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Help Amending Tax Return

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Help Amending Tax Return

Help amending tax return 5. Help amending tax return   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. Help amending tax return Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. Help amending tax return When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. Help amending tax return Otherwise, these are capital expenses that must be added to the basis of the land. Help amending tax return (See chapter 6 for information on determining basis. Help amending tax return ) Conservation expenses for land in a foreign country do not qualify for this special treatment. Help amending tax return The deduction for conservation expenses cannot be more than 25% of your gross income from farming. Help amending tax return See 25% Limit on Deduction , later. Help amending tax return Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. Help amending tax return These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. Help amending tax return You must include in income most government payments for approved conservation practices. Help amending tax return However, you can exclude some payments you receive under certain cost-sharing conservation programs. Help amending tax return For more information, see Agricultural Program Payments in chapter 3. Help amending tax return To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. Help amending tax return Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. Help amending tax return You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. Help amending tax return You are not farming if you are engaged only in forestry or the growing of timber. Help amending tax return Farm defined. Help amending tax return   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. Help amending tax return It also includes plantations, ranches, ranges, and orchards. Help amending tax return A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. Help amending tax return It does not include an area where they are merely caught or harvested. Help amending tax return A plant nursery is a farm for purposes of deducting soil and water conservation expenses. Help amending tax return Farm rental. Help amending tax return   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. Help amending tax return If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. Help amending tax return   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. Help amending tax return Example. Help amending tax return You own a farm in Iowa and live in California. Help amending tax return You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. Help amending tax return You cannot deduct your soil conservation expenses for this farm. Help amending tax return You must capitalize the expenses and add them to the basis of the land. Help amending tax return     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. Help amending tax return Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. Help amending tax return If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. Help amending tax return Keep a copy of the plan with your books and records to support your deductions. Help amending tax return Conservation plan. Help amending tax return   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. Help amending tax return There are three types of approved plans. Help amending tax return NRCS individual site plans. Help amending tax return These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. Help amending tax return NRCS county plans. Help amending tax return These plans include a listing of farm conservation practices approved for the county where the farmland is located. Help amending tax return You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. Help amending tax return Comparable state agency plans. Help amending tax return These plans are approved by state agencies and can be approved individual site plans or county plans. Help amending tax return   A list of NRCS conservation programs is available at www. Help amending tax return nrcs. Help amending tax return usda. Help amending tax return gov/programs. Help amending tax return Individual site plans can be obtained from NRCS offices and the comparable state agencies. Help amending tax return Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. Help amending tax return These expenses include, but are not limited to, the following. Help amending tax return The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. Help amending tax return The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. Help amending tax return The eradication of brush. Help amending tax return The planting of windbreaks. Help amending tax return You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. Help amending tax return These expenses are added to the basis of the land. Help amending tax return If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. Help amending tax return See chapter 3 for information about payments eligible for the cost-sharing exclusion. Help amending tax return New farm or farmland. Help amending tax return   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. Help amending tax return You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. Help amending tax return The new farming activity does not have to be the same as the old farming activity. Help amending tax return For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. Help amending tax return Land not used for farming. Help amending tax return   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. Help amending tax return For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. Help amending tax return You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. Help amending tax return Depreciable conservation assets. Help amending tax return   You generally cannot deduct your expenses for depreciable conservation assets. Help amending tax return However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. Help amending tax return See Assessment for Depreciable Property , later. Help amending tax return   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. Help amending tax return These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. Help amending tax return You recover your capital investment through annual allowances for depreciation. Help amending tax return   You can deduct soil and water conservation expenses for nondepreciable earthen items. Help amending tax return Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. Help amending tax return Water well. Help amending tax return   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. Help amending tax return It is a capital expense. Help amending tax return You recover your cost through depreciation. Help amending tax return You also must capitalize your cost for drilling a test hole. Help amending tax return If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. Help amending tax return You can recover the total cost through depreciation deductions. Help amending tax return   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. Help amending tax return Abandonment means that all economic benefits from the well are terminated. Help amending tax return For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. Help amending tax return Endangered species recovery expenses. Help amending tax return   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. Help amending tax return Otherwise, these are capital expenses that must be added to the basis of the land. Help amending tax return   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. Help amending tax return See Internal Revenue Code section 175 for more information. Help amending tax return Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. Help amending tax return You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. Help amending tax return Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. Help amending tax return This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. Help amending tax return The depreciable property must be used in the district's soil and