructions Fill in Form 8857 according to the instructions. Form 1040ez 2011 instructions For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Form 1040ez 2011 instructions However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Form 1040ez 2011 instructions The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Form 1040ez 2011 instructions Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Form 1040ez 2011 instructions Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Form 1040ez 2011 instructions However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Form 1040ez 2011 instructions The IRS can collect these amounts from either you or your spouse (or former spouse). Form 1040ez 2011 instructions You must meet all of the following conditions to qualify for innocent spouse relief. Form 1040ez 2011 instructions You filed a joint return. Form 1040ez 2011 instructions There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Form 1040ez 2011 instructions You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Form 1040ez 2011 instructions See Actual Knowledge or Reason To Know, later. Form 1040ez 2011 instructions Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Form 1040ez 2011 instructions See Indications of Unfairness for Innocent Spouse Relief , later. Form 1040ez 2011 instructions Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Form 1040ez 2011 instructions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Form 1040ez 2011 instructions Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Form 1040ez 2011 instructions Erroneous Items Erroneous items are either of the following. Form 1040ez 2011 instructions Unreported income. Form 1040ez 2011 instructions This is any gross income item received by your spouse (or former spouse) that is not reported. Form 1040ez 2011 instructions Incorrect deduction, credit, or basis. Form 1040ez 2011 instructions This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Form 1040ez 2011 instructions The following are examples of erroneous items. Form 1040ez 2011 instructions The expense for which the deduction is taken was never paid or incurred. Form 1040ez 2011 instructions For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Form 1040ez 2011 instructions The expense does not qualify as a deductible expense. Form 1040ez 2011 instructions For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Form 1040ez 2011 instructions Fines are not deductible. Form 1040ez 2011 instructions No factual argument can be made to support the deductibility of the expense. Form 1040ez 2011 instructions For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Form 1040ez 2011 instructions Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Form 1040ez 2011 instructions Actual knowledge. Form 1040ez 2011 instructions   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Form 1040ez 2011 instructions You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Form 1040ez 2011 instructions For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Form 1040ez 2011 instructions Reason to know. Form 1040ez 2011 instructions   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Form 1040ez 2011 instructions You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Form 1040ez 2011 instructions   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Form 1040ez 2011 instructions The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Form 1040ez 2011 instructions The financial situation of you and your spouse (or former spouse). Form 1040ez 2011 instructions Your educational background and business experience. Form 1040ez 2011 instructions The extent of your participation in the activity that resulted in the erroneous item. Form 1040ez 2011 instructions Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. Form 1040ez 2011 instructions Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Form 1040ez 2011 instructions Partial relief when a portion of erroneous item is unknown. Form 1040ez 2011 instructions   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Form 1040ez 2011 instructions You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Form 1040ez 2011 instructions The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Form 1040ez 2011 instructions You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Form 1040ez 2011 instructions The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Form 1040ez 2011 instructions The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Form 1040ez 2011 instructions Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Form 1040ez 2011 instructions The following are examples of factors the IRS will consider. Form 1040ez 2011 instructions Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Form 1040ez 2011 instructions Whether your spouse (or former spouse) deserted you. Form 1040ez 2011 instructions Whether you and your spouse have been divorced or separated. Form 1040ez 2011 instructions Whether you received a benefit on the return from the understated tax. Form 1040ez 2011 instructions For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Form 1040ez 2011 instructions Significant benefit. Form 1040ez 2011 instructions   A significant benefit is any benefit in excess of normal support. Form 1040ez 2011 instructions Normal support depends on your particular circumstances. Form 1040ez 2011 instructions Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions You receive money from your spouse that is beyond normal support. Form 1040ez 2011 instructions The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Form 1040ez 2011 instructions You will be considered to have received a significant benefit from that income. Form 1040ez 2011 instructions This is true even if your spouse gives you the money several years after he or she received it. Form 1040ez 2011 instructions Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Form 1040ez 2011 instructions The understated tax allocated to you is generally the amount you are responsible for. Form 1040ez 2011 instructions This type of relief is available only for unpaid liabilities resulting from the understated tax. Form 1040ez 2011 instructions Refunds are not allowed. Form 1040ez 2011 instructions To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Form 1040ez 2011 instructions You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Form 1040ez 2011 instructions (Under this rule, you are no longer married if you are widowed. Form 1040ez 2011 instructions ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Form 1040ez 2011 instructions Members of the same household. Form 1040ez 2011 instructions   You and your spouse are not members of the same household if you are living apart and are estranged. Form 1040ez 2011 instructions However, you and your spouse are considered members of the same household if any of the following conditions are met. Form 1040ez 2011 instructions You and your spouse reside in the same dwelling. Form 1040ez 2011 instructions You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Form 1040ez 2011 instructions Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Form 1040ez 2011 instructions Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Form 1040ez 2011 instructions Burden of proof. Form 1040ez 2011 instructions   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Form 1040ez 2011 instructions You must also establish the basis for allocating the erroneous items. Form 1040ez 2011 instructions Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Form 1040ez 2011 instructions The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Form 1040ez 2011 instructions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Form 1040ez 2011 instructions The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Form 1040ez 2011 instructions For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Form 1040ez 2011 instructions Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Form 1040ez 2011 instructions See Transfers of Property To Avoid Tax , later. Form 1040ez 2011 instructions Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Form 1040ez 2011 instructions You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Form 1040ez 2011 instructions If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Form 1040ez 2011 instructions You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Form 1040ez 2011 instructions (This rule applies whether or not there was a receipt of cash. Form 1040ez 2011 instructions ) You knew of the facts that made an incorrect deduction or credit unallowable. Form 1040ez 2011 instructions For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Form 1040ez 2011 instructions Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Form 1040ez 2011 instructions Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Form 1040ez 2011 instructions Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Form 1040ez 2011 instructions Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Form 1040ez 2011 instructions Neither is your actual knowledge of how the erroneous item was treated on the tax return. Form 1040ez 2011 instructions For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Form 1040ez 2011 instructions The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Form 1040ez 2011 instructions The additional income resulted in a $6,000 understated tax, plus interest and penalties. Form 1040ez 2011 instructions After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Form 1040ez 2011 instructions The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Form 1040ez 2011 instructions Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Form 1040ez 2011 instructions Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Form 1040ez 2011 instructions The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Form 1040ez 2011 instructions Factors supporting actual knowledge. Form 1040ez 2011 instructions   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Form 1040ez 2011 instructions The following are examples of factors the IRS may use. Form 1040ez 2011 instructions Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Form 1040ez 2011 instructions Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Form 1040ez 2011 instructions Exception for spousal abuse or domestic violence. Form 1040ez 2011 instructions   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Form 1040ez 2011 instructions   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Form 1040ez 2011 instructions However, you may be required to file a separate return for that tax year. Form 1040ez 2011 instructions For more information about duress, see the instructions for Form 8857. Form 1040ez 2011 instructions Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Form 1040ez 2011 instructions The increase may not be more than the entire amount of the liability. Form 1040ez 2011 instructions A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Form 1040ez 2011 instructions This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Form 1040ez 2011 instructions If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Form 1040ez 2011 instructions Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Form 1040ez 2011 instructions Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Form 1040ez 2011 instructions An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Form 1040ez 2011 instructions For example, your joint 2009 return shows that you and your spouse owed $5,000. Form 1040ez 2011 instructions You paid $2,000 with the return. Form 1040ez 2011 instructions You have an underpaid tax of $3,000. Form 1040ez 2011 instructions Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Form 1040ez 2011 instructions You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Form 1040ez 2011 instructions You have an understated tax or an underpaid tax. Form 1040ez 2011 instructions You did not pay the tax. Form 1040ez 2011 instructions However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Form 1040ez 2011 instructions You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Form 1040ez 2011 instructions See Factors for Determining Whether To Grant Equitable Relief, later. Form 1040ez 2011 instructions You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Form 1040ez 2011 instructions A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Form 1040ez 2011 instructions Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Form 1040ez 2011 instructions See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Form 1040ez 2011 instructions You did not file or fail to file your return with the intent to commit fraud. Form 1040ez 2011 instructions The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Form 1040ez 2011 instructions If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Form 1040ez 2011 instructions If the item is titled in your name, the item is presumed to be attributable to you. Form 1040ez 2011 instructions However, you can rebut this presumption based on