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Free download irs 1040 form Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. Free download irs 1040 form Proc. Free download irs 1040 form 2009-37 Table of Contents SECTION 1. Free download irs 1040 form PURPOSE SECTION 2. Free download irs 1040 form BACKGROUND SECTION 3. Free download irs 1040 form SCOPE SECTION 4. Free download irs 1040 form ELECTION PROCEDURES SECTION 5. Free download irs 1040 form REQUIRED INFORMATION STATEMENT SECTION 6. Free download irs 1040 form EFFECTIVE DATE SECTION 7. Free download irs 1040 form TRANSITION RULE SECTION 8. Free download irs 1040 form PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. Free download irs 1040 form PURPOSE . Free download irs 1040 form 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. Free download irs 1040 form . Free download irs 1040 form 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. Free download irs 1040 form This revenue procedure describes the time and manner of providing this additional information. Free download irs 1040 form . Free download irs 1040 form 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. Free download irs 1040 form Taxpayers should be aware that these regulations may be retroactive. Free download irs 1040 form See § 7805(b)(2). Free download irs 1040 form This revenue procedure may be modified to provide procedures consistent with additional guidance. Free download irs 1040 form SECTION 2. Free download irs 1040 form BACKGROUND . Free download irs 1040 form 01 Section 108(i), Generally. Free download irs 1040 form Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. Free download irs 1040 form L. Free download irs 1040 form No. Free download irs 1040 form 111-5, 123 Stat. Free download irs 1040 form 338. Free download irs 1040 form In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. Free download irs 1040 form Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). Free download irs 1040 form The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. Free download irs 1040 form 1273-1(d) of the Income Tax Regulations. Free download irs 1040 form The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. Free download irs 1040 form For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). Free download irs 1040 form A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). Free download irs 1040 form See § 108(i)(5)(D). Free download irs 1040 form The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. Free download irs 1040 form Section 108(i)(5)(D)(ii). Free download irs 1040 form For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. Free download irs 1040 form . Free download irs 1040 form 02 Applicable Debt Instrument. Free download irs 1040 form Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. Free download irs 1040 form The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). Free download irs 1040 form Section 108(i)(3)(B). Free download irs 1040 form For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. Free download irs 1040 form 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. Free download irs 1040 form 1502-13(g)(5). Free download irs 1040 form . Free download irs 1040 form 03 Reacquisition. Free download irs 1040 form Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). Free download irs 1040 form The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. Free download irs 1040 form See § 108(i)(4)(B). Free download irs 1040 form The term “acquisition” also includes an indirect acquisition within the meaning of § 1. Free download irs 1040 form 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). Free download irs 1040 form For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. Free download irs 1040 form . Free download irs 1040 form 04 General Requirements for the Section 108(i) Election. Free download irs 1040 form Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. Free download irs 1040 form (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. Free download irs 1040 form ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. Free download irs 1040 form Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. Free download irs 1040 form . Free download irs 1040 form 05 Section 108(i) Elections Made by Pass-through Entities. Free download irs 1040 form In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. Free download irs 1040 form Section 108(i)(5)(B)(iii). Free download irs 1040 form . Free download irs 1040 form 06 Additional Information on Subsequent Years’ Returns. Free download irs 1040 form Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. Free download irs 1040 form . Free download irs 1040 form 07 Exclusivity. Free download irs 1040 form Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). Free download irs 1040 form . Free download irs 1040 form 08 Allocation of Deferred COD Income on Partnership Indebtedness. Free download irs 1040 form Section 4. Free download irs 1040 form 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. Free download irs 1040 form If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Free download irs 1040 form 704-1(b)(2)(iii). Free download irs 1040 form Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). Free download irs 1040 form The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). Free download irs 1040 form The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). Free download irs 1040 form . Free download irs 1040 form 09 Partner’s Deferred § 752 Amount. Free download irs 1040 form A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). Free download irs 1040 form A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). Free download irs 1040 form To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. Free download irs 1040 form 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). Free download irs 1040 form See Rev. Free download irs 1040 form Rul. Free download irs 1040 form 92-97, 1992-2 C. Free download irs 1040 form B. Free download irs 1040 form 124, and Rev. Free download irs 1040 form Rul. Free download irs 1040 form 94-4, 1994-1 C. Free download irs 1040 form B. Free download irs 1040 form 195. Free download irs 1040 form A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). Free download irs 1040 form . Free download irs 1040 form 10 Allocation of Deferred COD Income on