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Myfreetaxes com taxtime 8. Myfreetaxes com taxtime   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Myfreetaxes com taxtime Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Myfreetaxes com taxtime It is similar to the straight line method of depreciation. Myfreetaxes com taxtime The various amortizable costs covered in this chapter are included in the list below. Myfreetaxes com taxtime However, this chapter does not discuss amortization of bond premium. Myfreetaxes com taxtime For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Myfreetaxes com taxtime Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Myfreetaxes com taxtime How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Myfreetaxes com taxtime To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Myfreetaxes com taxtime For example, in 2012, you began to amortize a lease. Myfreetaxes com taxtime In 2013, you began to amortize a second lease. Myfreetaxes com taxtime Report amortization from the new lease on line 42 of your 2013 Form 4562. Myfreetaxes com taxtime Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Myfreetaxes com taxtime If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Myfreetaxes com taxtime Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Myfreetaxes com taxtime Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Myfreetaxes com taxtime Generally, you recover costs for particular assets through depreciation deductions. Myfreetaxes com taxtime However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Myfreetaxes com taxtime For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Myfreetaxes com taxtime For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Myfreetaxes com taxtime The costs that are not deducted currently can be amortized ratably over a 180-month period. Myfreetaxes com taxtime The amortization period starts with the month you begin operating your active trade or business. Myfreetaxes com taxtime You are not required to attach a statement to make this election. Myfreetaxes com taxtime You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Myfreetaxes com taxtime Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Myfreetaxes com taxtime See Regulations sections 1. Myfreetaxes com taxtime 195-1, 1. Myfreetaxes com taxtime 248-1, and 1. Myfreetaxes com taxtime 709-1. Myfreetaxes com taxtime For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Myfreetaxes com taxtime Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Myfreetaxes com taxtime If the election is made, you must attach any statement required by Regulations sections 1. Myfreetaxes com taxtime 195-1(b), 1. Myfreetaxes com taxtime 248-1(c), and 1. Myfreetaxes com taxtime 709-1(c), as in effect before September 9, 2008. Myfreetaxes com taxtime Note. Myfreetaxes com taxtime You can apply the provisions of Regulations sections 1. Myfreetaxes com taxtime 195-1, 1. Myfreetaxes com taxtime 248-1, and 1. Myfreetaxes com taxtime 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Myfreetaxes com taxtime Otherwise, the provisions under Regulations sections 1. Myfreetaxes com taxtime 195-1(b), 1. Myfreetaxes com taxtime 248-1(c), and 1. Myfreetaxes com taxtime 709-1(c), as in effect before September 9, 2008, will apply. Myfreetaxes com taxtime For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Myfreetaxes com taxtime See How To Make the Election , later. Myfreetaxes com taxtime The cost must qualify as one of the following. Myfreetaxes com taxtime A business start-up cost. Myfreetaxes com taxtime An organizational cost for a corporation. Myfreetaxes com taxtime An organizational cost for a partnership. Myfreetaxes com taxtime Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Myfreetaxes com taxtime Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Myfreetaxes com taxtime Qualifying costs. Myfreetaxes com taxtime   A start-up cost is amortizable if it meets both of the following tests. Myfreetaxes com taxtime It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Myfreetaxes com taxtime It is a cost you pay or incur before the day your active trade or business begins. Myfreetaxes com taxtime   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Myfreetaxes com taxtime Advertisements for the opening of the business. Myfreetaxes com taxtime Salaries and wages for employees who are being trained and their instructors. Myfreetaxes com taxtime Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Myfreetaxes com taxtime Salaries and fees for executives and consultants, or for similar professional services. Myfreetaxes com taxtime Nonqualifying costs. Myfreetaxes com taxtime   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Myfreetaxes com taxtime See Research and Experimental Costs , later. Myfreetaxes com taxtime Purchasing an active trade or business. Myfreetaxes com taxtime   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Myfreetaxes com taxtime These are costs that help you decide whether to purchase a business. Myfreetaxes com taxtime Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Myfreetaxes com taxtime They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Myfreetaxes com taxtime In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Myfreetaxes com taxtime The letter stated that a binding commitment would result only after a purchase agreement was signed. Myfreetaxes com taxtime The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Myfreetaxes com taxtime On October 22nd, you signed a purchase agreement with XYZ, Inc. Myfreetaxes com taxtime All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Myfreetaxes com taxtime Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Myfreetaxes com taxtime Disposition of business. Myfreetaxes com taxtime   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Myfreetaxes com taxtime However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Myfreetaxes com taxtime Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Myfreetaxes com taxtime Qualifying costs. Myfreetaxes com taxtime   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Myfreetaxes com taxtime   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Myfreetaxes com taxtime   Examples of organizational costs include: The cost of temporary directors. Myfreetaxes com taxtime The cost of organizational meetings. Myfreetaxes com taxtime State incorporation fees. Myfreetaxes com taxtime The cost of legal services. Myfreetaxes com taxtime Nonqualifying costs. Myfreetaxes com taxtime   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Myfreetaxes com taxtime Costs associated with the transfer of assets to the corporation. Myfreetaxes com taxtime Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Myfreetaxes com taxtime Qualifying costs. Myfreetaxes com taxtime   A partnership can amortize an organizational cost only if it meets all the following tests. Myfreetaxes com taxtime It is for the creation of the partnership and not for starting or operating the partnership trade or business. Myfreetaxes com taxtime It is chargeable to a capital account (see chapter 1). Myfreetaxes com taxtime It could be amortized over the life of the partnership if the partnership had a fixed life. Myfreetaxes com taxtime It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Myfreetaxes com taxtime However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Myfreetaxes com taxtime It is for a type of item normally expected to benefit the partnership throughout its entire life. Myfreetaxes com taxtime   Organizational costs include the following fees. Myfreetaxes com taxtime Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Myfreetaxes com taxtime Accounting fees for services incident to the organization of the partnership. Myfreetaxes com taxtime Filing fees. Myfreetaxes com taxtime Nonqualifying costs. Myfreetaxes com taxtime   The following costs cannot be amortized. Myfreetaxes com taxtime The cost of acquiring assets for the partnership or transferring assets to the partnership. Myfreetaxes com taxtime The cost of admitting or removing partners, other than at the time the partnership is first organized. Myfreetaxes com taxtime The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Myfreetaxes com taxtime The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Myfreetaxes com taxtime These “syndication fees” are capital expenses that cannot be depreciated or amortized. Myfreetaxes com taxtime Liquidation of partnership. Myfreetaxes com taxtime   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Myfreetaxes com taxtime However, these costs can be deducted only to the extent they qualify as a loss from a business. Myfreetaxes com taxtime How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Myfreetaxes com taxtime You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Myfreetaxes com taxtime Once you choose an amortization period, you cannot change it. Myfreetaxes com taxtime To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Myfreetaxes com taxtime The result is the amount you can deduct for each month. Myfreetaxes com taxtime Cash method partnership. Myfreetaxes com taxtime   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Myfreetaxes com taxtime However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Myfreetaxes com taxtime How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Myfreetaxes com taxtime You may also be required to attach an accompanying statement (described later) to your return. Myfreetaxes com taxtime For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Myfreetaxes com taxtime Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Myfreetaxes com taxtime 195-1, 1. Myfreetaxes com taxtime 248-1, and 1. Myfreetaxes com taxtime 709-1, you must also attach an accompanying statement to elect to amortize the costs. Myfreetaxes com taxtime If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Myfreetaxes com taxtime See Starting a Business , earlier, for more information. Myfreetaxes com taxtime Generally, you must file the return by the due date (including any extensions). Myfreetaxes com taxtime However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Myfreetaxes com taxtime For more information, see the instructions for Part VI of Form 4562. Myfreetaxes com taxtime You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Myfreetaxes com taxtime Note. Myfreetaxes com taxtime The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Myfreetaxes com taxtime If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Myfreetaxes com taxtime A shareholder or partner cannot make this election. Myfreetaxes com taxtime You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Myfreetaxes com taxtime Only the corporation or partnership can amortize these costs. Myfreetaxes com taxtime However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Myfreetaxes com taxtime These costs qualify as business start-up costs if you acquire the partnership interest. Myfreetaxes com taxtime Start-up costs election statement. Myfreetaxes com taxtime   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Myfreetaxes com taxtime A description of the business to which the start-up costs relate. Myfreetaxes com taxtime A description of each start-up cost incurred. Myfreetaxes com taxtime The month your active business began (or was acquired). Myfreetaxes com taxtime The number of months in your amortization period (which is generally 180 months). Myfreetaxes com taxtime Filing the statement early. Myfreetaxes com taxtime   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Myfreetaxes com taxtime If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Myfreetaxes com taxtime Revised statement. Myfreetaxes com taxtime   You can file a revised statement to include any start-up costs not included in your original statement. Myfreetaxes com taxtime However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Myfreetaxes com taxtime You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Myfreetaxes com taxtime Organizational costs election statement. Myfreetaxes com taxtime   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Myfreetaxes com taxtime A description of each cost. Myfreetaxes com taxtime The amount of each cost. Myfreetaxes com taxtime The date each cost was incurred. Myfreetaxes com taxtime The month your corporation or partnership began active business (or acquired the business). Myfreetaxes com taxtime The number of months in your amortization period (which is generally 180 months). Myfreetaxes com taxtime Partnerships. Myfreetaxes com taxtime   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Myfreetaxes com taxtime   You do not need to separately list any partnership organizational cost that is less than $10. Myfreetaxes com taxtime Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Myfreetaxes com taxtime   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Myfreetaxes com taxtime Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Myfreetaxes com taxtime The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Myfreetaxes com taxtime However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Myfreetaxes com taxtime For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Myfreetaxes com taxtime How to amortize. Myfreetaxes com taxtime   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Myfreetaxes com taxtime Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Myfreetaxes com taxtime You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Myfreetaxes com taxtime You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Myfreetaxes com taxtime See Anti-Churning Rules, later. Myfreetaxes com taxtime Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Myfreetaxes com taxtime The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Myfreetaxes com taxtime You cannot deduct amortization for the month you dispose of the intangible. Myfreetaxes com taxtime