the facts and circumstances. Form 1040ez 2011 instructions You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Form 1040ez 2011 instructions If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Form 1040ez 2011 instructions You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Form 1040ez 2011 instructions If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Form 1040ez 2011 instructions Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. Form 1040ez 2011 instructions The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Form 1040ez 2011 instructions The IRS will consider all factors and weigh them appropriately. Form 1040ez 2011 instructions Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Form 1040ez 2011 instructions Whether you are separated (whether legally or not) or divorced from your spouse. Form 1040ez 2011 instructions A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Form 1040ez 2011 instructions A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Form 1040ez 2011 instructions Whether you would suffer a significant economic hardship if relief is not granted. Form 1040ez 2011 instructions (In other words, you would not be able to pay your reasonable basic living expenses. Form 1040ez 2011 instructions ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Form 1040ez 2011 instructions This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Form 1040ez 2011 instructions Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Form 1040ez 2011 instructions (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Form 1040ez 2011 instructions ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. Form 1040ez 2011 instructions Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Form 1040ez 2011 instructions Knowledge or reason to know. Form 1040ez 2011 instructions   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Form 1040ez 2011 instructions   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Form 1040ez 2011 instructions Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Form 1040ez 2011 instructions Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Form 1040ez 2011 instructions This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Form 1040ez 2011 instructions Reason to know. Form 1040ez 2011 instructions   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions You and your spouse filed a joint 2009 return. Form 1040ez 2011 instructions That return showed you owed $10,000. Form 1040ez 2011 instructions You had $5,000 of your own money and you took out a loan to pay the other $5,000. Form 1040ez 2011 instructions You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Form 1040ez 2011 instructions Without telling you, your spouse took the $5,000 loan and spent it on himself. Form 1040ez 2011 instructions You and your spouse were divorced in 2010. Form 1040ez 2011 instructions In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Form 1040ez 2011 instructions These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Form 1040ez 2011 instructions The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. Form 1040ez 2011 instructions Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Form 1040ez 2011 instructions Whether your spouse (or former spouse) abused you. Form 1040ez 2011 instructions Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Form 1040ez 2011 instructions Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Form 1040ez 2011 instructions Not permitted under separation of liability relief. Form 1040ez 2011 instructions Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Form 1040ez 2011 instructions Proof Required The IRS will only refund payments you made with your own money. Form 1040ez 2011 instructions However, you must provide proof that you made the payments with your own money. Form 1040ez 2011 instructions Examples of proof are a copy of your bank statement or a canceled check. Form 1040ez 2011 instructions No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Form 1040ez 2011 instructions Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Form 1040ez 2011 instructions Underpaid tax. Form 1040ez 2011 instructions   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Form 1040ez 2011 instructions However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Form 1040ez 2011 instructions For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Form 1040ez 2011 instructions   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Form 1040ez 2011 instructions Understated tax. Form 1040ez 2011 instructions   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Form 1040ez 2011 instructions You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Form 1040ez 2011 instructions Only installment payments made after the date you filed Form 8857 are eligible for a refund. Form 1040ez 2011 instructions   The amount of the refund is subject to the limit discussed next. Form 1040ez 2011 instructions Limit on Amount of Refund The amount of your refund is limited. Form 1040ez 2011 instructions Read the following chart to find out the limit. Form 1040ez 2011 instructions IF you file Form 8857. Form 1040ez 2011 instructions . Form 1040ez 2011 instructions . Form 1040ez 2011 instructions THEN the refund cannot be more than. Form 1040ez 2011 instructions . Form 1040ez 2011 instructions . Form 1040ez 2011 instructions Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Form 1040ez 2011 instructions After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Form 1040ez 2011 instructions Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Form 1040ez 2011 instructions Janie and Joe Boulder filed a joint tax return for 2007. Form 1040ez 2011 instructions They claimed one dependency exemption for their son Michael. Form 1040ez 2011 instructions Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Form 1040ez 2011 instructions Janie did not know about the award when the return was filed. Form 1040ez 2011 instructions They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Form 1040ez 2011 instructions Janie and Joe were divorced on May 13, 2009. Form 1040ez 2011 instructions In February 2010, Janie filed her 2009 federal income tax return as head of household. Form 1040ez 2011 instructions She expected a refund of $1,203. Form 1040ez 2011 instructions In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Form 1040ez 2011 instructions Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Form 1040ez 2011 instructions Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Form 