S Corporation Indebtedness. Free download irs 1040 form For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. Free download irs 1040 form . Free download irs 1040 form 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. Free download irs 1040 form (1) In general. Free download irs 1040 form The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). Free download irs 1040 form These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. Free download irs 1040 form OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). Free download irs 1040 form COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. Free download irs 1040 form See § 1. Free download irs 1040 form 56(g)-1(c)(1). Free download irs 1040 form (2) Exceptions for certain special status corporations. Free download irs 1040 form The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. Free download irs 1040 form OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. Free download irs 1040 form . Free download irs 1040 form 12 Extension of Time to Make Election. Free download irs 1040 form Under § 301. Free download irs 1040 form 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. Free download irs 1040 form An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. Free download irs 1040 form Section 301. Free download irs 1040 form 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. Free download irs 1040 form SECTION 3. Free download irs 1040 form SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). Free download irs 1040 form SECTION 4. Free download irs 1040 form ELECTION PROCEDURES . Free download irs 1040 form 01 In General. Free download irs 1040 form (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. Free download irs 1040 form 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. Free download irs 1040 form 07, 4. Free download irs 1040 form 08, 4. Free download irs 1040 form 09, or 4. Free download irs 1040 form 10 of this revenue procedure. Free download irs 1040 form (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. Free download irs 1040 form 01(1)(a) of this revenue procedure for making the § 108(i) election. Free download irs 1040 form The rules that apply to an automatic extension under § 301. Free download irs 1040 form 9100-2(a) apply to this automatic extension. Free download irs 1040 form . Free download irs 1040 form 02 Section 108(i) Elections Made by Members of Consolidated Groups. Free download irs 1040 form The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. Free download irs 1040 form See § 1. Free download irs 1040 form 1502-77(a). Free download irs 1040 form . Free download irs 1040 form 03 Aggregation Rule. Free download irs 1040 form A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. Free download irs 1040 form A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. Free download irs 1040 form 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. Free download irs 1040 form . Free download irs 1040 form 04 Partial Elections. Free download irs 1040 form (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. Free download irs 1040 form Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. Free download irs 1040 form The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. Free download irs 1040 form (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). Free download irs 1040 form Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. Free download irs 1040 form (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Free download irs 1040 form Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). Free download irs 1040 form A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. Free download irs 1040 form The provisions of this section 4. Free download irs 1040 form 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. Free download irs 1040 form . Free download irs 1040 form 05 Contents of Election Statement. Free download irs 1040 form A statement meets the requirements of this section 4. Free download irs 1040 form 05 if the statement— (1) Label. Free download irs 1040 form States “Section 108(i) Election” across the top. Free download irs 1040 form (2) Required information. Free download irs 1040 form Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. Free download irs 1040 form 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. Free download irs 1040 form . Free download irs 1040 form 06 Supplemental information. Free download irs 1040 form The statement described in section 4. Free download irs 1040 form 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. Free download irs 1040 form 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. Free download irs 1040 form 05(2)(d) of this revenue procedure. Free download irs 1040 form This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. Free download irs 1040 form If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. Free download irs 1040 form If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. Free download irs 1040 form In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. Free download irs 1040 form 08, 2. Free download irs 1040 form 10 and, if applicable, 4. Free download irs 1040 form 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. Free download irs 1040 form . Free download irs 1040 form 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. Free download irs 1040 form The rules of this section 4. Free download irs 1040 form 07 apply to partnerships other than partnerships described in section 4. Free download irs 1040 form 10 of this revenue procedure. Free download irs 1040 form (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). Free download irs 1040 form For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. Free download irs 1040 form , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Free download irs 1040 form Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). Free download irs 1040 form (2) Election information statement provided to partners. Free download irs 1040 form The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. Free download irs 1040 form 07(2). Free download irs 1040 form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Free download irs 1040 form A statement meets the requirements of this section 4. Free download irs 1040 form 07(2) if the statement— (a) Label. Free download irs 1040 form States “Section 