If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Myfreetaxes com taxtime You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Myfreetaxes com taxtime Tax-exempt use property subject to a lease. Myfreetaxes com taxtime   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Myfreetaxes com taxtime Cost attributable to other property. Myfreetaxes com taxtime   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Myfreetaxes com taxtime For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Myfreetaxes com taxtime Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Myfreetaxes com taxtime Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Myfreetaxes com taxtime You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Myfreetaxes com taxtime Goodwill. Myfreetaxes com taxtime   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Myfreetaxes com taxtime Going concern value. Myfreetaxes com taxtime   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Myfreetaxes com taxtime It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Myfreetaxes com taxtime It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Myfreetaxes com taxtime Workforce in place, etc. Myfreetaxes com taxtime   This includes the composition of a workforce (for example, its experience, education, or training). Myfreetaxes com taxtime It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Myfreetaxes com taxtime   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Myfreetaxes com taxtime Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Myfreetaxes com taxtime Business books and records, etc. Myfreetaxes com taxtime   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Myfreetaxes com taxtime It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Myfreetaxes com taxtime Patents, copyrights, etc. Myfreetaxes com taxtime   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Myfreetaxes com taxtime Customer-based intangible. Myfreetaxes com taxtime   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Myfreetaxes com taxtime For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Myfreetaxes com taxtime A customer base. Myfreetaxes com taxtime A circulation base. Myfreetaxes com taxtime An undeveloped market or market growth. Myfreetaxes com taxtime Insurance in force. Myfreetaxes com taxtime A mortgage servicing contract. Myfreetaxes com taxtime An investment management contract. Myfreetaxes com taxtime Any other relationship with customers involving the future provision of goods or services. Myfreetaxes com taxtime   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Myfreetaxes com taxtime Supplier-based intangible. Myfreetaxes com taxtime   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Myfreetaxes com taxtime The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Myfreetaxes com taxtime Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Myfreetaxes com taxtime Also, see Assets That Are Not Section 197 Intangibles below. Myfreetaxes com taxtime Government-granted license, permit, etc. Myfreetaxes com taxtime   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Myfreetaxes com taxtime For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Myfreetaxes com taxtime Covenant not to compete. Myfreetaxes com taxtime   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Myfreetaxes com taxtime An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Myfreetaxes com taxtime   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Myfreetaxes com taxtime Franchise, trademark, or trade name. Myfreetaxes com taxtime   A franchise, trademark, or trade name is a section 197 intangible. Myfreetaxes com taxtime You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Myfreetaxes com taxtime For information on currently deductible contingent payments, see chapter 11. Myfreetaxes com taxtime Professional sports franchise. Myfreetaxes com taxtime   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Myfreetaxes com taxtime Contract for the use of, or a term interest in, a section 197 intangible. Myfreetaxes com taxtime   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Myfreetaxes com taxtime It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Myfreetaxes com taxtime Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Myfreetaxes com taxtime Any interest in a corporation, partnership, trust, or estate. Myfreetaxes com taxtime Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Myfreetaxes com taxtime Any interest in land. Myfreetaxes com taxtime Most computer software. Myfreetaxes com taxtime (See Computer software , later. Myfreetaxes com taxtime ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Myfreetaxes com taxtime An interest in a film, sound recording, video tape, book, or similar property. Myfreetaxes com taxtime A right to receive tangible property or services under a contract or from a governmental agency. Myfreetaxes com taxtime An interest in a patent or copyright. Myfreetaxes com taxtime Certain rights that have a fixed duration or amount. Myfreetaxes com taxtime (See Rights of fixed duration or amount , later. Myfreetaxes com taxtime ) An interest under either of the following. Myfreetaxes com taxtime An existing lease or sublease of tangible property. Myfreetaxes com taxtime A debt that was in existence when the interest was acquired. Myfreetaxes com taxtime A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Myfreetaxes com taxtime Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Myfreetaxes com taxtime Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Myfreetaxes com taxtime You generally must use the straight line method over its useful life. Myfreetaxes com taxtime For certain intangibles, the depreciation period is specified in the law and regulations. Myfreetaxes com taxtime For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Myfreetaxes com taxtime For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Myfreetaxes com taxtime Computer software. Myfreetaxes com taxtime   Section 197 intangibles do not include the following types of computer software. Myfreetaxes com taxtime Software that meets all the following requirements. Myfreetaxes com taxtime It is, or has been, readily available for purchase by the general public. Myfreetaxes com taxtime It is subject to a nonexclusive license. Myfreetaxes com taxtime It has not been substantially modified. Myfreetaxes com taxtime This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Myfreetaxes com taxtime Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Myfreetaxes com taxtime Computer software defined. Myfreetaxes com taxtime   Computer software includes all programs designed to cause a computer to perform a desired function. Myfreetaxes com taxtime It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Myfreetaxes com taxtime Rights of fixed duration or amount. Myfreetaxes com taxtime   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Myfreetaxes com taxtime However, this does not apply to the following intangibles. Myfreetaxes com taxtime Goodwill. Myfreetaxes com taxtime Going concern value. Myfreetaxes com taxtime A covenant not to compete. Myfreetaxes com taxtime A franchise, trademark, or trade name. Myfreetaxes com taxtime A customer-related information base, customer-based intangible, or similar item. Myfreetaxes com taxtime Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Myfreetaxes com taxtime You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Myfreetaxes com taxtime If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Myfreetaxes com taxtime Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Myfreetaxes com taxtime Amortize these costs using the rules of Revenue Procedure 2004-36. Myfreetaxes com taxtime For more information, see Revenue Procedure 2004-36, 2004-24 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 1063, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2004-24_IRB/ar16. Myfreetaxes com taxtime html. Myfreetaxes com taxtime A change in the treatment of creative property costs is a change in method of accounting. Myfreetaxes com taxtime Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Myfreetaxes com taxtime These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Myfreetaxes com taxtime Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Myfreetaxes com taxtime You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Myfreetaxes com taxtime You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Myfreetaxes com taxtime You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Myfreetaxes com taxtime This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Myfreetaxes com taxtime See Related person , later, for more information. Myfreetaxes com taxtime Exceptions. Myfreetaxes com taxtime   The anti-churning rules do not apply in the following situations. Myfreetaxes com taxtime You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Myfreetaxes com taxtime The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Myfreetaxes com taxtime This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Myfreetaxes com taxtime The gain-recognition exception, discussed later, applies. Myfreetaxes com taxtime Related person. Myfreetaxes com taxtime   For purposes of the anti-churning rules, the following are related persons. Myfreetaxes com taxtime An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Myfreetaxes com taxtime ), and lineal descendants (children, grandchildren, etc. Myfreetaxes com taxtime ). Myfreetaxes com taxtime A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Myfreetaxes com taxtime Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Myfreetaxes com taxtime (For an exception, see section 1. Myfreetaxes com taxtime 197-2(h)(6)(iv) of the regulations. Myfreetaxes com taxtime ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Myfreetaxes com taxtime The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Myfreetaxes com taxtime The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Myfreetaxes com taxtime The executor and beneficiary of an estate. Myfreetaxes com taxtime A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Myfreetaxes com taxtime A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Myfreetaxes com taxtime Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Myfreetaxes com taxtime Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Myfreetaxes com taxtime A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Myfreetaxes com taxtime Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Myfreetaxes com taxtime When to determine relationship. Myfreetaxes com taxtime   Persons are treated as related if the relationship existed at the following time. Myfreetaxes com taxtime In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Myfreetaxes com taxtime In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Myfreetaxes com taxtime Ownership of stock. Myfreetaxes com taxtime   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Myfreetaxes com taxtime Rule 1. Myfreetaxes com taxtime   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Myfreetaxes com taxtime Rule 2. Myfreetaxes com taxtime   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Myfreetaxes com taxtime Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Myfreetaxes com taxtime Rule 3. Myfreetaxes com taxtime   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Myfreetaxes com taxtime Rule 4. Myfreetaxes com taxtime   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Myfreetaxes com taxtime Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Myfreetaxes com taxtime Gain-recognition exception. Myfreetaxes com taxtime   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Myfreetaxes com taxtime That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Myfreetaxes com taxtime That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Myfreetaxes com taxtime See chapter 2 in Publication 544 for information on making this choice. Myfreetaxes com taxtime   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Myfreetaxes com taxtime Notification. Myfreetaxes com taxtime   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Myfreetaxes com taxtime Anti-abuse rule. Myfreetaxes com taxtime   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Myfreetaxes com taxtime To avoid the requirement that the intangible be acquired after August 10, 1993. Myfreetaxes com taxtime To avoid any of the anti-churning rules. Myfreetaxes com taxtime More information. Myfreetaxes com taxtime   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Myfreetaxes com taxtime 197-2(h). Myfreetaxes com taxtime Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Myfreetaxes com taxtime See Amended Return , next. Myfreetaxes com taxtime If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Myfreetaxes com taxtime See Changing Your Accounting Method , later. Myfreetaxes com taxtime Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Myfreetaxes com taxtime A mathematical error made in any year. Myfreetaxes com taxtime A posting error made in any year. Myfreetaxes com taxtime An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Myfreetaxes com taxtime When to file. Myfreetaxes com taxtime   If an amended return is allowed, you must file it by the later of the following dates. Myfreetaxes com taxtime 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Myfreetaxes com taxtime (A return filed early is considered filed on the due date. Myfreetaxes com taxtime ) 2 years from the time you paid your tax for that year. Myfreetaxes com taxtime Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Myfreetaxes com taxtime File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Myfreetaxes com taxtime The following are examples of a change in method of accounting for amortization. Myfreetaxes com taxtime A change in the amortization method, period of recovery, or convention of an amortizable asset. Myfreetaxes com taxtime