water conservation activities. Help amending tax return However, the following limits apply to these assessments. Help amending tax return The total assessment limit. Help amending tax return The yearly assessment limit. Help amending tax return After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. Help amending tax return The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. Help amending tax return See Table 5-1 for a brief summary of these limits. Help amending tax return Table 5-1. Help amending tax return Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. Help amending tax return Your deductible share of the cost to the district for the property. Help amending tax return Your gross income from farming. Help amending tax return No one taxpayer can deduct more than 10% of the total assessment. Help amending tax return Any amount over 10% is a capital expense and is added to the basis of your land. Help amending tax return If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Help amending tax return If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. Help amending tax return You can deduct the remainder in equal amounts over the next 9 tax years. Help amending tax return Limit for all conservation expenses, including assessments for depreciable property. Help amending tax return Amounts greater than 25% can be carried to the following year and added to that year's expenses. Help amending tax return The total is then subject to the 25% of gross income from farming limit in that year. Help amending tax return To ensure your deduction is within the deduction limits, keep records to show the following. Help amending tax return The total assessment against all members of the district for the depreciable property. Help amending tax return Your deductible share of the cost to the district for the depreciable property. Help amending tax return Your gross income from farming. Help amending tax return Total assessment limit. Help amending tax return   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. Help amending tax return This applies whether you pay the assessment in one payment or in installments. Help amending tax return If your assessment is more than 10% of the total amount assessed, both the following rules apply. Help amending tax return The amount over 10% is a capital expense and is added to the basis of your land. Help amending tax return If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. Help amending tax return Yearly assessment limit. Help amending tax return   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. Help amending tax return If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. Help amending tax return If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. Help amending tax return You can deduct the remainder in equal amounts over the next 9 tax years. Help amending tax return Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. Help amending tax return Example 1. Help amending tax return This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. Help amending tax return Of the assessment, $1,500 is for digging drainage ditches. Help amending tax return You can deduct this part as a soil or conservation expense as if you had paid it directly. Help amending tax return The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. Help amending tax return The total amount assessed by the district against all its members for the depreciable equipment is $7,000. Help amending tax return The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. Help amending tax return The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. Help amending tax return To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. Help amending tax return Add $500 to the result for a total of $570. Help amending tax return Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). Help amending tax return You can deduct the balance at the rate of $70 a year over the next 9 years. Help amending tax return You add $70 to the $1,500 portion of the assessment for drainage ditches. Help amending tax return You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. Help amending tax return Example 2. Help amending tax return Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. Help amending tax return The total amount assessed by the district against all its members for depreciable equipment is $5,500. Help amending tax return The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. Help amending tax return The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). Help amending tax return Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. Help amending tax return You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. Help amending tax return Sale or other disposal of land during 9-year period. Help amending tax return   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. Help amending tax return Death of farmer during 9-year period. Help amending tax return   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. Help amending tax return 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. Help amending tax return Gross income from farming. Help amending tax return   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. Help amending tax return Gains from sales of draft, breeding, or dairy livestock are included. Help amending tax return Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. Help amending tax return Carryover of deduction. Help amending tax return   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. Help amending tax return However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. Help amending tax return Example. Help amending tax return In 2012, you have gross income of $32,000 from two farms. Help amending tax return During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. Help amending tax return However, your deduction is limited to 25% of $32,000, or $8,000. Help amending tax return The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. Help amending tax return The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. Help amending tax return Any expenses over the limit in that year are carried to 2014 and later years. Help amending tax return Net operating loss. Help amending tax return   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. Help amending tax return If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. Help amending tax return When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. Help amending tax return If you do not choose to deduct the expenses, you must capitalize them. Help amending tax return Change of method. Help amending tax return   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. Help amending tax return To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. Help amending tax return You or your authorized representative must sign the request. Help amending tax return   The request must include the following information. Help amending tax return Your name and address. Help amending tax return The first tax year the method or change of method is to apply. Help amending tax return Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. Help amending tax return If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. Help amending tax return The total expenses you paid or incurred in the first tax year the method or change of method is to apply. Help amending tax return A statement that you will account separately in your books for the expenses to which this method or change of method relates. Help amending tax return Send your request to the following  address. Help amending tax return  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. Help amending tax return Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). Help amending tax return However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. Help amending tax return Gain on sale of farmland. Help amending tax return   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. Help amending tax return If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. Help amending tax return See Section 1252 property under Other Gains in chapter 9. 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Understanding your CP22E Notice