108(i) Election Information Statement for Partners” across the top. Free download irs 1040 form (b) Required information. Free download irs 1040 form Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. Free download irs 1040 form 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. Free download irs 1040 form 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. Free download irs 1040 form 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. Free download irs 1040 form (c) If a partner fails to provide the written statement required by section 4. Free download irs 1040 form 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. Free download irs 1040 form 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. Free download irs 1040 form (3) Partner reporting requirements. Free download irs 1040 form The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. Free download irs 1040 form 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. 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Free download irs 1040 form 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. Free download irs 1040 form . Free download irs 1040 form 08 Additional Requirements for an S Corporation Making a § 108(i) Election. Free download irs 1040 form (1) Information filing on Schedule K-1 (Form 1120S). Free download irs 1040 form For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. Free download irs 1040 form , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Free download irs 1040 form S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. Free download irs 1040 form (2) Election information statement provided to shareholders. Free download irs 1040 form The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. Free download irs 1040 form 08(2). Free download irs 1040 form The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Free download irs 1040 form A statement meets the requirements of this section 4. Free download irs 1040 form 08(2) if the statement— (a) Label. Free download irs 1040 form States “Section 108(i) Election Information Statement for Shareholders” across the top. Free download irs 1040 form (b) Required information. 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Free download irs 1040 form 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. Free download irs 1040 form 11(1)(d) of this revenue procedure. Free download irs 1040 form SECTION 5. Free download irs 1040 form REQUIRED INFORMATION STATEMENT . Free download irs 1040 form 01 Annual Information Statements. Free download irs 1040 form Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. Free download irs 1040 form 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. Free download irs 1040 form 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. Free download irs 1040 form . Free download irs 1040 form 02 Contents of Statement. Free download irs 1040 form A statement meets the requirements of this section 5. Free download irs 1040 form 02 if the statement— (1) Label. Free download irs 1040 form States “Section 108(i) Information Statement” across the top; (2) Required information. 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Free download irs 1040 form (3) Election attached. Free download irs 1040 form Includes a copy of the election statement described in section 4. Free download irs 1040 form 05 of this revenue procedure. Free download irs 1040 form . Free download irs 1040 form 03 Additional Annual Reporting Requirements for Certain Partnerships. Free download irs 1040 form The rules of this section 5. Free download irs 1040 form 03 apply to partnerships other than partnerships described in section 5. Free download irs 1040 form 05 of this revenue procedure. Free download irs 1040 form (1) In general. Free download irs 1040 form A partnership that makes an election under § 108(i) (except for a protective election under section 4. Free download irs 1040 form 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Free download irs 1040 form 01 of this revenue procedure. 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Free download irs 1040 form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Free download irs 1040 form A statement meets the requirements of this section 5. Free download irs 1040 form 03(2) if the statement— (a) Label. Free download irs 1040 form States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. Free download irs 1040 form (b) Required information. Free download irs 1040 form Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. Free download irs 1040 form If a partner fails to provide the written statement required by section 4. Free download irs 1040 form 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. Free download irs 1040 form 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. Free download irs 1040 form . Free download irs 1040 form 04 Additional Annual Reporting Requirements for an S Corporation. Free download irs 1040 form (1) In general. Free download irs 1040 form An S corporation that makes an election under § 108(i) (except for a protective election under section 4. Free download irs 1040 form 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Free download irs 1040 form 01 of this revenue procedure. 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Free download irs 1040 form The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Free download irs 1040 form A statement meets the requirements of this section 5. Free download irs 1040 form 04(2) if the statement— (a) Label. Free download irs 1040 form States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. 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Free download irs 1040 form . Free download irs 1040 form 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. Free download irs 1040 form (1) The rules of this section 5. Free download irs 1040 form 05 apply to nonfiling foreign partnerships. Free download irs 1040 form (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. Free download irs 1040 form 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. Free download irs 1040 form 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. Free download irs 1040 form 01 of this revenue procedure. Free download irs 1040 form (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. 