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Military 4. Military   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Military Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Military Net unrelated income. Military Net unrelated loss. Military Control. Military Income from property financed with qualified 501(c)(3) bonds. Military Disposition of property received from taxable subsidiary and used in unrelated business. Military Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Military If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Military In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Military Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Military For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Military Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Military Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Military Dividends, interest, annuities and other investment income. Military   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Military Exception for insurance activity income of a controlled foreign corporation. Military   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Military The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Military Certain exceptions to this rule apply. Military For more information, see section 512(b)(17). Military Other exceptions. Military   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Military Income from lending securities. Military   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Military   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Military The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Military Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Military Royalties. Military   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Military   To be considered a royalty, a payment must relate to the use of a valuable right. Military Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Military Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Military However, royalties do not include payments for personal services. Military Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Military   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Military   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Military However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Military To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Military To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Military Exceptions. Military   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Military Rents. Military   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Military Rents from personal property are not excluded. Military However, special rules apply to “mixed leases” of both real and personal property. Military Mixed leases. Military   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Military If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Military If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Military   Property is placed in service when the lessee first may use it under the terms of a lease. Military For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Military   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Military   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Military Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Military Exception for rents based on net profit. Military   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Military Exception for income from personal services. Military   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Military Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Military Other exceptions. Military   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Military ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Military See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Military Income from research. Military   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Military However, the extent of the exclusion depends on the nature of the organization and the type of research. Military   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Military   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Military   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Military   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Military In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Military Gains and losses from disposition of property. Military   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Military   It should be noted that the last exception relates only to cut timber. Military The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Military Lapse or termination of options. Military   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Military The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Military Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Military Exception. Military   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Military Gain or loss on disposition of certain brownfield property. Military   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Military See sections 512(b)(19) and 514(b)(1)(E). Military Income from services provided under federal license. Military   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Military   This exclusion applies only if the following requirements are met. Military The trade or business must have been operated by the order or by the institution before May 27, 1959. Military The trade or business must provide services under a license issued by a federal regulatory agency. Military More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Military The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Military Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Military Exception. Military    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Military Member income of mutual or cooperative electric companies. Military   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Military Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Military For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Military Exception. Military   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Military The limit on dues paid by an associate member is $148 for 2011. Military   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Military Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Military They cannot be directly connected with excluded income. Military For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Military Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Military For an exception, see Expenses attributable to exploitation of exempt activities, later. Military Expenses attributable solely to unrelated business. Military   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Military   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Military Expenses attributable to dual use of facilities or personnel. Military   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Military The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Military Example 1. Military A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Military The school provides the tennis courts, housing, and dining facilities. Military The contracted individual hires the instructors, recruits campers, and provides supervision. Military The income the school receives from this activity is from a dual use of the facilities and personnel. Military The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Military Example 2. Military An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Military The president devotes approximately 10% of his time to the unrelated business. Military To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Military Expenses attributable to exploitation of exempt activities. Military   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Military (See Exploitation of exempt functions under Not substantially related in chapter 3. Military ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Military Exception. Military   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Military The unrelated business exploits the exempt activity. Military The unrelated business is a type normally conducted for profit by taxable organizations. Military The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Military The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Military   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Military Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Military Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Military (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Military ) Figuring unrelated business taxable income (UBTI). Military   The UBTI of an advertising activity is the amount shown in the following chart. Military IF gross advertising income is . Military . Military . Military THEN UBTI is . Military . Military . Military More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Military Equal to or less than direct advertising costs Zero. Military   • Circulation income and readership costs are not taken into account. Military   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Military   The terms used in the chart are explained in the following discussions. Military Periodical Income Gross advertising income. Military   This is all the income from the unrelated advertising activities of an exempt organization periodical. Military Circulation income. Military   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Military It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Military It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Military Allocable membership receipts. Military   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Military   The amount used to allocate membership receipts is the amount shown in the following chart. Military   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Military The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Military IF . Military . Military . Military THEN the amount used to allocate membership receipts is . Military . Military . Military 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Military The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Military Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Military U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Military One of U's activities is publishing a monthly periodical distributed to all of its members. Military