As a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.

Tax publications you may find useful

How to get help

Calling the toll free number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

  • Read your notice and audit report carefully ― these will explain why you owe money on your taxes.
  • Pay the amount owed by the date on the notice's payment coupon.
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Answers to Common Questions

What should I do if I disagree with the changes you made?
If you've information relevant to your audit that we've not already considered and you've not already paid your bill in full, you may request an Audit Reconsideration. Refer to Publication 3598, What You Should Know About the Audit Reconsideration Process for additional information.

If you've already paid the amount due in full, you must file a formal claim using Form 1040X, Amended U.S. Individual Income Tax Return.

If you don't have additional information to provide, but you disagree with the results of your audit, you may appeal your case to the Appeals Office of the IRS. Refer to Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree for additional information.

What happens if I can't pay the full amount I owe?
You can arrange to make a payment plan with us if you can't pay the full amount you owe.

Am I charged interest on the money I owe?
If you don't full pay the amount you owe by the date on the payment coupon, interest will accrue on the unpaid balance after that date.

Will I receive a penalty if I can’t pay the full amount?
Yes, you'll receive a late payment penalty. You can contact us at the number listed on your notice if you’re unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.

Can I set up a payment plan?
Yes. Call the toll-free number listed on the top right corner of your notice to discuss payment options or check out more information on payment options and how to make a payment arrangement.

There are other options, such as paying by credit card. Note: There may be a fee to pay by credit card.

What if I need to make another correction to my account?
You'll need to file Form 1040X, Amended U.S. Individual Income Tax Return.

What if I have tried to get answers and after contacting IRS several times have not been successful?
Call Taxpayer Advocate at 1-877-777-4778 or for TTY/TDD 1-800-829-4059.

The changes you have proposed are the result of actions by my spouse that I knew nothing about. Am I responsible for paying this bill?
You may qualify for innocent spouse relief. To request relief, you must file Form 8857, Request for Innocent Spouse Relief no later than 2 years after the date on which the IRS first attempted to collect the tax from you. Refer to Publication 971, Innocent Spouse Relief for additional information.

 