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Free download irs 1040 form The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. Free download irs 1040 form 05(2) of this revenue procedure. Free download irs 1040 form (5) For each taxable year for which a statement is required under section 5. Free download irs 1040 form 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. Free download irs 1040 form 03(2) of this revenue procedure. Free download irs 1040 form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. Free download irs 1040 form . Free download irs 1040 form 06 Information Statements Made on Behalf of Certain Foreign Corporations. Free download irs 1040 form Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. Free download irs 1040 form 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. Free download irs 1040 form 01 of this revenue procedure. Free download irs 1040 form . Free download irs 1040 form 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. Free download irs 1040 form (1) A partnership required to file a U. Free download irs 1040 form S. Free download irs 1040 form partnership return other than under § 1. Free download irs 1040 form 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. Free download irs 1040 form 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Free download irs 1040 form 07(1)(a) through (d) of this revenue procedure). Free download irs 1040 form (2) If a partnership described in section 5. Free download irs 1040 form 07(1) of this revenue procedure receives a statement described in sections 5. Free download irs 1040 form 03(2) or 5. Free download irs 1040 form 05(5) of this revenue procedure or this section 5. Free download irs 1040 form 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. Free download irs 1040 form If an S corporation receives a statement described in sections 5. Free download irs 1040 form 03(2) or 5. Free download irs 1040 form 05(5) of this revenue procedure or this section 5. Free download irs 1040 form 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. Free download irs 1040 form 03(2)(b)(i) through (viii) of this revenue procedure. Free download irs 1040 form The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Free download irs 1040 form The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Free download irs 1040 form (3) This paragraph 5. Free download irs 1040 form 07(3) provides the rules for persons described in section 4. Free download irs 1040 form 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. Free download irs 1040 form 03(1) of this revenue procedure, or a statement described in sections 5. Free download irs 1040 form 03(2) or 5. Free download irs 1040 form 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Free download irs 1040 form (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Free download irs 1040 form 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. Free download irs 1040 form 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Free download irs 1040 form (b) A Category 2 filer must include its share of the information described in section 4. Free download irs 1040 form 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Free download irs 1040 form Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Free download irs 1040 form (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. Free download irs 1040 form 07(3)(a)(ii) and 5. Free download irs 1040 form 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Free download irs 1040 form However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Free download irs 1040 form (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. Free download irs 1040 form 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. Free download irs 1040 form 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. Free download irs 1040 form 07(1) and (2) of this revenue procedure. Free download irs 1040 form Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Free download irs 1040 form 12(6) of this revenue procedure. Free download irs 1040 form SECTION 6. Free download irs 1040 form EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. Free download irs 1040 form SECTION 7. Free download irs 1040 form TRANSITION RULE . Free download irs 1040 form 01 Noncomplying Election. Free download irs 1040 form Except as otherwise provided in this section 7. Free download irs 1040 form 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. Free download irs 1040 form However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. Free download irs 1040 form . Free download irs 1040 form 02 Modification of Election. Free download irs 1040 form A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). Free download irs 1040 form To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. Free download irs 1040 form . Free download irs 1040 form 03 Notations. Free download irs 1040 form A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. Free download irs 1040 form A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. Free download irs 1040 form See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. Free download irs 1040 form SECTION 8. Free download irs 1040 form PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. Free download irs 1040 form S. Free download irs 1040 form C. Free download irs 1040 form 3507) under control number 1545-2147. Free download irs 1040 form An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Free download irs 1040 form The collection of information in this revenue procedure is in sections 4, 5 and 7. Free download irs 1040 form This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. Free download irs 1040 form This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. Free download irs 1040 form The collection of information is required to obtain a benefit. Free download irs 1040 form The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. Free download irs 1040 form The estimated total annual reporting burden is 300,000 hours. Free download irs 1040 form The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. Free download irs 1040 form The estimated number of respondents is 50,000. Free download irs 1040 form Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Free download irs 1040 form Generally, tax returns and return information are confidential, as required by § 6103. Free download irs 1040 form DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. Free download irs 1040 form Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). Free download irs 1040 form For further information regarding this revenue procedure, contact Megan A. Free download irs 1040 form Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. Free download irs 1040 form Blanchard at (202) 622-3950 for questions involving OID, Ronald M. Free download irs 1040 form Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). Free download irs 1040 form Prev  Up  Next   Home   More Internal Revenue Bulletins