U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Military Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Military Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Military Example 2. Military Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Military Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Military U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Military Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Military Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Military Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Military U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Military Periodical Costs Direct advertising costs. Military   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Military   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Military Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Military   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Military For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Military Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Military   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Military Readership costs. Military   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Military Costs partly attributable to other activities. Military   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Military When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Military The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Military Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Military Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Military It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Military Consolidated treatment, once adopted, must be followed consistently and is binding. Military This treatment can be changed only with the consent of the Internal Revenue Service. Military An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Military Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Military The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Military For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Military The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Military Example. Military Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Military Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Military Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Military The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Military The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Military It is not engaged in for profit. Military Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Military It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Military Modifications Net operating loss deduction. Military   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Military However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Military For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Military   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Military This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Military Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Military   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Military   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Military   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Military For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Military   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Military Charitable contributions deduction. Military   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Military   To be deductible, the contribution must be paid to another qualified organization. Military For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Military   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Military Deduction limits. Military   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Military See the Instructions for Form 990-T for more information. Military    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Military However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Military   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Military A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Military Suspension of deduction limits for farmers and ranchers. Military   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Military See the Instructions for Form 990-T for details. Military Specific deduction. Military   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Military However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Military   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Military Exception. Military   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Military In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Military   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Military The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Military The local units cannot file separate returns. Military However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Military See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Military Example. Military X is an association of churches and is divided into local units A, B, C, and D. Military Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Military X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Military Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Military If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Military No distinction is made between limited and general partners. Military The organization is required to notify the partnership of its tax-exempt status. Military Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Military The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Military The partnership is required to provide the organization this information on Schedule K-1. Military Example. Military An exempt educational organization is a partner in a partnership that operates a factory. Military The partnership also holds stock in a corporation. Military The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Military Different tax years. Military   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Military S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Military For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Military The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Military Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Military To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Military Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Military These organizations must figure unrelated business taxable income under special rules. Military Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Military ). Military (See Exclusions under Income, earlier. Military ) Therefore, they are generally subject to unrelated business income tax on this income. Military The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Military The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Military Losses from nonexempt activities. Military   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Military Example. Military A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Military The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Military Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Military Modifications. Military   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Military Exempt function income. Military   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Military Exempt function income also includes income set aside for qualified purposes. Military Income that is set aside. Military   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Military In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Military   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Military Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Military These rules are explained in section 512(a)(3)(E)(ii). Military   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Military In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Military   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Military However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Military The income set aside must have been includible in gross income for that earlier year. Military Nonrecognition of gain. Military   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Military The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Military   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Military Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Military The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Military For details, see section 512(a)(4) and the regulations under that section. Military Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Military The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Military All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Military Excess qualifying specified payments. Military   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Military Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Military   If a controlled participant is not required to file a U. Military S. Military income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Military 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Military S. Military Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Military S. Military Corporation or a Foreign Corporation Engaged in a U. Military S. Military Trade or Business, or any Form 8865, Return of U. Military S. Military Persons With Respect to Certain Foreign Partnerships, filed for that participant. Military Addition to tax for valuation misstatements. Military   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Military See section 512(b)(13)(E)(ii) for more information. Military Net unrelated income. Military   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Military Net unrelated loss. Military   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Military Control. Military   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Military For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Military   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Military Income from property financed with qualified 501(c)(3) bonds. Military If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Military No deduction is allowed for interest on the private activity bond. Military See sections 150(b)(3) and (c) for more information. Military Disposition of property received from taxable subsidiary and used in unrelated business. Military A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Military The assets are treated as if sold at