Page Last Reviewed or Updated: 03-Mar-2014

The Help Amending Tax Return

Help amending tax return Tax Changes for Businesses Table of Contents 2001 ChangesNew 5-Year Carryback Rule for Net Operating Losses (NOLs) Electronic Form 1099 Tax Incentives for New York Liberty Zone Other 2001 Changes 2002 ChangesNonaccrual-Experience Method Issuance of Qualified Zone Academy Bonds Depletion Work Opportunity Credit Expanded in New York Liberty Zone Credit For Pension Plan Startup Costs Welfare-to-Work Credit Extended Work Opportunity Credit Extended Electric and Clean-Fuel Vehicles Renewable Electricity Production Credit Later ChangesSpecial Depreciation Allowance Extension of Placed in Service Date Special Liberty Zone Depreciation Allowance for New and Used Property Depreciation of Property Used on Indian Reservations Indian Employment Credit Extended 2001 Changes New 5-Year Carryback Rule for Net Operating Losses (NOLs) If you have an NOL from a tax year ending during 2001 or 2002, you must generally carry back the entire amount of the NOL to the 5 tax years before the NOL year (the carryback period). Help amending tax return However, you can still choose to use the previous carryback period. Help amending tax return You also can choose not to carry back an NOL and only carry it forward. Help amending tax return Individuals, estates, and trusts can file Form 1045, Application for Tentative Refund. Help amending tax return Corporations can file Form 1139, Corporation Application for Tentative Refund. Help amending tax return The instructions for these forms will be revised to reflect the new law. Help amending tax return Electronic Form 1099 For tax years ending after March 9, 2002, most Forms 1099 can be furnished electronically if the recipient consents, according to IRS regulations, to receive it that way. Help amending tax return Tax Incentives for New York Liberty Zone New tax benefits are provided for the parts of New York City damaged in the terrorist attacks on September 11, 2001. Help amending tax return These benefits apply to the newly created New York Liberty Zone, which is the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway), in the Borough of Manhattan. Help amending tax return Tax benefits for the New York Liberty Zone include the following. Help amending tax return A special depreciation allowance equal to 30% of the adjusted basis of qualified Liberty Zone property. Help amending tax return It is allowed for the year the property is placed in service. Help amending tax return No alternative minimum tax depreciation adjustment for qualified Liberty Zone property. Help amending tax return Classification of Liberty Zone leasehold improvement property as 5-year property. Help amending tax return Authorization of the issuance of tax-exempt New York Liberty bonds to finance the acquisition, construction, reconstruction, and renovation of nonresidential real property, residential rental property, and public utility property in the Liberty Zone. Help amending tax return An increased section 179 deduction for certain Liberty Zone property. Help amending tax return Extension of the replacement period from 2 years to 5 years for certain property involuntarily converted as a result of the terrorist attacks on September 11, 2001, but only if substantially all of the use of the replacement property is in New York City. Help amending tax return For more information about involuntary conversions, see Postponement of Gain in Publication 547, Casualties, Disasters, and Thefts. Help amending tax return In addition, for 2002 and 2003, the work opportunity credit is expanded by creating a new targeted group, consisting generally of employees who work in the Liberty Zone or, in certain cases, in New York City outside the Liberty Zone. Help amending tax return For more information, see Work Opportunity Credit Expanded in New York Liberty Zone under 2002 Changes, later. Help amending tax return For more information about the 30% special depreciation allowance, Liberty Zone leasehold improvement property, or increased section 179 deduction, see New York Liberty Zone Benefits, in chapter 5. Help amending tax return In addition, the tax benefits for the Liberty Zone will be covered in a new edition of Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities, available later in 2002. Help amending tax return Other 2001 Changes Other changes are discussed in the following chapters. Help amending tax return Chapter 4 Car Expenses Chapter 5 Depreciation 2002 Changes Nonaccrual-Experience Method Under current law, if you perform services and use an accrual method of accounting, you do not accrue income which, based on experience, you expect to be uncollectible. Help amending tax return Beginning in 2002, this rule only applies if you perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting, or your average annual gross receipts for the 3 prior tax years does not exceed $5,000,000. Help amending tax return As under current law, the nonaccrual-experience method will not apply to amounts on which you charge interest or a late payment penalty. Help amending tax return For more information, see Nonaccrual-Experience Method in chapter 11 of Publication 535, Business Expenses. Help amending tax return Issuance of Qualified Zone Academy Bonds State and local governments issue qualified zone academy bonds to raise funds for the use of qualified zone academies. Help amending tax return The amount of bonds that may be issued was limited to $400 million each year for 1998, 1999, 2000, and 2001. Help amending tax return This provision has been extended to provide for an additional $400 million of bonds to be issued each year for 2002 and 2003. Help amending tax return For more information about qualified zone academy bonds, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Help amending tax return Depletion The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 2001 has been extended to tax years beginning before 2004. Help amending tax return For more information on marginal production, see section 613A(c) of the Internal Revenue Code. Help amending tax return Work Opportunity Credit Expanded in New York Liberty Zone The work opportunity credit is expanded to include a new targeted group consisting generally of employees who perform substantially all their services: In the New York Liberty Zone (defined earlier under Tax Incentives for New York Liberty Zone, under 2001 Changes), or Elsewhere in New York City for a business that relocated from the Liberty Zone due to the destruction or damage of its place of business by the September 11, 2001, terrorist attack. Help amending tax return The credit is available to employers for wages paid to new employees and existing employees for work performed during 2002 or 2003. Help amending tax return Certain limits apply. Help amending tax return For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Help amending tax return Credit For Pension Plan Startup Costs The credit for pension plan startup costs is now allowed for plans that become effective after December 31, 2001. Help amending tax return Previously, the credit was only allowed for plans established after December 31, 2001. Help amending tax return For more information on the credit, see Important Changes for 2002 in Publication 560, Retirement Plans for Small Business. Help amending tax return Welfare-to-Work Credit Extended The welfare-to-work credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Help amending tax return For more information on the welfare-to-work credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Help amending tax return Work Opportunity Credit Extended The work opportunity credit that was scheduled to expire for wages paid to individuals who began working for you after 2001 has been extended to include wages paid to qualified individuals who begin work for you in 2002 or 2003. Help amending tax return For more information about the work opportunity credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Help amending tax return Electric and Clean-Fuel Vehicles The maximum clean-fuel vehicle deduction and qualified electric vehicle credit were scheduled to be 25% lower for 2002 and both were scheduled to be phased out completely by 2005. Help amending tax return The full deduction and credit are now allowed for qualified property placed in service in 2002 and 2003. Help amending tax return The phaseout of the deduction and the credit will begin in 2004, and no deduction or credit will be allowed for property placed in service after 2006. Help amending tax return For more information about electric and clean-fuel vehicles, see chapter 12 in Publication 535, Business Expenses. Help amending tax return Renewable Electricity Production Credit The renewable electricity production credit is extended to include electricity produced by facilities placed in service after 2001 and before 2004. Help amending tax return Later Changes Special Depreciation Allowance You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. Help amending tax return Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. Help amending tax return However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5. Help amending tax return Extension of Placed in Service Date To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. Help amending tax return To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. Help amending tax return However, certain property placed in service before January 1, 2006, may meet this test. Help amending tax return Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies. Help amending tax return The property has an estimated production period of more than 2 years. Help amending tax return The property has an estimated production period of more than 1 year and it costs more than $1 million. Help amending tax return Transportation property is any tangible personal property used in the trade or business of transporting persons or property. Help amending tax return For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance. Help amending tax return Special Liberty Zone Depreciation Allowance for New and Used Property You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. Help amending tax return You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property. Help amending tax return Depreciation of Property Used on Indian Reservations The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. Help amending tax return These special rules have been extended to include property placed in service in 2004. Help amending tax return For more information about these rules, see Publication 946, How To Depreciate Property. Help amending tax return Indian Employment Credit Extended The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. Help amending tax return For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities. Help amending tax return Prev  Up  Next   Home   More Online Publications