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The Free Download Irs 1040 Form

Free download irs 1040 form 3. Free download irs 1040 form   Investment Expenses Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Limits on DeductionsPassive activity. Free download irs 1040 form Other income (nonpassive income). Free download irs 1040 form Expenses. Free download irs 1040 form Additional information. Free download irs 1040 form Interest ExpensesInvestment Interest Limit on Deduction Bond Premium AmortizationSpecial rules to determine amounts payable on a bond. Free download irs 1040 form Basis. Free download irs 1040 form How To Figure Amortization Choosing To Amortize How To Report Amortization Expenses of Producing IncomeFees to buy or sell. Free download irs 1040 form Including mutual fund or REMIC expenses in income. Free download irs 1040 form Nondeductible ExpensesUsed as collateral. Free download irs 1040 form Short-sale expenses. Free download irs 1040 form Expenses for both tax-exempt and taxable income. 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Free download irs 1040 form Limits on Deductions Your deductions for investment expenses may be limited by: The at-risk rules, The passive activity loss limits, The limit on investment interest, or The 2% limit on certain miscellaneous itemized deductions. Free download irs 1040 form The at-risk rules and passive activity rules are explained briefly in this section. Free download irs 1040 form The limit on investment interest is explained later in this chapter under Interest Expenses . Free download irs 1040 form The 2% limit is explained later in this chapter under Expenses of Producing Income . Free download irs 1040 form At-risk rules. Free download irs 1040 form   Special at-risk rules apply to most income-producing activities. Free download irs 1040 form These rules limit the amount of loss you can deduct to the amount you risk losing in the activity. Free download irs 1040 form Generally, this is the cash and the adjusted basis of property you contribute to the activity. 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Free download irs 1040 form   You make this choice by completing Form 4952, line 4g, according to its instructions. Free download irs 1040 form   If you choose to include any of your net capital gain in investment income, you must reduce your net capital gain that is eligible for the lower capital gains tax rates by the same amount. Free download irs 1040 form   For more information about the capital gains rates, see Capital Gain Tax Rates in chapter 4. Free download irs 1040 form    Before making either choice, consider the overall effect on your tax liability. Free download irs 1040 form Compare your tax if you make one or both of these choices with your tax if you do not. Free download irs 1040 form Investment income of child reported on parent's return. Free download irs 1040 form   Investment income includes the part of your child's interest and dividend income you choose to report on your return. 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Free download irs 1040 form However, you can choose to include all or part of it in investment income, as explained under Choosing to include qualified dividends , earlier. Free download irs 1040 form   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured next under Child's Alaska Permanent Fund dividends). Free download irs 1040 form Child's Alaska Permanent Fund dividends. Free download irs 1040 form   If part of the amount you report is your child's Alaska Permanent Fund dividends, that part does not count as investment income. Free download irs 1040 form To figure the amount of your child's income that you can consider your investment income, start with the amount on Form 8814, line 6. Free download irs 1040 form Multiply that amount by a percentage that is equal to the Alaska Permanent Fund dividends divided by the total amount on Form 8814, line 4. Free download irs 1040 form Subtract the result from the amount on Form 8814, line 12. Free download irs 1040 form Example. Free download irs 1040 form Your 10-year-old child has taxable interest income of $4,000 and Alaska Permanent Fund dividends of $2,000. Free download irs 1040 form You choose to report this on your return. Free download irs 1040 form You enter $4,000 on Form 8814, line 1a, $2,000 on line 2a, and $6,000 on line 4. Free download irs 1040 form You then enter $4,000 on Form 8814, lines 6 and 12, and Form 1040, line 21. Free download irs 1040 form You figure the amount of your child's income that you can consider your investment income as follows: $4,000 − ($4,000 × ($2,000 ÷ $6,000)) = $2,667 You include the result, $2,667, on Form 4952, line 4a. Free download irs 1040 form Child's capital gain distributions. Free download irs 1040 form   If part of the amount you report is your child's capital gain distributions, that part (which is reported on Schedule D (Form 1040), line 13, or Form 1040, line 13) generally does not count as investment income. Free download irs 1040 form However, you can choose to include all or part of it in investment income, as explained in Choosing to include net capital gain , earlier. Free download irs 1040 form   Your investment income also includes the amount on Form 8814, line 12 (or, if applicable, the reduced amount figured under Child's Alaska Permanent Fund dividends , earlier). Free download irs 1040 form Investment expenses. Free download irs 1040 form   Investment expenses are your allowed deductions (other than interest expense) directly connected with the production of investment income. Free download irs 1040 form Investment expenses that are included as a miscellaneous itemized deduction on Schedule A (Form 1040) are allowable deductions after applying the 2% limit