fair market value. Military Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Military S. Military and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Military A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Military However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Military In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Military A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Military This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Military In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Military If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Military If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Military Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Military Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Military Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Military The amount of income included is proportionate to the debt on the property. Military Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Military It includes rental real estate, tangible personal property, and corporate stock. Military Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Military The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Military That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Military Example 1. Military Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Military The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Military Example 2. Military X, an exempt organization, forms a partnership with A and B. Military The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Military X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Military The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Military The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Military The loan is secured by a mortgage on the entire office building. Military By agreement with Y bank, X is not personally liable for payment of the mortgage. Military X has acquisition indebtedness of $7 million. Military This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Military Example 3. Military A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Military The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Military Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Military The union has no outstanding debt on the property. Military The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Military The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Military Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Military In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Military Accordingly, the debt is not acquisition indebtedness. Military Change in use of property. Military   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Military Example. Military Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Military Last year, the university rented the apartment building to the public for nonexempt purposes. Military The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Military Continued debt. Military   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Military This is true even if the original property was not debt-financed property. Military Example. Military To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Military The office building was not debt-financed property. Military The organization later sold the building for $1 million without repaying the $400,000 loan. Military It used the sale proceeds to buy an apartment building it rents to the general public. Military The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Military Property acquired subject to mortgage or lien. Military   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Military Example. Military An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Military The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Military Liens similar to a mortgage. Military   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Military A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Military However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Military Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Military Exception for property acquired by gift, bequest, or devise. Military   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Military However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Military   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Military   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Military Modifying existing debt. Military   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Military When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Military Extension or renewal. Military   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Military   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Military Debt increase. Military   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Military Example. Military An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Military The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Military A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Military Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Military These include the following. Military Debts incurred in performing an exempt purpose. Military Annuity obligations. Military Securities loans. Military Real property debts of qualified organizations. Military Certain Federal financing. Military Debt incurred in performing exempt purpose. Military   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Military For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Military Annuity obligation. Military   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Military It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Military Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Military It must be payable over the lives of either one or two individuals living when issued. Military It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Military Example. Military X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Military In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Military The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Military The present value of this annuity is $81,156, determined from IRS valuation tables. Military Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Military Securities loans. Military   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Military This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Military   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from
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The Military

Military Publication 584 - Main Content Table of Contents LossesCost or other basis. Military Fair market value. Military Exception for personal-use real property. Military More information. Military Comments and SuggestionsOrdering forms and publications. Military Tax questions. Military How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Military Losses Generally, you may deduct losses to your home, household goods, and motor vehicles on your federal income tax return. Military However, you may not deduct a casualty or theft loss that is covered by insurance unless you filed a timely insurance claim for reimbursement. Military Any reimbursement you receive will reduce the loss. Military If you did not file an insurance claim, you may deduct only the part of the loss that was not covered by insurance. Military Amount of loss. Military   You figure the amount of your loss using the following steps. Military Determine your cost or other basis in the property before the casualty or theft. Military Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. Military (The decrease in FMV is the difference between the property's value immediately before and immediately after the casualty or theft. Military ) From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. Military Apply the deduction limits, discussed later, to determine the amount of your deductible loss. Military Cost or other basis. Military   Cost or other basis usually means original cost plus improvements. Military If you did not acquire the property by purchasing it, your basis is determined as discussed in Publication 551, Basis of Assets. Military If you inherited the property from someone who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Military Fair market value. Military   FMV is the price for which you could sell your property to a willing buyer, when neither of you has to sell or buy and both of you know all the relevant facts. Military When filling out Schedules 1 through 20, you need to know the FMV of the property immediately before and immediately after the disaster, casualty, or theft. Military Separate computations. Military   Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. Military Then combine the losses to determine the total loss from that casualty or theft. Military Exception for personal-use real property. Military   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Military Figure the loss using the smaller of the following. Military The decrease in FMV of the entire property. Military The adjusted basis of the entire property. Military Deduction limits. Military   After you have figured the amount of your loss, as discussed earlier, you must figure how much of the loss you can deduct. Military You do this on Form 4684, section A. Military If the loss was to property for your personal use or your family's, there are two limits on the amount you can deduct for your casualty or theft loss. Military You must reduce each casualty or theft loss by $100 ($100 rule). Military You must further reduce the total of all your losses by 10% of your adjusted gross income (10% rule). Military More information. Military   For more information about the deduction limits, see Publication 547. Military When your loss is deductible. Military   You can generally deduct a casualty or disaster area loss only in the tax year in which the casualty or disaster occurred. Military You can generally deduct a theft loss only in the year you discovered your property was stolen. Military However, you can choose to deduct disaster area losses on your return for the year immediately before the year of the disaster if the President has declared your area a federal disaster area. Military For details, see Disaster Area Losses in Publication 547. Military Comments and Suggestions We welcome your comments about this publication and your suggestions for future editions. Military You can write to us at the following