1040ez 2011 instructions Janie believes she meets the third condition. Form 1040ez 2011 instructions She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Form 1040ez 2011 instructions Janie believes she meets the fourth condition. Form 1040ez 2011 instructions She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Form 1040ez 2011 instructions Joe spent it on personal items for his use only. Form 1040ez 2011 instructions Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Form 1040ez 2011 instructions In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Form 1040ez 2011 instructions Part I Line 1. Form 1040ez 2011 instructions   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Form 1040ez 2011 instructions Line 2. Form 1040ez 2011 instructions   She checks the box because she wants a refund. Form 1040ez 2011 instructions Note. Form 1040ez 2011 instructions Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Form 1040ez 2011 instructions Line 3. Form 1040ez 2011 instructions   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Form 1040ez 2011 instructions Line 4. Form 1040ez 2011 instructions   She checks the “Yes” box because she filed a joint tax return for tax year 2007. Form 1040ez 2011 instructions Line 5. Form 1040ez 2011 instructions   She skips this line because she checked the “Yes” box on line 4. Form 1040ez 2011 instructions Part II Line 6. Form 1040ez 2011 instructions   She enters her name, address, social security number, county, and best daytime phone number. Form 1040ez 2011 instructions Part III Line 7. Form 1040ez 2011 instructions   She enters Joe's name, address, social security number, and best daytime phone number. Form 1040ez 2011 instructions Line 8. Form 1040ez 2011 instructions   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Form 1040ez 2011 instructions ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Form 1040ez 2011 instructions Line 9. Form 1040ez 2011 instructions   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Form 1040ez 2011 instructions Line 10. Form 1040ez 2011 instructions   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Form 1040ez 2011 instructions Line 11. Form 1040ez 2011 instructions   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Form 1040ez 2011 instructions Line 12. Form 1040ez 2011 instructions   She checks the “Yes” box because she signed the 2007 joint tax return. Form 1040ez 2011 instructions Line 13. Form 1040ez 2011 instructions   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Form 1040ez 2011 instructions Part IV Line 14. Form 1040ez 2011 instructions   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Form 1040ez 2011 instructions ” Line 15. Form 1040ez 2011 instructions   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Form 1040ez 2011 instructions She explains this in the space provided. Form 1040ez 2011 instructions Line 16. Form 1040ez 2011 instructions   She checks the box, “You knew that person had income” because she knew Joe had income from wages. Form 1040ez 2011 instructions She also lists Joe's income. Form 1040ez 2011 instructions Under “Type of Income” she enters “wages. Form 1040ez 2011 instructions ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Form 1040ez 2011 instructions ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Form 1040ez 2011 instructions ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Form 1040ez 2011 instructions Line 17. Form 1040ez 2011 instructions   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Form 1040ez 2011 instructions Line 18. Form 1040ez 2011 instructions   She checks the “No” box because, when the return was signed, she was not having financial problems. Form 1040ez 2011 instructions Line 19. Form 1040ez 2011 instructions   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Form 1040ez 2011 instructions She provides additional information in the space provided. Form 1040ez 2011 instructions Line 20. Form 1040ez 2011 instructions   She checks the “No” box because Joe has never transferred money or property to her. Form 1040ez 2011 instructions Part V Line 21. Form 1040ez 2011 instructions   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Form 1040ez 2011 instructions Line 22. Form 1040ez 2011 instructions   She enters her average monthly income for her entire household. Form 1040ez 2011 instructions Line 23. Form 1040ez 2011 instructions   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Form 1040ez 2011 instructions Signing and mailing Form 8857. Form 1040ez 2011 instructions    Janie signs and dates the form. Form 1040ez 2011 instructions She attaches the copy of her divorce decree (not illustrated) required by line 8. Form 1040ez 2011 instructions Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Form 1040ez 2011 instructions This image is too large to be displayed in the current screen. Form 1040ez 2011 instructions Please click the link to view the image. Form 1040ez 2011 instructions Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Form 1040ez 2011 instructions Please click the link to view the image. Form 1040ez 2011 instructions Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Form 1040ez 2011 instructions Please click the link to view the image. Form 1040ez 2011 instructions Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Form 1040ez 2011 instructions Please click the link to view the image. Form 1040ez 2011 instructions Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Form 1040ez 2011 instructions But do not rely on these flowcharts alone. Form 1040ez 2011 instructions Also read the earlier discussions. Form 1040ez 2011 instructions Figure A. Form 1040ez 2011 instructions Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Form 1040ez 2011 instructions "Do You Qualify for Innocent Spouse Relief?" Figure B. Form 1040ez 2011 instructions Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Form 1040ez 2011 instructions "Do You Qualify for Separation of Liability Relief?" Figure C. Form 1040ez 2011 instructions Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Form 1040ez 2011 instructions Please click the link to view the image. Form 1040ez 2011 instructions "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications
Español

Caregivers' Resources

Find a nursing home, assisted living, or hospice; check your eligibility for benefits; get resources for long-distance caregiving; review legal issues; and find support for caregivers.