that applies to miscellaneous itemized deductions. Free download irs 1040 form Use the smaller of: The investment expenses included on Schedule A (Form 1040), line 23, or The amount on Schedule A (Form 1040), line 27. Free download irs 1040 form See Expenses of Producing Income , later, for a discussion of the 2% limit. Free download irs 1040 form Losses from passive activities. Free download irs 1040 form   Income or expenses that you used in computing income or loss from a passive activity are not included in determining your investment income or investment expenses (including investment interest expense). Free download irs 1040 form See Publication 925 for information about passive activities. Free download irs 1040 form Example. Free download irs 1040 form Ted is a partner in a partnership that operates a business. Free download irs 1040 form However, he does not materially participate in the partnership's business. Free download irs 1040 form Ted's interest in the partnership is considered a passive activity. Free download irs 1040 form Ted's investment income from interest and dividends (other than qualified dividends) is $10,000. Free download irs 1040 form His investment expenses (other than interest) are $3,200 after taking into account the 2% limit on miscellaneous itemized deductions. Free download irs 1040 form His investment interest expense is $8,000. Free download irs 1040 form Ted also has income from the partnership of $2,000. Free download irs 1040 form Ted figures his net investment income and the limit on his investment interest expense deduction in the following way: Total investment income $10,000 Minus: Investment expenses (other than interest) 3,200 Net investment income $6,800 Deductible investment interest expense for the year $6,800 The $2,000 of income from the passive activity is not used in determining Ted's net investment income. Free download irs 1040 form His investment interest deduction for the year is limited to $6,800, the amount of his net investment income. Free download irs 1040 form Form 4952 Use Form 4952 to figure your deduction for investment interest. Free download irs 1040 form See Form 4952 for more information. Free download irs 1040 form Exception to use of Form 4952. Free download irs 1040 form   You do not have to complete Form 4952 or attach it to your return if you meet all of the following tests. Free download irs 1040 form Your investment interest expense is not more than your investment income from interest and ordinary dividends minus any qualified dividends. Free download irs 1040 form You do not have any other deductible investment expenses. Free download irs 1040 form You have no carryover of investment interest expense from 2012. Free download irs 1040 form   If you meet all of these tests, you can deduct all of your investment interest. Free download irs 1040 form    Bond Premium Amortization If you pay a premium to buy a bond, the premium is part of your basis in the bond. Free download irs 1040 form If the bond yields taxable interest, you can choose to amortize the premium. Free download irs 1040 form This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. Free download irs 1040 form If you make this choice, you must reduce your basis in the bond by the amortization for the year. Free download irs 1040 form If the bond yields tax-exempt interest, you must amortize the premium. Free download irs 1040 form This amortized amount is not deductible in determining taxable income. Free download irs 1040 form However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year. Free download irs 1040 form Bond premium. Free download irs 1040 form   Bond premium is the amount by which your basis in the bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest). Free download irs 1040 form For example, a bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. Free download irs 1040 form Special rules to determine amounts payable on a bond. Free download irs 1040 form   For special rules that apply to determine the amounts payable on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Free download irs 1040 form 171-3. Free download irs 1040 form Basis. Free download irs 1040 form   In general, your basis for figuring bond premium amortization is the same as your basis for figuring any loss on the sale of the bond. Free download irs 1040 form However, you may need to use a different basis for: Convertible bonds, Bonds you got in a trade, and Bonds whose basis has to be determined using the basis of the person who transferred the bond to you. Free download irs 1040 form See Regulations section 1. Free download irs 1040 form 171-1(e). Free download irs 1040 form Dealers. Free download irs 1040 form   A dealer in taxable bonds (or anyone who holds them mainly for sale to customers in the ordinary course of a trade or business or who would properly include bonds in inventory at the close of the tax year) cannot claim a deduction for amortizable bond premium. Free download irs 1040 form   See section 75 of the Internal Revenue Code for the treatment of bond premium by a dealer in tax-exempt bonds. Free download irs 1040 form How To Figure Amortization For bonds issued after September 27, 1985, you must amortize bond premium using a constant yield method on the basis of the bond's yield to maturity, determined by using the bond's basis and compounding at the close of each accrual period. Free download irs 1040 form Constant yield method. Free download irs 1040 form   Figure the bond premium amortization for each accrual period as follows. Free download irs 1040 form Step 1: Determine your yield. Free download irs 1040 form   Your yield is the discount rate that, when used in figuring the present value of all remaining payments to be made on the bond (including payments of qualified stated interest), produces an amount equal to your basis in the bond. Free download irs 1040 form Figure the yield as of the date you got the bond. Free download irs 1040 form It must be constant over the term of the bond and must be figured to at least two decimal places when expressed as a percentage. Free download irs 1040 form   If you do not know the yield, consult your broker or tax advisor. Free download irs 1040 form Databases available to them are likely to show the yield at the date of purchase. Free download irs 1040 form Step 2: Determine the accrual periods. Free download irs 1040 form   You can choose the accrual periods to use. Free download irs 1040 form They may be of any length and may vary in length over the term of the bond, but each accrual period can be no longer than 1 year and each scheduled payment of principal or interest must occur either on the first or the final day of an accrual period. Free download irs 1040 form The computation is simplest if accrual periods are the same as the intervals between interest payment dates. Free download irs 1040 form Step 3: Determine the bond premium for the accrual period. Free download irs 1040 form   To do this, multiply your adjusted acquisition price at the beginning of the accrual period by your yield. Free download irs 1040 form Then subtract the result from the qualified stated interest for the period. Free download irs 1040 form   Your adjusted acquisition price at the beginning of the first accrual period is the same as your basis. Free download irs 1040 form After that, it is your basis decreased by the amount of bond premium amortized for earlier periods and the amount of any payment previously made on the bond other than a payment of qualified stated interest. Free download irs 1040 form Example. Free download irs 1040 form On February 1, 2012, you bought a taxable bond for $110,000. Free download irs 1040 form The bond has a stated principal amount of $100,000, payable at maturity on February 1, 2019, making your premium $10,000 ($110,000 − $100,000). Free download irs 1040 form The bond pays qualified stated interest of $10,000 on February 1 of each year. Free download irs 1040 form Your yield is 8. Free download irs 1040 form 07439% compounded annually. Free download irs 1040 form You choose to use annual accrual periods ending on February 1 of each year. Free download irs 1040 form To find your bond premium amortization for the accrual period ending on February 1, 2013, you multiply the adjusted acquisition price at the beginning of the period ($110,000) by your yield. Free download irs 1040 form When you subtract the result ($8,881. Free download irs 1040 form 83) from the qualified stated interest for the period ($10,000), you find that your bond premium amortization for the period is $1,118. Free download irs 1040 form 17. Free download irs 1040 form Special rules to figure amortization. Free download irs 1040 form   For special rules to figure the bond premium amortization on a variable rate bond, an inflation-indexed debt instrument, a bond that provides for certain alternative payment schedules (for example, a bond callable prior to the stated maturity date of the bond), or a bond that provides for remote or incidental contingencies, see Regulations section 1. Free download irs 1040 form 171-3. Free download irs 1040 form Bonds Issued Before September 28, 1985 For these bonds, you can amortize bond premium using any reasonable method. Free download irs 1040 form Reasonable methods include: The straight-line method, and The Revenue Ruling 82-10 method. Free download irs 1040 form Straight-line method. Free download irs 1040 form   Under this method, the amount of your bond premium amortization is the same each month. Free download irs 1040 form Divide the number of months you held the bond during the year by the number of months from the beginning of the tax year (or, if later, the date of acquisition) to the date of maturity or earlier call date. Free download irs 1040 form Then multiply the result by the bond premium (reduced by any bond premium amortization claimed in earlier years). Free download irs 1040 form This gives you your bond premium amortization for the year. Free download irs 1040 form Revenue Ruling 82-10 method. Free download irs 1040 form   Under this method, the amount of your bond premium amortization increases each month over the life of the bond. Free download irs 1040 form This method is explained in Revenue Ruling 82-10, 1982-1 C. Free download irs 1040 form B. Free download irs 1040 form 46. Free download irs 1040 form Choosing To Amortize You choose to amortize the premium on taxable bonds by reporting the amortization for the year on your income tax return for the first tax year you want the choice to apply. Free download irs 1040 form You should attach a statement to your return that you are making this choice under section 171. Free download irs 1040 form See How To Report Amortization, next. Free download irs 1040 form This choice is binding for the year you make it and for later tax years. Free download irs 1040 form It applies to all taxable bonds you own in the year you make the choice and also to those you acquire in later years. 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Free download irs 1040 form Below this subtotal, print “ABP Adjustment,” and the total interest you received. Free download irs 1040 form Subtract this amount from the subtotal, and enter the result on line 2. Free download irs 1040 form Bond premium amortization more than interest. Free download irs 1040 form   If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28. Free download irs 1040 form    But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Free download irs 1040 form Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. Free download irs 1040 form Pre-1998 election to amortize bond premium. Free download irs 1040 form   Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988. Free download irs 1040 form Bonds acquired before October 23, 1986. Free download irs 1040 form   The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit. Free download irs 1040 form Bonds acquired after October 22, 1986, but before 1988. Free download irs 1040 form    The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond. Free download irs 1040 form Expenses of Producing Income You deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Schedule A (Form 1040). Free download irs 1040 form To be deductible, these expenses must be ordinary and necessary expenses paid or incurred: To produce or collect income, or To manage property held for producing income. Free download irs 1040 form The expenses must be directly related to the income or income-producing property, and the income must be taxable to you. Free download irs 1040 form The deduction for most income-producing expenses is subject to a 2% limit that also applies to certain other miscellaneous itemized deductions. Free download irs 1040 form The amount deductible is limited to the total of these miscellaneous deductions that is more than 2% of your adjusted gross income. Free download irs 1040 form For information on how to report expenses of producing income, see How To Report Investment Expenses , later. Free download irs 1040 form Attorney or accounting fees. 