address: Internal Revenue Service Individual Forms and Publications Branch SE:W:CAR:MP:T:I 1111 Constitution Ave. Military NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. Military Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Military You can email us at taxforms@irs. Military gov. Military Please put “Publications Comment” on the subject line. Military You can also send us comments from www. Military irs. Military gov/formspubs. Military Select “Comment on Tax Forms and Publications” under “Information about. Military ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Military Ordering forms and publications. Military   Visit www. Military irs. Military gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. Military Internal Revenue Service 1201 N. Military Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Military   If you have a tax question, check the information available on IRS. Military gov or call 1-800-829-1040. Military We cannot answer tax questions sent to either of the above addresses. Military How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Military By selecting the method that is best for you, you will have quick and easy access to tax help. Military Free help with your return. Military   Free help in preparing your return is available nationwide from IRS-certified volunteers. Military The Volunteer Income Tax Assistance (VITA) program is designed to help low-moderate income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Military Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Military To find the nearest VITA or TCE site, visit IRS. Military gov or call 1-800-906-9887 or 1-800-829-1040. Military   As part of the TCE program, AARP offers the Tax-Aide counseling program. Military To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's website at www. Military aarp. Military org/money/taxaide. Military   For more information on these programs, go to IRS. Military gov and enter keyword “VITA” in the upper right-hand corner. Military Internet. Military You can access the IRS website at IRS. Military gov 24 hours a day, 7 days a week to: E-file your return. Military Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Military Check the status of your 2011 refund. Military Go to IRS. Military gov and click on Where's My Refund. Military Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Military If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Military Have your 2011 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Military Download forms, including talking tax forms, instructions, and publications. Military Order IRS products online. Military Research your tax questions online. Military Search publications online by topic or keyword. Military Use the online Internal Revenue Code, regulations, or other official guidance. Military View Internal Revenue Bulletins (IRBs) published in the last few years. Military Figure your withholding allowances using the withholding calculator online at www. Military irs. Military gov/individuals. Military Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant available online at www. Military irs. Military gov/individuals. Military Sign up to receive local and national tax news by email. Military Get information on starting and operating a small business. Military Phone. Military Many services are available by phone. Military   Ordering forms, instructions, and publications. Military Call 1-800-TAX -FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. Military You should receive your order within 10 days. Military Asking tax questions. Military Call the IRS with your tax questions at 1-800-829-1040. Military Solving problems. Military You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Military An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Military Call your local Taxpayer Assistance Center for an appointment. Military To find the number, go to www. Military irs. Military gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Military TTY/TDD equipment. Military If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Military TeleTax topics. Military Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Military Refund information. Military To check the status of your 2011 refund, call 1-800-829-1954 or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Military Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Military If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Military Have your 2011 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Military If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Military Other refund information. Military To check the status of a prior-year refund or amended return refund, call 1-800-829-1040. Military Evaluating the quality of our telephone services. Military To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Military One method is for a second IRS representative to listen in on or record random telephone calls. Military Another is to ask some callers to complete a short survey at the end of the call. Military Walk-in. Military Many products and services are available on a walk-in basis. Military   Products. Military You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Military Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Military Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Military Services. Military You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Military An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Military If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Military No appointment is necessary—just walk in. Military If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Military A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Military If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Military All other issues will be handled without an appointment. Military To find the number of your local office, go to  www. Military irs. Military gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Military Mail. Military You can send your order for forms, instructions, and publications to the address below. Military You should receive a response within 10 days after your request is received. Military  Internal Revenue Service 1201 N. Military Mitsubishi Motorway Bloomington, IL 61705-6613 Taxpayer Advocate Service. Military   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Military Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. Military We offer free help to guide you through the often-confusing process of resolving tax problems that you haven’t been able to solve on your own. Military Remember, the worst thing you can do is nothing at all. Military   TAS can help if you can’t resolve your problem with the IRS and: Your problem is causing financial difficulties for you, your family, or your business. Military You face (or your business is facing) an immediate threat of adverse action. Military You have tried repeatedly to contact the IRS but no one has responded, or the IRS has not responded to you by the date promised. Military   If you qualify for our help, we’ll do everything we can to get your problem resolved. Military You will be assigned to one advocate who will be with you at every turn. Military We have offices in every state, the District of Columbia, and Puerto Rico. Military Although TAS is independent within the IRS, our advocates know how to work with the IRS to get your problems resolved. Military And our services are always free. Military   As a taxpayer, you have rights that the IRS must abide by in its dealings with you. Military Our tax toolkit at www. Military TaxpayerAdvocate. Military irs. Military gov can help you understand these rights. Military   If you think TAS might be able to help you, call your local advocate, whose number is in your phone book and on our website at www. Military irs. Military gov/advocate. Military You can also call our toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059. Military   TAS also handles large-scale or systemic problems that affect many taxpayers. Military If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Military irs. Military gov/advocate. Military Low Income Taxpayer Clinics (LITCs). Military   Low Income Taxpayer Clinics (LITCs) are independent from the IRS. Military Some clinics serve individuals whose income is below a certain level and who need to resolve a tax problem. Military These clinics provide professional representation before the IRS or in court on audits, appeals, tax collection disputes, and other issues for free or for a small fee. Military Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals who speak English as a second language. Military For more information and to find a clinic near you, see the LITC page on www. Military irs. Military gov/advocate or IRS Publication 4134, Low Income Taxpayer Clinic List. Military This publication is also available by calling 1-800-829-3676 or at your local IRS office. Military Free tax services. Military   Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Military Learn about free tax information from the IRS, including publications, services, and education and assistance programs. Military The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. Military The majority of the information and services listed in this publication are available to you free of charge. Military If there is a fee associated with a resource or service, it is listed in the publication. Military   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Military DVD for tax products. Military You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Military Prior-year forms, instructions, and publications. Military Tax Map: an electronic research tool and finding aid. Military Tax law frequently asked questions. Military Tax Topics from the IRS telephone response system. Military Internal Revenue Code—Title 26 of the U. Military S. Military Code. Military Links to other Internet based Tax Research Materials. Military Fill-in, print, and save features for most tax forms. Military Internal Revenue Bulletins. Military Toll-free and email technical support. Military Two releases during the year. Military  – The first release will ship the beginning of January 2012. Military  – The final release will ship the beginning of March 2012. Military Purchase the DVD from National Technical Information Service (NTIS) at www. Military irs. Military gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). Military Prev  Up  Next   Home   More Online Publications