The Form 1040ez 2011 Instructions

Form 1040ez 2011 instructions 2. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions or foreign source income. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions Virgin Islands (USVI). Form 1040ez 2011 instructions Generally, the same rules that apply for determining U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions source income also apply for determining possession source income. Form 1040ez 2011 instructions However, there are some important exceptions to these rules. Form 1040ez 2011 instructions Both the general rules and the exceptions are discussed in this chapter. Form 1040ez 2011 instructions U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions income rule. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Table 2-1 shows the general rules for determining whether income is from sources within the United States. Form 1040ez 2011 instructions Table 2-1. Form 1040ez 2011 instructions General Rules for Determining U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions For more information, see Regulations section 1. Form 1040ez 2011 instructions 863-1(b). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Form 1040ez 2011 instructions Services performed wholly within a relevant possession. Form 1040ez 2011 instructions   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Form 1040ez 2011 instructions However, there is an exception for income earned as a member of the U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions Armed Forces or a civilian spouse. Form 1040ez 2011 instructions U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions Armed Forces. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Civilian spouse of active duty member of the U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions Armed Forces. Form 1040ez 2011 instructions   If you are a bona fide resident of a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Form 1040ez 2011 instructions Services performed partly inside and partly outside a relevant possession. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Compensation (other than certain fringe benefits) is sourced on a time basis. Form 1040ez 2011 instructions Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Form 1040ez 2011 instructions   Or, you may be permitted to use an alternative basis to determine the source of compensation. Form 1040ez 2011 instructions See Alternative basis , later. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Form 1040ez 2011 instructions Time basis. Form 1040ez 2011 instructions   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions The time period for which the income is made does not have to be a year. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Your Puerto Rico source income is $60,000, figured as follows. Form 1040ez 2011 instructions       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Form 1040ez 2011 instructions   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions You determine the period to which the income is attributable based on the facts and circumstances of your case. Form 1040ez 2011 instructions For more information on multi-year compensation, see Treasury Decision (T. Form 1040ez 2011 instructions D. Form 1040ez 2011 instructions ) 9212 and Regulations section 1. Form 1040ez 2011 instructions 861-4, 2005-35 I. Form 1040ez 2011 instructions R. Form 1040ez 2011 instructions B. Form 1040ez 2011 instructions 429, available at www. Form 1040ez 2011 instructions irs. Form 1040ez 2011 instructions gov/irb/2005-35_IRB/ar14. Form 1040ez 2011 instructions html. Form 1040ez 2011 instructions Certain fringe benefits sourced on a geographical basis. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Housing. Form 1040ez 2011 instructions Education. Form 1040ez 2011 instructions Local transportation. Form 1040ez 2011 instructions Tax reimbursement. Form 1040ez 2011 instructions Hazardous or hardship duty pay. Form 1040ez 2011 instructions Moving expense reimbursement. Form 1040ez 2011 instructions For information on determining the source of the fringe benefits listed above, see Regulations section 1. Form 1040ez 2011 instructions 861-4. Form 1040ez 2011 instructions Alternative basis. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions De minimis exception. Form 1040ez 2011 instructions   There is an exception to the rule for determining the source of income earned in a possession. Form 1040ez 2011 instructions Generally, you will not have income from a possession if during a tax year you: Are a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions This exception began with income earned during your 2008 tax year. Form 1040ez 2011 instructions Pensions. Form 1040ez 2011 instructions   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Form 1040ez 2011 instructions The contribution portion is sourced according to where services were performed that earned the pension. Form 1040ez 2011 instructions The investment earnings portion is sourced according to the location of the pension trust. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions You are a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions citizen who worked in Puerto Rico for a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions company. Form 1040ez 2011 instructions All services were performed in Puerto Rico. Form 1040ez 2011 instructions Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions pension trust of your employer. Form 1040ez 2011 instructions Distributions from the U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions source income. Form 1040ez 2011 instructions Investment Income This category includes such income as interest, dividends, rents, and royalties. Form 1040ez 2011 instructions Interest income. Form 1040ez 2011 instructions   The source of interest income is generally determined by the residence of the payer. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions See Regulations section 1. Form 1040ez 2011 instructions 937-2(i) for more information. Form 1040ez 2011 instructions Dividends. Form 1040ez 2011 instructions   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions For more information, see Regulations section 1. Form 1040ez 2011 instructions 937-2(g). Form 1040ez 2011 instructions Rental income. Form 1040ez 2011 instructions   Rents from property located in a relevant possession are treated as income from sources within that possession. Form 1040ez 2011 instructions Royalties. Form 1040ez 2011 instructions   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Form 1040ez 2011 instructions The most common situations are discussed below. Form 1040ez 2011 instructions Real property. Form 1040ez 2011 instructions   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Form 1040ez 2011 instructions The location of the property generally determines the source of income from the sale. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions If, however, the home you sold was located in the United States, the gain is U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions source income. Form 1040ez 2011 instructions Personal property. Form 1040ez 2011 instructions   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Form 1040ez 2011 instructions Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions The rules applying to sales of inventory are discussed below. Form 1040ez 2011 instructions For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Form 1040ez 2011 instructions Inventory. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Form 1040ez 2011 instructions Purchased. Form 1040ez 2011 instructions   Income from the sale of inventory that you purchased is sourced where you sell the property. Form 1040ez 2011 instructions Generally, this is where title to the property passes to the buyer. Form 1040ez 2011 instructions Produced. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions For information on making the allocation, see Regulations section 1. Form 1040ez 2011 instructions 863-3(f). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions citizen or resident alien prior to becoming a bona fide resident of a possession. Form 1040ez 2011 instructions You are subject to these special rules if you meet both of the following conditions. Form 1040ez 2011 instructions For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Form 1040ez 2011 instructions 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). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions tax return. Form 1040ez 2011 instructions (See chapter 3 for additional filing information. Form 1040ez 2011 instructions ) 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. Form 1040ez 2011 instructions These rules apply to dispositions after April 11, 2005. Form 1040ez 2011 instructions For details, see Regulations section 1. Form 1040ez 2011 instructions 937-2(f)(1) and Examples 1 and 2 of section 1. Form 1040ez 2011 instructions 937-2(k). Form 1040ez 2011 instructions Example 1. Form 1040ez 2011 instructions In 2007, Cheryl Jones, a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions corporation listed on the New York Stock Exchange. Form 1040ez 2011 instructions On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Form 1040ez 2011 instructions On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Form 1040ez 2011 instructions Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Form 1040ez 2011 instructions The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Form 1040ez 2011 instructions This existing special rule applies if you are a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions assets during the 10-year period beginning when you became a bona fide resident. Form 1040ez 2011 instructions The gain is U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions source income that generally is subject to U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions tax if the property is either (1) located in the United States; (2) stock issued by a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions corporation or a debt obligation of a U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions 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). Form 1040ez 2011 instructions See chapter 3 for filing information. Form 1040ez 2011 instructions Special election. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Form 1040ez 2011 instructions This election overrides both of the special rules discussed earlier. Form 1040ez 2011 instructions   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. Form 1040ez 2011 instructions Marketable securities. Form 1040ez 2011 instructions   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Form 1040ez 2011 instructions Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions holding periods. Form 1040ez 2011 instructions   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions This is your gain (or loss) that is treated as being from sources within the relevant possession. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Example 2. Form 1040ez 2011 instructions Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Form 1040ez 2011 instructions S. Form 1040ez 2011 instructions and possession holding periods. Form 1040ez 2011 instructions Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Form 1040ez 2011 instructions 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). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Other personal property. Form 1040ez 2011 instructions   For personal property other than marketable securities, use a time-based allocation. Form 1040ez 2011 instructions Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Form 1040ez 2011 instructions      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. Form 1040ez 2011 instructions Example 3. Form 1040ez 2011 instructions In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Form 1040ez 2011 instructions On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions She had owned the interest for a total of 1,720 days. Form 1040ez 2011 instructions Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Form 1040ez 2011 instructions The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions These rules do not apply to amounts paid as salary or other compensation for services. Form 1040ez 2011 instructions See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions These circumstances are listed below. Form 1040ez 2011 instructions You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Form 1040ez 2011 instructions That office or place of business is a material factor in producing the income. Form 1040ez 2011 instructions The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Example. Form 1040ez 2011 instructions Marcy Jackson is a bona fide resident of American Samoa. Form 1040ez 2011 instructions Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions 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. Form 1040ez 2011 instructions Prev  Up  Next   Home   More Online Publications