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Free download irs 1040 form   If you itemize your deductions, you can deduct, as taxes, state income taxes on interest income that is exempt from federal income tax. Free download irs 1040 form But you cannot deduct, as either taxes or investment expenses, state income taxes on other exempt income. Free download irs 1040 form Interest expense and carrying charges on straddles. Free download irs 1040 form   You cannot deduct interest and carrying charges allocable to personal property that is part of a straddle. Free download irs 1040 form The nondeductible interest and carrying charges are added to the basis of the straddle property. Free download irs 1040 form However, this treatment does not apply if: All the offsetting positions making up the straddle either consist of one or more qualified covered call options and the optioned stock, or consist of section 1256 contracts (and the straddle is not part of a larger straddle); or The straddle is a hedging transaction. Free download irs 1040 form  For information about straddles, including definitions of the terms used in this discussion, see Straddles in chapter 4. Free download irs 1040 form   Interest includes any amount you pay or incur in connection with personal property used in a short sale. Free download irs 1040 form However, you must first apply the rules discussed in Payments in lieu of dividends under Short Sales in chapter 4. Free download irs 1040 form   To determine the interest on market discount bonds and short-term obligations that are part of a straddle, you must first apply the rules discussed under Limit on interest deduction for market discount bonds and Limit on interest deduction for short-term obligations (both under Interest Expenses, earlier). Free download irs 1040 form Nondeductible amount. Free download irs 1040 form   Figure the nondeductible interest and carrying charges on straddle property as follows. Free download irs 1040 form Add: Interest on indebtedness incurred or continued to buy or carry the personal property, and All other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property. Free download irs 1040 form Subtract from the amount in (1): Interest (including OID) includible in gross income for the year on the personal property, Any income from the personal property treated as ordinary income on the disposition of short-term government obligations or as ordinary income under the market discount and short-term bond provisions — see Discount on Debt Instruments in chapter 1, The dividends includible in gross income for the year from the personal property, and Any payment on a loan of the personal property for use in a short sale that is includible in gross income. Free download irs 1040 form Basis adjustment. Free download irs 1040 form   Add the nondeductible amount to the basis of your straddle property. Free download irs 1040 form How To Report Investment Expenses To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Free download irs 1040 form Enter your deductible investment interest expense on Schedule A (Form1040), line 14. Free download irs 1040 form Include any deductible short sale expenses. Free download irs 1040 form (See Short Sales in chapter 4 for information on these expenses. Free download irs 1040 form ) Also attach a completed Form 4952 if you used that form to figure your investment interest expense. Free download irs 1040 form Enter the total amount of your other investment expenses (other than interest expenses) on Schedule A (Form 1040), line 23. Free download irs 1040 form List the type and amount of each expense on the dotted lines next to line 23. Free download irs 1040 form (If necessary, you can show the required information on an attached statement. Free download irs 1040 form ) For information on how to report amortizable bond premium, see Bond Premium Amortization , earlier in this chapter. Free download irs 1040 form When To Report Investment Expenses If you use the cash method to report income and expenses, you generally deduct your expenses, except for certain prepaid interest, in the year you pay them. Free download irs 1040 form If you use an accrual method, you generally deduct your expenses when you incur a liability for them, rather than when you pay them. Free download irs 1040 form Also see When To Deduct Investment Interest , earlier in this chapter. Free download irs 1040 form Unpaid expenses owed to related party. Free download irs 1040 form   If you use an accrual method, you cannot deduct interest and other expenses owed to a related cash-basis person until payment is made and the amount is includible in the gross income of that person. Free download irs 1040 form The relationship, for purposes of this rule, is determined as of the end of the tax year for which the interest or expense would otherwise be deductible. Free download irs 1040 form If a deduction is denied under this rule, this rule will continue to apply even if your relationship with the person ceases to exist before the amount is includible in the gross income of that person. Free download irs 1040 form   This rule generally applies to those relationships listed in chapter 4 under Related Party Transactions . Free download irs 1040 form It also applies to accruals by partnerships to partners, partners to partnerships, shareholders to S corporations, and S corporations to shareholders. Free download irs 1040 form   The postponement of deductions for unpaid expenses and interest under the related party rule does not apply to OID, regardless of when payment is made. Free download irs 1040 form This rule also does not apply to loans with below-market interest rates or to certain payments for the use of property and services when the lender or recipient has to include payments periodically in income, even if a payment has not been made. Free download irs 1040 form Prev  Up  Next   Home   More Online Publications