A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Myfreetaxes com taxtime A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Myfreetaxes com taxtime Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Myfreetaxes com taxtime An adjustment in the useful life of an amortizable asset. Myfreetaxes com taxtime Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Myfreetaxes com taxtime Any change in the placed-in-service date of an amortizable asset. Myfreetaxes com taxtime See Regulations section 1. Myfreetaxes com taxtime 446-1(e)(2)(ii)(a) for more information and examples. Myfreetaxes com taxtime Automatic approval. Myfreetaxes com taxtime   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Myfreetaxes com taxtime For a list of automatic accounting method changes, see the Instructions for Form 3115. Myfreetaxes com taxtime Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Myfreetaxes com taxtime For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Myfreetaxes com taxtime See Revenue Procedure 2006-12, 2006-3 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 310, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2006-03_IRB/ar14. Myfreetaxes com taxtime html. Myfreetaxes com taxtime  See Revenue Procedure 2006-37, 2006-38 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 499, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2006-38_IRB/ar10. Myfreetaxes com taxtime html. Myfreetaxes com taxtime  See Revenue Procedure 2008-52, 2008-36 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 587, available at www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2008-36_IRB/ar09. Myfreetaxes com taxtime html. Myfreetaxes com taxtime  See Revenue Procedure 2009-39, 2009-38 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 371, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2009-38_IRB/ar08. Myfreetaxes com taxtime html. Myfreetaxes com taxtime  See Revenue Procedure 2011-14, 2011-4 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 330, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2011-04_IRB/ar08. Myfreetaxes com taxtime html. Myfreetaxes com taxtime  See Revenue Procedure 2011-22, 2011-18 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 737, available at  www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2011-18_IRB/ar08. Myfreetaxes com taxtime html. Myfreetaxes com taxtime Also, see Revenue Procedure 2012-39, 2012-41 I. Myfreetaxes com taxtime R. Myfreetaxes com taxtime B. Myfreetaxes com taxtime 470 available at www. Myfreetaxes com taxtime irs. Myfreetaxes com taxtime gov/irb/2012-41_IRB/index. Myfreetaxes com taxtime html. Myfreetaxes com taxtime Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Myfreetaxes com taxtime If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Myfreetaxes com taxtime If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Myfreetaxes com taxtime Any remaining gain, or any loss, is a section 1231 gain or loss. Myfreetaxes com taxtime If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Myfreetaxes com taxtime For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Myfreetaxes com taxtime Nondeductible loss. Myfreetaxes com taxtime   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Myfreetaxes com taxtime Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Myfreetaxes com taxtime Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Myfreetaxes com taxtime The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Myfreetaxes com taxtime The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Myfreetaxes com taxtime Covenant not to compete. Myfreetaxes com taxtime   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Myfreetaxes com taxtime Nonrecognition transfers. Myfreetaxes com taxtime   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Myfreetaxes com taxtime You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Myfreetaxes com taxtime Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Myfreetaxes com taxtime   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Myfreetaxes com taxtime Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime You own a section 197 intangible you have amortized for 4 full years. Myfreetaxes com taxtime It has a remaining unamortized basis of $30,000. Myfreetaxes com taxtime You exchange the asset plus $10,000 for a like-kind section 197 intangible. Myfreetaxes com taxtime The nonrecognition provisions of like-kind exchanges apply. Myfreetaxes com taxtime You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Myfreetaxes com taxtime You amortize the other $10,000 of adjusted basis over a new 15-year period. Myfreetaxes com taxtime For more information, see Regulations section 1. Myfreetaxes com taxtime 197-2(g). Myfreetaxes com taxtime Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Myfreetaxes com taxtime See Reforestation Costs in chapter 7. Myfreetaxes com taxtime You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Myfreetaxes com taxtime There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Myfreetaxes com taxtime The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Myfreetaxes com taxtime A partner, shareholder, or beneficiary cannot make that election. Myfreetaxes com taxtime A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Myfreetaxes com taxtime , of a partnership or S corporation. Myfreetaxes com taxtime The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Myfreetaxes com taxtime Qualifying costs. Myfreetaxes com taxtime   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Myfreetaxes com taxtime Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Myfreetaxes com taxtime They include costs for the following items. Myfreetaxes com taxtime Site preparation. Myfreetaxes com taxtime Seeds or seedlings. Myfreetaxes com taxtime Labor. Myfreetaxes com taxtime Tools. Myfreetaxes com taxtime Depreciation on equipment used in planting and seeding. Myfreetaxes com taxtime Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Myfreetaxes com taxtime Qualified timber property. Myfreetaxes com taxtime   Qualified timber property is property that contains trees in significant commercial quantities. Myfreetaxes com taxtime It can be a woodlot or other site that you own or lease. Myfreetaxes com taxtime The property qualifies only if it meets all of the following requirements. Myfreetaxes com taxtime It is located in the United States. Myfreetaxes com taxtime It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Myfreetaxes com taxtime It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Myfreetaxes com taxtime Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Myfreetaxes com taxtime Amortization period. Myfreetaxes com taxtime   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Myfreetaxes com taxtime You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Myfreetaxes com taxtime Life tenant and remainderman. Myfreetaxes com taxtime   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Myfreetaxes com taxtime Any remainder interest in the property is ignored for amortization purposes. Myfreetaxes com taxtime Recapture. Myfreetaxes com taxtime   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Myfreetaxes com taxtime See chapter 3 of Publication 544 for more information. Myfreetaxes com taxtime How to make the election. Myfreetaxes com taxtime   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Myfreetaxes com taxtime A description of the costs and the dates you incurred them. Myfreetaxes com taxtime A description of the type of timber being grown and the purpose for which it is grown. Myfreetaxes com taxtime Attach a separate statement for each property for which you amortize reforestation costs. Myfreetaxes com taxtime   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Myfreetaxes com taxtime However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Myfreetaxes com taxtime Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Myfreetaxes com taxtime 9100-2” on Form 4562. Myfreetaxes com taxtime File the amended return at the same address you filed the original return. Myfreetaxes com taxtime Revoking the election. Myfreetaxes com taxtime   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Myfreetaxes com taxtime Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Myfreetaxes com taxtime Please provide your daytime telephone number (optional), in case we need to contact you. Myfreetaxes com taxtime You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Myfreetaxes com taxtime    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Myfreetaxes com taxtime NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Myfreetaxes com taxtime These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Myfreetaxes com taxtime For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Myfreetaxes com taxtime If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Myfreetaxes com taxtime Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Myfreetaxes com taxtime However, see Atmospheric pollution control facilities for an exception. Myfreetaxes com taxtime The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Myfreetaxes com taxtime Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Myfreetaxes com taxtime You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Myfreetaxes com taxtime See chapter 3 of Publication 946. Myfreetaxes com taxtime A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Myfreetaxes com taxtime The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Myfreetaxes com taxtime The facility must be certified by state and federal certifying authorities. Myfreetaxes com taxtime The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Myfreetaxes com taxtime Also, it must not significantly change the nature of the manufacturing or production process or facility. Myfreetaxes com taxtime The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Myfreetaxes com taxtime The federal certifying authority will describe the nature of the potential cost recovery. Myfreetaxes com taxtime You must then reduce the amortizable basis of the facility by this potential recovery. Myfreetaxes com taxtime New identifiable treatment facility. Myfreetaxes com taxtime   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Myfreetaxes com taxtime It does not include a building and its structural components unless the building is exclusively a treatment facility. Myfreetaxes com taxtime Atmospheric pollution control facilities. Myfreetaxes com taxtime   Certain atmospheric pollution control facilities can be amortized over 84 months. Myfreetaxes com taxtime To qualify, the following must apply. Myfreetaxes com taxtime The facility must be acquired and placed in service after April 11, 2005. Myfreetaxes com taxtime If acquired, the original use must begin with you after April 11, 2005. Myfreetaxes com taxtime The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Myfreetaxes com taxtime If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Myfreetaxes com taxtime Basis reduction for corporations. Myfreetaxes com taxtime   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Myfreetaxes com taxtime More information. Myfreetaxes com taxtime   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Myfreetaxes com taxtime Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Myfreetaxes com taxtime If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Myfreetaxes com taxtime The amortization period begins the month you first receive an economic benefit from the costs. Myfreetaxes com taxtime For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Myfreetaxes com taxtime Optional write-off method. Myfreetaxes com taxtime   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Myfreetaxes com taxtime For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Myfreetaxes com taxtime Costs you can amortize. Myfreetaxes com taxtime   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Myfreetaxes com taxtime You paid or incurred the costs in your trade or business. Myfreetaxes com taxtime You are not deducting the costs currently. Myfreetaxes com taxtime How to make the election. Myfreetaxes com taxtime   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Myfreetaxes com taxtime Generally, you must file the return by the due date (including extensions). Myfreetaxes com taxtime However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Myfreetaxes com taxtime Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Myfreetaxes com taxtime 9100-2” on Form 4562. Myfreetaxes com taxtime File the amended return at the same address you filed the original return. Myfreetaxes com taxtime   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Myfreetaxes com taxtime Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Myfreetaxes com taxtime If you make this election, there is no AMT adjustment. Myfreetaxes com taxtime The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Myfreetaxes com taxtime How to make the election. Myfreetaxes com taxtime   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Myfreetaxes com taxtime   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Myfreetaxes com taxtime However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Myfreetaxes com taxtime Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Myfreetaxes com taxtime 9100-2” on Form 4562. Myfreetaxes com taxtime File the amended return at the same address you filed the original return. Myfreetaxes com taxtime Revoking the election. Myfreetaxes com taxtime   You must obtain consent from the IRS to revoke your election. Myfreetaxes com taxtime Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Myfreetaxes com taxtime The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Myfreetaxes com taxtime If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Myfreetaxes com taxtime Prev  Up  Next   Home   More Online Publications
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Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance

Check this page for updates 

News Releases

  • IR-2014-27, IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit; Helpful Resources, Tax Tips Available on IRS.gov
  • IR-2014-19, IRS Offers Health Care Tax Tips to Help Individuals Understand Tax Provisions in the Affordable Care Act
  • IR-2012-33: IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit
  • IR-2011-120, Filing Deadline Extended to March 30 for Some Tax-Exempt Organizations
  • IR-2011-92, Treasury, IRS Seek Public Input on Certain Employer Provisions of the Affordable Care Act
  • IR-2011-90, As Tax Filing Extension Deadlines Near, IRS and HHS Announce New Round of Outreach to Small Businesses and Practitioners About the Small Business Health Care Tax Credit
  • IR-2011-50, Treasury, IRS Seek Public Input on Certain Employer Provisions of the Affordable Care Act
  • IR-2011-31, IRS Issues Interim Guidance on Informational Reporting of Employer-Sponsored Health Coverage; Reporting is Voluntary for All Employers for 2011 and Small Employers for 2012
  • IR-2010-128, IRS Offers New Guidance on FSA and HRA Debit Cards
  • IR-2010-117, IRS Helps Small Employers Claim New Health Care Tax Credit; Forms and Additional Guidance Now Available on Small Business Health Care Tax Credit
  • IR-2010-103, IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers
  • IR-2010-100, IRS Issues Guidance on Expanded Adoption Credit Available for Tax-Year 2010
  • IR-2010-96, IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit
  • IR-2010-95, IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements
  • IR-2010-79, IRS Requests Public Input on Expanded Information Reporting Requirement
  • IR-2010-76, IRS Begins Accepting Applications for Qualifying Therapeutic Discovery Project Program
  • IR-2010-74, Affordable Care Act Provides Expanded Tax Benefit to Health Professionals Working in Underserved Areas
  • IR-2010-73, IRS Issues Regulations on 10-Percent Tax on Tanning Services Effective July 1
  • IR-2010-69, Recent Legislation Offers Special Tax Incentives for Small Businesses to Provide Health Care, Hire New Workers
  • IR-2010-63, Offers Details on New Small Business Health Care Tax Credit
  • IR-2010-53, Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27
  • IR-2010-48, IRS Reaches Out to Millions of Employers on Benefits of New Health Care Tax Credit
  • IR-2010-38, New for 2010: Tax Credit Helps Small Employers Provide Health Insurance Coverage

Additional Materials

  • Treasury Department, FACT SHEET: Final Regulations Implementing Information Reporting for Employers and Insurers under the Affordable Care Act (ACA)
  • Publication 5093, Health Care Law Online Resources
  • Publication 5120; Facts about the Premium Tax Credit; Your Credit, Your Choice – Get it Now or Get it Later  English | Spanish
  • Publication 5121; Facts about the Premium Tax Credit; Need help paying for health insurance premiums?  English | Spanish
  • IRC § 7216, Disclosure or Use of Information by Tax Return Preparers, questions and answers
  • Fact Sheet 2011-11, Tax-Exempt Organizations Participating in the Medicare Shared Savings Program through Accountable Care Organizations
  • Treasury Department fact sheet on health insurance premium tax credit
  • Fact Sheet 2011-02, Tax Changes for Small Businesses
  • Publication 4894, Affordable Care Act Tax Provisions and the IRS
  • Flyer on the adoption tax credit
  • Flyer on changes to health care plans, including FSAs.
  • Flyer on the small business health care tax credit for small employers: English | Spanish
  • 3 Simple Steps fact sheet for small employers
  • Small business health care tax credit scenarios for small employers
  • Health care postcard notice for small employers

Tax Tips

Videos

  • Tanning Tax Fitness Center Exception: English | ASL

Podcasts

Webinars

Legal Guidance

Announcements

Notices

  • Notice 2014-24, Health Insurance Providers Fee; Procedural and Administrative Guidance
  • Notice 2014-23, Eligibility for Premium Tax Credit for Victims of Domestic Abuse
  • Notice 2014-10, Section 5000A Transition Relief for Individuals with Certain Government-Sponsored Limited-Benefit Health Coverage
  • Notice 2014-2, Reliance on Proposed Regulations for Tax-exempt Hospitals
  • Notice 2014-3, Proposed Procedures for Charitable Hospitals to Correct and Disclose Failures to Meet § 501(r)
  • Notice 2014-6, Section 45R – Transition Relief with Respect to the Tax Credit for Employee Health Insurance Expenses of Certain Small Employers
  • Notice 2013-76, Health Insurance Providers Fee; Procedural and Administrative Guidance
  • Notice 2013-71, Modification of “Use-or-Lose” Rule For Health Flexible Spending Arrangements (FSAs) and Clarification Regarding 2013-2014 Non-Calendar Year Salary Reduction Elections Under § 125 Cafeteria Plans
  • Notice 2013-54, Application of Market Reform and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer Healthcare Arrangements
  • Notice 2013-57, Preventive health services required under Public Health Service Act section 2713 and preventive care for purposes of Health Savings Accounts
  • Notice 2013-51, Branded Prescription Drug Fee; Guidance for the 2014 Fee Year
  • Notice 2013-45, Transition Relief for 2014 Under §§ 6055 (§ 6055 Information Reporting), 6056 (§ 6056 Information Reporting) and 4 980H (Employer Shared Responsibility Provisions)
  • Notice 2013-42, Transition Relief for Employees and Related Individuals Eligible to Enroll in Eligible Employer-Sponsored Health Plans for Non-Calendar Plan Years that Begin in 2013 and End in 2014
  • Notice-2013-41, Eligibility for Minimum Essential Coverage for Purposes of the Premium Tax Credit
  • Notice 2012-77, Interim Guidance and Request for Comments; Medical Device Excise Tax; Manufacturers Excise Taxes; Constructive Sale Price; Deposit Penalties
  • Notice 2012-59, Guidance on 90-Day Waiting Period Limitation Under Public Health Service Act § 2708
  • Notice 2012-58, Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H)
  • Notice Requesting Information Regarding Stop Loss Insurance
  • Notice 2012-40, Health flexible spending arrangements not subject to $2,500 limit on salary reduction contributions for plan years beginning before 2013 and comments requested on potential modification of use-or-lose rule.
  • Notice 2012-37, Extension of Interim Guidance on Modification of Section 833 Treatment of Certain Health Organizations
  • Notice 2012-33, Request for Comments on Reporting by Applicable Large Employers on Health Insurance Coverage Under Employer-Sponsored Plans
  • Notice 2012-32, Request for Comments on Reporting of Health Insurance Coverage
  • Notice 2012-31, Minimum Value of an Employer-Sponsored Health Plan
  • Notice 2012-17, Frequently Asked Questions from Employers Regarding Automatic Enrollment, Employer Shared responsibility, and Waiting Periods
  • Notice 2012-9, Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage
  • Notice 2012-4, Certain Filing Changes for Tax-Exempt Organizations
  • Notice 2011-92, Branded Prescription Drug Fee; Guidance for the 2012 Fee Year
  • Notice 2011-73, Request for Comments on Health Coverage Affordability Safe Harbor for Employers (Section 4980H)
  • Notice Soliciting Comments on Summary of Benefits and Coverage and Uniform Glossary — Templates, Instructions, and Related Materials Under the Public Health Service Act
  • Notice 2011-52, Notice and Request for Comments Regarding the Community Health Needs Assessment Requirements for Tax-exempt Hospitals
  • Notice 2011-51, Extension of Interim Guidance on Modification of Section 833 Treatment of Certain Health Organizations
  • Notice 2011-46, Deferral of Dates Related to the 2011 Branded Prescription Drug Fee
  • Notice 2011-36, Request for Comments on Shared Responsibility for Employers Regarding Health Coverage (Section 4980H)
  • Notice 2011-35, Request for Comments on Funding of Patient-Centered Outcomes Research Through Fees Payable by Issuers of Health Insurance Policies and Self-Insured Health Plan Sponsors
  • Notice 2011-28, Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage
  • Notice 2011-23, Request for Comments Regarding Application of § 501(c)(29) of the Internal Revenue Code
  • Notice 2011-20, which solicits written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the Medicare shared savings program (MSSP) through an accountable care organization (ACO).
  • Notice 2011-5, Section 105: Amounts Received under Accident and Health Plans; Section 106: Contributions by Employers to Accident and Health Plans; Section 125: Cafeteria Plans
  • Notice 2011-4, Certain Changes in Method of Accounting for Organizations to which Section 833 Applies
  • Notice 2011-2, Guidance on the Application of Section 162(m)(6)
  • Notice 2011-1, Affordable Care Act Nondiscrimination Provisions Applicable to Insured Group Health Plans
  • Notice 2010-89, Request for Comments Regarding the Excise Tax on Medical Devices
  • Notice 2010-82, Tax Credit for Employee Health Insurance Expenses of Small Employers
  • Notice 2010-79, Modification of Section 833 Treatment of Certain Health Organizations
  • Notice 2010-71, Branded Prescription Drug Sales
  • Notice 2010-69, Interim Relief with Respect to Form W-2 Reporting of the Cost of Coverage of Group Health Insurance Under § 6051(a)(14)
  • Notice 2010-66, Interim Guidance on the Adoption Credit.
  • Notice 2010-63, Request for Comments on Requirements Prohibiting Discrimination in Favor of Highly Compensated Individuals in Insured Group Health Plans
  • Notice 2010-59, IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements
  • Notice 2010-51, Information Reporting Under the Amendments to Section 6041 for Payments to Corporations and Payments of Gross Proceeds and With Respect to Property (Note: The amendments referenced in this notice were repealed in April 2011.)
  • Notice 2010-45, Qualifying Therapeutic Discovery Project Credit
  • Notice 2010-44, Tax Credit for Employee Health Insurance Expenses of Small Employers
  • Notice 2010-39, Request for Comments Regarding Additional Requirements for Tax-Exempt Hospitals
  • Notice 2010-38, Tax Treatment of Health Care Benefits Provided With Respect to Children Under Age 27
  • Notice Requesting Information Regarding Value-Based Insurance Design in Connection With Preventive Care Benefits
  • Notice of Availability of Interim Procedures for Federal External Review and Model Notices Relating to Internal Claims and Appeals and External Review Under the Patient Protection and Affordable Care Act
  • Notice on Medical Loss Ratios Requesting Comments Regarding Section 2718 of the Public Health Service Act Regulations

Regulations

  • REG-141036–13, Minimum Essential Coverage and Other Rules Regarding the Shared Responsibility Payment for Individuals
  • REG-143172-13, Amendments to Excepted Benefits
  • REG-130843-13, Net Investment Income Tax
  • REG-136630-12, Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans
  • REG-132455-11, Information Reporting of Minimum Essential Coverage
  • REG-113792-13, Tax Credit for Employee Health Insurance Expenses of Small Employers
  • REG-115300-13, Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return.
  • REG-120391-10 (TD 9624), NPRM on Coverage of Certain Preventive Services under the ACA
  • REG-140789-12, Information Reporting for Affordable Insurance Exchanges
  • REG-126633-12, Computation of, and Rules Relating to, Medical Loss Ratio
  • REG-125398-12, Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit
  • REG-106499-12, Community Health Needs Assessments for Charitable Hospitals
  • REG-106796-12, The $500,000 Deduction Limitation for Remuneration Provided by Certain Health Insurance Providers
  • REG-122706-12, Ninety-Day Waiting Period Limitation and Technical Amendments to Certain Health Coverage Requirements Under the Affordable Care Act
  • REG-118315-12, Health Insurance Providers Fee; Notice of proposed rulemaking and notice of public hearing
  • REG-148500-12, Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage
  • REG-138006-12, Shared Responsibility for Employers Regarding Health Coverage
  • REG-130507-11, Net Investment Income
  • REG-130074-11, Rules Relating to Additional Medicare Tax
  • REG-122707-12, Incentives for Nondiscriminatory Wellness Programs in Group Health Plans
  • REG-130266-11, Additional Requirements for Charitable Hospitals
  • REG-119632-11, Regulations Pertaining to the Disclosure of Return Information to Carry Out Eligibility Requirements for Health Insurance Affordability Programs
  • REG-136008-11, Fees on Health Insurance Policies and Self-Insured Plans for the Patient-Centered Outcomes Research Trust Fund
  • REG-120391-10, ANPRM requesting comments on alternative ways to meet preventive services requirements by religious organization that objects to the coverage of contraceptive services for religious reasons.
  • REG-125592-10 (TD 9532), Requirements for Group Health Plans and Health Insurance Issuers Relating to Internal Claims and Appeals and External Review Processes Under the Patient Protection and Affordable Care Act — NPRM for Amendment
  • REG-135071-11, Application for Recognition as a 501(c)(29) Organization
  • REG-113770-10, Taxable Medical Devices
  • REG-140038-10, Disclosures of the Summary of Benefits and Coverage and the Uniform Glossary for Group Health Plans and Health Insurance Coverage in the Group and Individual Markets under the Patient Protection and Affordable Care Act
  • REG-131491-10, Health Insurance Premium Tax Credit
  • REG-112805-10 (TD 9544), Branded Prescriptions Drug Fee
  • REG-120391-10 (TD 9541), Requirement for Group Health Plans and Health Insurance Issuers to Provide Coverage of Preventive Services under the Patient Protection and Affordable Care Act - NPRM for Amendment
  • REG-118412-10 (TD 9506), Group Health Plans and Health Insurance Coverage Rules Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act - NPRM for Amendment
  • REG-125592-10 (TD 9494), Appeals Regulations under the Public Health Services Act section 2719
  • REG-120391-10 (TD 9493), Requirement for Group Health Plans and Health Insurance Issuers to Provide Coverage of Preventive Services under the Patient Protection and Affordable Care Act
  • REG-120399-10 (TD 9491), Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections
  • REG-118412-10 (TD 9489), Group Health Plans and Health Insurance Coverage Rules Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act
  • REG-112841-10 (TD 9486), Indoor Tanning Services, Cosmetic Services; Excise Taxes
  • REG-114494-10 (TD 9482), Group Health Plans and Health Insurance Issuers Providing Dependent Coverage of Children to Age 26

Revenue Procedures

  • Revenue Procedure 2012-11 sets forth procedures for issuing determination letters and rulings on the exempt status of qualified nonprofit health insurance issuers (QNHIIs) described in § 501(c)(29) of the Internal Revenue Code (Code).
  • Revenue Procedure 2011-52, Administrative, Procedural, and Miscellaneous. Section 3, Adoption credit
  • Revenue Procedure 2011-24 establishes a dispute resolution process for the preliminary fee calculation for the 2011 annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs.
  • Revenue Procedure 2010-35 modifies and supersedes sections 3.03 and 3.14 of Rev. Proc. 2009-50, 2009-45 I.R.B. 617, to reflect the statutory amendments to the adoption credit under § 36C (formerly § 23) and the exclusion for adoption assistance programs under § 137.
  • Revenue Procedure 2010-31 provides guidance on safe harbors for determining the finality of foreign adoptions for purposes of the adoption credit.

Revenue Rulings

Treasury Decisions (TD)

  • TD 9661, Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans
  • TD 9660, Information Reporting of Minimum Essential Coverage
  • TD 9656, Ninety-Day Waiting Period Limitation and Technical Amendments to Certain Health Coverage Requirements Under the Affordable Care Act
  • TD 9655, Shared Responsibility for Employers Regarding Health Coverage
  • TD 9651, Computation of, and Rules Relating to, Medical Loss Ratio
  • TD 9645, Rules Relating to Additional Medicare Tax
  • TD 9644, Net Investment Income Tax
  • TD 9643, Health Insurance Providers Fee
  • TD 9632, Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage
  • TD 9629, Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return
  • TD 9628, Regulations Pertaining to the Disclosure of Return Information to Carry Out Eligibility Requirements for Health Insurance Affordability Programs
  • TD 9624, Final Regulations on Coverage of Certain Preventive Services under the ACA
  • TD 9621, Final Regulations on Indoor Tanning Services; Excise Taxes
  • TD 9620, Incentives for Nondiscriminatory Wellness Programs in Group Health Plans
  • TD 9611, Final regulations providing guidance to individuals related to employees who may enroll in eligible employer-sponsored coverage and who wish to enroll in qualified health plans through Affordable Insurance Exchanges and claim the premium tax credit.
  • TD 9604, Taxable Medical Devices
  • TD 9602, Fees on Health Insurance Policies and Self-Insured Plans for Patient-Centered Outcomes Research Trust Fund
  • TD 9590, Health Insurance Premium Tax Credit
  • TD 9578, Final Regulations Authorizing the Exemption of Group Health Plans and Group Health Insurance Coverage Sponsored by Certain Religious Employers from Having to Cover Certain Preventive Health Services under Provisions of the Patient Protection and Affordable Care Act
  • TD 9574, Application for Recognition as a 501(c)(29) Organization
  • TD 9575, Summary of Benefits and Coverage and Uniform Glossary for Group Health Plans and Health Insurance Coverage in the Group and Individual Markets under the Patient Protection and Affordable Care Act
  • TD 9544, Branded Prescription Drug Fee
  • TD 9541, Amendment to Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services under the Patient Protection and Affordable Care Act
  • TD 9532, Amendment to Interim Final Regulations Implementing the Requirements Regarding Internal Claims and Appeals and External Review Processes for Group Health Plans and Health Insurance Coverage in the Group and Individual Markets
  • TD 9506, Amendment to the Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act
  • TD 9494, Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Internal Claims and Appeals and External Review Processes Under the Patient Protection and Affordable Care Act
  • TD 9493, Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and Affordable Care Act
  • TD 9491, Patient Protection and Affordable Care Act: Preexisting Condition Exclusions, Lifetime and Annual Limits, Rescissions, and Patient Protections
  • TD 9489, Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan under the Patient Protection and Affordable Care Act
  • TD 9486, Final and Temporary Regulations for Indoor Tanning Services; Cosmetic Services; Excise Taxes
  • TD 9482, Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 under the Patient Protection and Affordable Care Act

Related Items:

Page Last Reviewed or Updated: 28-Mar-2014

 

The Myfreetaxes Com Taxtime

Myfreetaxes com taxtime 1. Myfreetaxes com taxtime   Bona Fide Residence Table of Contents Presence TestDays of Presence in the United States or Relevant Possession Significant Connection Tax HomeExceptions Closer ConnectionException for Year of Move Special Rules in the Year of a MoveYear of Moving to a Possession Year of Moving From a Possession Reporting a Change in Bona Fide ResidenceWho Must File Penalty for Not Filing Form 8898 In order to qualify for certain tax benefits (see chapter 3), you must be a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI for the entire tax year. Myfreetaxes com taxtime Generally, you are a bona fide resident of one of these possessions (the relevant possession) if, during the tax year, you: Meet the presence test, Do not have a tax home outside the relevant possession, and Do not have a closer connection to the United States or to a foreign country than to the relevant possession. Myfreetaxes com taxtime Special rule for members of the U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime Armed Forces. Myfreetaxes com taxtime   If you are a member of the U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime Armed Forces who qualified as a bona fide resident of the relevant possession in an earlier tax year, your absence from that possession during the current tax year in compliance with military orders will not affect your status as a bona fide resident. Myfreetaxes com taxtime Likewise, being in a possession solely in compliance with military orders will not qualify you for bona fide residency. Myfreetaxes com taxtime Also see the special income source rule for members of the U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime Armed Forces in chapter 2, under Compensation for Labor or Personal Services . Myfreetaxes com taxtime Special rule for civilian spouse of active duty member of the U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime Armed Forces. Myfreetaxes com taxtime   If you are the civilian spouse of an active duty servicemember, under Military Spouses Residency Relief Act (MSRRA) you can choose to keep your prior residence or domicile for tax purposes (tax residence) when accompanying the servicemember spouse, who is relocating under military orders, to a new military duty station in one of the 50 states, the District of Columbia, or a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession. Myfreetaxes com taxtime Before relocating, you and your spouse must have the same tax residence. Myfreetaxes com taxtime If you are a civilian spouse and choose to keep your prior tax residence after such relocation, the source of income for services performed (for example, wages, salaries, tips, or self-employment) by you is considered to be (the jurisdiction of) the prior tax residence. Myfreetaxes com taxtime As a result, the amount of income tax withholding (from Form(s) W-2, Wage and Tax Statement) that you are able to claim on your federal return, as well as the need to file a state or U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession return, may be affected. Myfreetaxes com taxtime For more information, consult with state, local, or U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession tax authorities regarding your tax obligations under MSRRA. Myfreetaxes com taxtime Presence Test If you are a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen or resident alien, you will satisfy the presence test for the entire tax year if you meet one of the following conditions. Myfreetaxes com taxtime You were present in the relevant possession for at least 183 days during the tax year. Myfreetaxes com taxtime You were present in the relevant possession for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. Myfreetaxes com taxtime During each year of the 3-year period, you must be present in the relevant possession for at least 60 days. Myfreetaxes com taxtime You were present in the United States for no more than 90 days during the tax year. Myfreetaxes com taxtime You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant possession than in the United States during the tax year. Myfreetaxes com taxtime Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Myfreetaxes com taxtime You had no significant connection to the United States during the tax year. Myfreetaxes com taxtime Special rule for nonresident aliens. Myfreetaxes com taxtime   Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Myfreetaxes com taxtime Instead, nonresident aliens must meet the substantial presence test discussed in chapter 1 of Publication 519. Myfreetaxes com taxtime In that discussion, substitute the name of the possession for “United States” and “U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime ” wherever they appear. Myfreetaxes com taxtime Disregard the discussion in that chapter about a Closer Connection to a Foreign Country. Myfreetaxes com taxtime Days of Presence in the United States or Relevant Possession Generally, you are treated as being present in the United States or in the relevant possession on any day that you are physically present in that location at any time during the day. Myfreetaxes com taxtime Days of presence in a possession. Myfreetaxes com taxtime   You are considered to be present in the relevant possession on any of the following days. Myfreetaxes com taxtime Any day you are physically present in that possession at any time during the day. Myfreetaxes com taxtime Any day you are outside of the relevant possession in order to receive, or to accompany any of the following family members to receive, qualifying medical treatment (see Qualifying Medical Treatment , later). Myfreetaxes com taxtime Your parent. Myfreetaxes com taxtime Your spouse. Myfreetaxes com taxtime Your child, who is your son, daughter, stepson, or stepdaughter. Myfreetaxes com taxtime This includes an adopted child or child lawfully placed with you for legal adoption. Myfreetaxes com taxtime This also includes a foster child who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Myfreetaxes com taxtime Any day you are outside the relevant possession because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Myfreetaxes com taxtime   If, during a single day, you are physically present: In the United States and in the relevant possession, that day is considered a day of presence in the relevant possession; or In two possessions, that day is considered a day of presence in the possession where your tax home is located (see Tax Home , later). Myfreetaxes com taxtime Days of presence in the United States. Myfreetaxes com taxtime   You are considered to be present in the United States on any day that you are physically present in the United States at any time during the day. Myfreetaxes com taxtime However, do not count the following days as days of presence in the United States. Myfreetaxes com taxtime Any day you are temporarily present in the United States in order to receive, or to accompany a parent, spouse, or child who is receiving, qualifying medical treatment. Myfreetaxes com taxtime “Child” is defined under item 2c earlier. Myfreetaxes com taxtime “Qualifying medical treatment” is defined later. Myfreetaxes com taxtime Any day you are temporarily present in the United States because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Myfreetaxes com taxtime Any day you are in the United States for less than 24 hours when you are traveling between two places outside the United States. Myfreetaxes com taxtime Any day you are temporarily present in the United States as a professional athlete to compete in a charitable sports event (defined later). Myfreetaxes com taxtime Any day you are temporarily in the United States as a student (defined later). Myfreetaxes com taxtime Any day you are in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Myfreetaxes com taxtime Qualifying Medical Treatment Such treatment is generally provided by (or under the supervision of) a physician for an illness, injury, impairment, or physical or mental condition. Myfreetaxes com taxtime The treatment generally involves: Any period of inpatient care that requires an overnight stay in a hospital or hospice, and any period immediately before or after that inpatient care to the extent it is medically necessary, or Any temporary period of inpatient care in a residential medical care facility for medically necessary rehabilitation services. Myfreetaxes com taxtime With respect to each qualifying medical treatment, you must prepare (or obtain) and maintain documentation supporting your claim that such treatment meets the criteria to be considered days of presence in the relevant possession. Myfreetaxes com taxtime You must be able to produce this documentation within 30 days if requested by the IRS or tax administrator for the relevant possession. Myfreetaxes com taxtime You must keep the following documentation. Myfreetaxes com taxtime Records that provide: The patient's name and relationship to you (if the medical treatment is provided to a person you accompany); The name and address of the hospital, hospice, or residential medical care facility where the medical treatment was provided; The name, address, and telephone number of the physician who provided the medical treatment; The date(s) on which the medical treatment was provided; and Receipt(s) of payment for the medical treatment. Myfreetaxes com taxtime Signed certification by the providing or supervising physician that the medical treatment met the requirements for being qualified medical treatment, and setting forth: The patient's name, A reasonably detailed description of the medical treatment provided by (or under the supervision of) the physician, The dates on which the medical treatment was provided, and The medical facts that support the physician's certification and determination that the treatment was medically necessary. Myfreetaxes com taxtime Charitable Sports Event A charitable sports event is one that meets all of the following conditions. Myfreetaxes com taxtime The main purpose is to benefit a qualified charitable organization. Myfreetaxes com taxtime The entire net proceeds go to charity. Myfreetaxes com taxtime Volunteers perform substantially all the work. Myfreetaxes com taxtime In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in the charitable sports event. Myfreetaxes com taxtime You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. Myfreetaxes com taxtime Student To qualify as a student, you must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by a school described in (1) above or by a state, county, or local government agency. Myfreetaxes com taxtime The 5 calendar months do not have to be consecutive. Myfreetaxes com taxtime Full-time student. Myfreetaxes com taxtime   A full-time student is a person who is enrolled for the number of hours or courses the school considers to be full-time attendance. Myfreetaxes com taxtime However, school attendance exclusively at night is not considered full-time attendance. Myfreetaxes com taxtime School. Myfreetaxes com taxtime   The term “school” includes elementary schools, middle schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. Myfreetaxes com taxtime It does not include on-the-job training courses, correspondence schools, and schools offering courses only through the Internet. Myfreetaxes com taxtime Significant Connection One way in which you can meet the presence test is to have no significant connection to the United States during the tax year. Myfreetaxes com taxtime This section looks at the factors that determine if a significant connection exists. Myfreetaxes com taxtime You are treated as having a significant connection to the United States if you: Have a permanent home in the United States, Are currently registered to vote in any political subdivision of the United States, or Have a spouse or child (see item 2c under Days of presence in a possession , earlier) who is under age 18 whose main home is in the United States, other than: A child who is in the United States because he or she is the child of divorced or legally separated parents and is living with a custodial parent under a custodial decree or multiple support agreement, or A child who is in the United States as a student. Myfreetaxes com taxtime For the purpose of determining if you have a significant connection to the United States, the term “spouse” does not include a spouse from whom you are legally separated under a decree of divorce or separate maintenance. Myfreetaxes com taxtime Permanent home. Myfreetaxes com taxtime   A permanent home generally includes an accommodation such as a house, an apartment, or a furnished room that is either owned or rented by you or your spouse. Myfreetaxes com taxtime The dwelling unit must be available at all times, continuously, not only for short stays. Myfreetaxes com taxtime Exception for rental property. Myfreetaxes com taxtime   If you or your spouse own the dwelling unit and at any time during the tax year it is rented to someone else at fair rental value, it will be considered your permanent home only if you or your spouse use that property for personal purposes for more than the greater of: 14 days, or 10% of the number of days during that tax year that the property is rented to others at a fair rental value. Myfreetaxes com taxtime   You are treated as using rental property for personal purposes on any day the property is not being rented to someone else at fair rental value for the entire day. Myfreetaxes com taxtime   A day of personal use of a dwelling unit is also any day that the unit is used by any of the following persons. Myfreetaxes com taxtime You or any other person who has an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement. Myfreetaxes com taxtime A member of your family or a member of the family of any other person who has an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Myfreetaxes com taxtime Family includes only brothers and sisters, half-brothers and half-sisters, spouses, ancestors (parents, grandparents, etc. Myfreetaxes com taxtime ), and lineal descendants (children, grandchildren, etc. Myfreetaxes com taxtime ). Myfreetaxes com taxtime Anyone under an arrangement that lets you use some other dwelling unit. Myfreetaxes com taxtime Anyone at less than a fair rental price. Myfreetaxes com taxtime   However, any day you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Myfreetaxes com taxtime Whether your property is used mainly for this purpose is determined in light of all the facts and circumstances, such as: The amount of time you devote to repair and maintenance work, How often during the tax year you perform repair and maintenance work on this property, and The presence and activities of companions. Myfreetaxes com taxtime   See Publication 527, Residential Rental Property, for more information about personal use of a dwelling unit. Myfreetaxes com taxtime Example—significant connection. Myfreetaxes com taxtime Ann Green, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, is a sales representative for a company based in Guam. Myfreetaxes com taxtime Ann lives with her spouse and young children in their house in Guam, where she is also registered to vote. Myfreetaxes com taxtime Her business travel requires her to spend 120 days in the United States and another 120 days in foreign countries. Myfreetaxes com taxtime When traveling on business, Ann generally stays at hotels but sometimes stays with her brother, who lives in the United States. Myfreetaxes com taxtime Ann's stays are always of short duration and she asks her brother's permission to stay with him. Myfreetaxes com taxtime Her brother's house is not her permanent home, nor does she have any other accommodations in the United States that would be considered her permanent home. Myfreetaxes com taxtime Ann satisfies the presence test because she has no significant connection to the United States. Myfreetaxes com taxtime Example—presence test. Myfreetaxes com taxtime Eric and Wanda Brown live for part of the year in a condominium, which they own, in the CNMI. Myfreetaxes com taxtime They also own a house in Maine where they live for 120 days every year to be near their grown children and grandchildren. Myfreetaxes com taxtime The Browns are retired and their only income is from pension payments, dividends, interest, and social security benefits. Myfreetaxes com taxtime In 2013, they spent only 175 days in the CNMI because of a 70-day vacation to Europe and Asia. Myfreetaxes com taxtime Thus, in 2013, the Browns were not present in the CNMI for at least 183 days, were present in the United States for more than 90 days, and had a significant connection to the United States because of their permanent home. Myfreetaxes com taxtime However, the Browns still satisfied the presence test with respect to the CNMI because they had no earned income in the United States and were physically present for more days in the CNMI than in the United States. Myfreetaxes com taxtime Tax Home You will have met the tax home test if you did not have a tax home outside the relevant possession during any part of the tax year. Myfreetaxes com taxtime Your tax home is your regular or main place of business, employment, or post of duty regardless of where you maintain your family home. Myfreetaxes com taxtime If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Myfreetaxes com taxtime If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Myfreetaxes com taxtime Exceptions There are some special rules regarding tax home that provide exceptions to the general rule stated above. Myfreetaxes com taxtime Students and Government Officials Disregard the following days when determining whether you have a tax home outside the relevant possession. Myfreetaxes com taxtime Days you were temporarily in the United States as a student (see Student under Days of Presence in the United States or Relevant Possession, earlier). Myfreetaxes com taxtime Days you were in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Myfreetaxes com taxtime Seafarers You will not be considered to have a tax home outside the relevant possession solely because you are employed on a ship or other seafaring vessel that is predominantly used in local and international waters. Myfreetaxes com taxtime For this purpose, a vessel is considered to be predominantly used in local and international waters if, during the tax year, the total amount of time it is used in international waters and in the waters within 3 miles of the relevant possession exceeds the total amount of time it is used in the territorial waters of the United States, another possession, or any foreign country. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime In 2013, Sean Silverman, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, was employed by a fishery and spent 250 days at sea on a fishing vessel. Myfreetaxes com taxtime When not at sea, Sean lived with his spouse at a house they own in American Samoa. Myfreetaxes com taxtime The fishing vessel on which Sean works departs and arrives at various ports in American Samoa, other possessions, and foreign countries, but was in international or American Samoa's local waters for 225 days. Myfreetaxes com taxtime For purposes of determining bona fide residency of American Samoa, Sean will not be considered to have a tax home outside that possession solely because of his employment on board the fishing vessel. Myfreetaxes com taxtime Year of Move If you are moving to or from a possession during the year, you may still be able to meet the tax home test for that year. Myfreetaxes com taxtime See Special Rules in the Year of a Move , later in this chapter. Myfreetaxes com taxtime Closer Connection You will have met the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or a foreign country than to the relevant U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession. Myfreetaxes com taxtime You will be considered to have a closer connection to a possession than to the United States or to a foreign country if you have maintained more significant contacts with the possession(s) than with the United States or foreign country. Myfreetaxes com taxtime In determining if you have maintained more significant contacts with the relevant possession, the facts and circumstances to be considered include, but are not limited to, the following. Myfreetaxes com taxtime The location of your permanent home. Myfreetaxes com taxtime The location of your family. Myfreetaxes com taxtime The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family. Myfreetaxes com taxtime The location of social, political, cultural, professional, or religious organizations with which you have a current relationship. Myfreetaxes com taxtime The location where you conduct your routine personal banking activities. Myfreetaxes com taxtime The location where you conduct business activities (other than those that go into determining your tax home). Myfreetaxes com taxtime The location of the jurisdiction in which you hold a driver's license. Myfreetaxes com taxtime The location of the jurisdiction in which you vote. Myfreetaxes com taxtime The location of charitable organizations to which you contribute. Myfreetaxes com taxtime The country of residence you designate on forms and documents. Myfreetaxes com taxtime The types of official forms and documents you file, such as Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or Form W-9, Request for Taxpayer Identification Number and Certification. Myfreetaxes com taxtime Your connections to the relevant possession will be compared to the total of your connections with the United States and foreign countries. Myfreetaxes com taxtime Your answers to the questions on Form 8898, Part III, will help establish the jurisdiction to which you have a closer connection. Myfreetaxes com taxtime Example—closer connection to the United States. Myfreetaxes com taxtime Marcos Reyes, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, moved to Puerto Rico in 2013 to start an investment consulting and venture capital business. Myfreetaxes com taxtime His spouse and two teenage children remained in California to allow the children to complete high school. Myfreetaxes com taxtime He traveled back to the United States regularly to see his spouse and children, to engage in business activities, and to take vacations. Myfreetaxes com taxtime Marcos had an apartment available for his full-time use in Puerto Rico, but remained a joint owner of the residence in California where his spouse and children lived. Myfreetaxes com taxtime Marcos and his family had automobiles and personal belongings such as furniture, clothing, and jewelry located at both residences. Myfreetaxes com taxtime Although Marcos was a member of the Puerto Rico Chamber of Commerce, he also belonged to and had current relationships with social, political, cultural, and religious organizations in California. Myfreetaxes com taxtime Marcos received mail in California, including bank and brokerage statements and credit card bills. Myfreetaxes com taxtime He conducted his personal banking activities in California. Myfreetaxes com taxtime He held a California driver's license and was also registered to vote there. Myfreetaxes com taxtime Based on all of the particular facts and circumstances pertaining to Marcos, he was not a bona fide resident of Puerto Rico in 2013 because he had a closer connection to the United States than to Puerto Rico. Myfreetaxes com taxtime Closer connection to another possession. Myfreetaxes com taxtime   Generally, possessions are not treated as foreign countries. Myfreetaxes com taxtime Therefore, a closer connection to a possession other than the relevant possession will not be treated as a closer connection to a foreign country. Myfreetaxes com taxtime Example—tax home and closer connection to possession. Myfreetaxes com taxtime Pearl Blackmon, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, is a permanent employee of a hotel in Guam, but works only during the tourist season. Myfreetaxes com taxtime For the remainder of each year, Pearl lives with her spouse and children in the CNMI, where she has no outside employment. Myfreetaxes com taxtime Most of Pearl's personal belongings, including her automobile, are located in the CNMI. Myfreetaxes com taxtime She is registered to vote in, and has a driver's license issued by, the CNMI. Myfreetaxes com taxtime She does her personal banking in the CNMI and routinely lists her CNMI address as her permanent address on forms and documents. Myfreetaxes com taxtime Pearl satisfies the presence test with respect to both Guam and the CNMI. Myfreetaxes com taxtime She satisfies the tax home test with respect to Guam, because her regular place of business is in Guam. Myfreetaxes com taxtime Pearl satisfies the closer connection test with respect to both Guam and the CNMI, because she does not have a closer connection to the United States or to any foreign country. Myfreetaxes com taxtime Pearl is considered a bona fide resident of Guam, the location of her tax home. Myfreetaxes com taxtime Exception for Year of Move If you are moving to or from a possession during the year, you may still be able to meet the closer connection test for that year. Myfreetaxes com taxtime See Special Rules in the Year of a Move , next. Myfreetaxes com taxtime Special Rules in the Year of a Move If you are moving to or from a possession during the year, you may still be able to meet the tax home and closer connection tests for that year. Myfreetaxes com taxtime Year of Moving to a Possession You will satisfy the tax home and closer connection tests in the tax year of changing your residence to the relevant possession if you meet all of the following. Myfreetaxes com taxtime You have not been a bona fide resident of the relevant possession in any of the 3 tax years immediately preceding your move. Myfreetaxes com taxtime In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the last 183 days of the tax year. Myfreetaxes com taxtime You are a bona fide resident of the relevant possession for each of the 3 tax years immediately following your move. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime Dwight Wood, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, files returns on a calendar year basis. Myfreetaxes com taxtime He lived in the United States from January 2007 through May 2013. Myfreetaxes com taxtime In June 2013 he moved to the USVI, purchased a house, and accepted a permanent job with a local employer. Myfreetaxes com taxtime From July 1 through December 31, 2013 (more than 183 days), Dwight's principal place of business was in the USVI and, during that time, he did not have a closer connection to the United States or a foreign country than to the USVI. Myfreetaxes com taxtime If he is a bona fide resident of the USVI during all of 2014 through 2016, he will satisfy the tax home and closer connection tests for 2013. Myfreetaxes com taxtime If Dwight also satisfies the presence test in 2013, he will be considered a bona fide resident of the USVI for the entire 2013 tax year. Myfreetaxes com taxtime Year of Moving From a Possession In the year you cease to be a bona fide resident of American Samoa, the CNMI, Guam, or the USVI, you will satisfy the tax home and closer connection tests with respect to the relevant possession if you meet all of the following. Myfreetaxes com taxtime You have been a bona fide resident of the relevant possession for each of the 3 tax years immediately preceding your change of residence. Myfreetaxes com taxtime In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the first 183 days of the tax year. Myfreetaxes com taxtime You are not a bona fide resident of the relevant possession for any of the 3 tax years immediately following your move. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime Jean Aspen, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, files returns on a calendar year basis. Myfreetaxes com taxtime From January 2010 through December 2012, Jean was a bona fide resident of American Samoa. Myfreetaxes com taxtime Jean continued to live there until September 6, 2013, when she accepted new employment and moved to Hawaii. Myfreetaxes com taxtime Jean's principal place of business from January 1 through September 5, 2013 (more than 183 days), was in American Samoa, and during that period Jean did not have a closer connection to the United States or a foreign country than to American Samoa. Myfreetaxes com taxtime If Jean continues to live and work in Hawaii for the rest of 2013 and throughout years 2014 through 2016, she will satisfy the tax home and closer connection tests for 2013 with respect to American Samoa. Myfreetaxes com taxtime If Jean also satisfies the presence test in 2013, she will be considered a bona fide resident for the entire 2013 tax year. Myfreetaxes com taxtime Puerto Rico You will be considered a bona fide resident of Puerto Rico for the part of the tax year preceding the date on which you move if you: Are a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, Are a bona fide resident of Puerto Rico for at least 2 tax years immediately preceding the tax year of the move, Cease to be a bona fide resident of Puerto Rico during the tax year, Cease to have a tax home in Puerto Rico during the tax year, and Have a closer connection to Puerto Rico than to the United States or a foreign country throughout the part of the tax year preceding the date on which you cease to have a tax home in Puerto Rico. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime Randy White, a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen, files returns on a calendar year basis. Myfreetaxes com taxtime For all of 2011 and 2012, Randy was a bona fide resident of Puerto Rico. Myfreetaxes com taxtime From January through April 2013, Randy continued to reside and maintain his principal place of business in and closer connection to Puerto Rico. Myfreetaxes com taxtime On May 5, 2013, Randy moved and changed his tax home to Nevada. Myfreetaxes com taxtime Later that year he established a closer connection to the United States than to Puerto Rico. Myfreetaxes com taxtime Randy did not satisfy the presence test for 2013 with respect to Puerto Rico, nor the tax home or closer connection tests. Myfreetaxes com taxtime However, because Randy was a bona fide resident of Puerto Rico for at least 2 tax years before he moved to Nevada in 2013, he was a bona fide resident of Puerto Rico from January 1 through May 4, 2013. Myfreetaxes com taxtime Reporting a Change in Bona Fide Residence If you became or ceased to be a bona fide resident of a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession, you may need to file Form 8898. Myfreetaxes com taxtime This applies to the U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possessions of American Samoa, the CNMI, Guam, Puerto Rico, and the USVI. Myfreetaxes com taxtime Who Must File You must file Form 8898 for the tax year in which you meet both of the following conditions. Myfreetaxes com taxtime Your worldwide gross income (defined below) in that tax year is more than $75,000. Myfreetaxes com taxtime You meet one of the following. Myfreetaxes com taxtime You take a position for U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime tax purposes that you became a bona fide resident of a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession after a tax year for which you filed a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime income tax return as a citizen or resident alien of the United States but not as a bona fide resident of the possession. Myfreetaxes com taxtime You are a citizen or resident alien of the United States who takes the position for U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime tax purposes that you ceased to be a bona fide resident of a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime possession after a tax year for which you filed an income tax return (with the IRS, the possession tax authority, or both) as a bona fide resident of the possession. Myfreetaxes com taxtime You take the position for U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime tax purposes that you became a bona fide resident of Puerto Rico or American Samoa after a tax year for which you were required to file an income tax return as a bona fide resident of the CNMI, Guam, or the USVI. Myfreetaxes com taxtime Worldwide gross income. Myfreetaxes com taxtime   Worldwide gross income means all income you received in the form of money, goods, property, and services, including any income from sources outside the United States (even if you can exclude part or all of it) and before any deductions, credits, or rebates. Myfreetaxes com taxtime Example. Myfreetaxes com taxtime You are a U. Myfreetaxes com taxtime S. Myfreetaxes com taxtime citizen who moved to the CNMI in December 2012, but did not become a bona fide resident of that possession until the 2013 tax year. Myfreetaxes com taxtime You must file Form 8898 for the 2013 tax year if your worldwide gross income for that year was more than $75,000. Myfreetaxes com taxtime Penalty for Not Filing Form 8898 If you are required to file Form 8898 for any tax year and you fail to file it, you may owe a penalty of $1,000. Myfreetaxes com taxtime You may also owe this penalty if you do not include all the information required by the form or the form includes incorrect information. Myfreetaxes com taxtime In either case, you will not owe this penalty if you can show that such failure is due to reasonable cause and not willful neglect. Myfreetaxes com taxtime This is in addition to any criminal penalty that may be imposed. Myfreetaxes com taxtime Prev  Up  Next   Home   More Online Publications