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State tax forms online Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. State tax forms online Proc. State tax forms online 2013-16 Table of Contents SECTION 1. State tax forms online PURPOSE SECTION 2. State tax forms online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. State tax forms online BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. State tax forms online FEDERAL INCOME TAX TREATMENT SECTION 5. State tax forms online INFORMATION-REPORTING OBLIGATIONS SECTION 6. State tax forms online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. State tax forms online PENALTY RELIEF FOR 2012 SECTION 8. State tax forms online SCOPE AND EFFECTIVE DATE SECTION 9. State tax forms online DRAFTING INFORMATION SECTION 1. State tax forms online PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). State tax forms online Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). State tax forms online In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. State tax forms online Current plans call for HAMP to continue accepting new borrowers through the end of 2013. State tax forms online The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. State tax forms online SECTION 2. State tax forms online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . State tax forms online 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). State tax forms online A description of the program can be found at www. State tax forms online makinghomeaffordable. State tax forms online gov. State tax forms online . State tax forms online 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. State tax forms online These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. State tax forms online . State tax forms online 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. State tax forms online The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. State tax forms online However, as noted in section 2. State tax forms online 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. State tax forms online (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. State tax forms online ”) . State tax forms online 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. State tax forms online . State tax forms online 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. State tax forms online The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. State tax forms online (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. State tax forms online ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). State tax forms online Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. State tax forms online Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. State tax forms online . State tax forms online 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. State tax forms online (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. State tax forms online ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. State tax forms online . State tax forms online 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). State tax forms online If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. State tax forms online These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. State tax forms online The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. State tax forms online The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. State tax forms online For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. State tax forms online ” . State tax forms online 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). State tax forms online . State tax forms online 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. State tax forms online 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. State tax forms online . State tax forms online 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. State tax forms online SECTION 3. State tax forms online BACKGROUND—APPLICABLE PROVISIONS OF LAW . State tax forms online 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. State tax forms online See § 61(a)(12). State tax forms online . State tax forms online 02 Under § 1. State tax forms online 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. State tax forms online In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. State tax forms online However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. State tax forms online See § 1. State tax forms online 1001-3(c)(6). State tax forms online . State tax forms online 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. State tax forms online 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. State tax forms online If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. State tax forms online See also § 1. State tax forms online 61-12(c). State tax forms online . State tax forms online 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. State tax forms online If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. State tax forms online See, e. State tax forms online g. State tax forms online , §§ 1. State tax forms online 1272-1(c)(5) and 1. State tax forms online 1274-2(d). State tax forms online . State tax forms online 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. State tax forms online Section 108(a)(1)(E) and 108(a)(1)(B). State tax forms online (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. State tax forms online ) . State tax forms online 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. State tax forms online . State tax forms online 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. State tax forms online See §§ 108(h) and 163(h)(3)(B)(i). State tax forms online . State tax forms online 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). State tax forms online Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. State tax forms online . State tax forms online 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. State tax forms online . State tax forms online 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. State tax forms online Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. State tax forms online . State tax forms online 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. State tax forms online See § 108(h)(1). State tax forms online If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). State tax forms online See § 108(b). State tax forms online For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). State tax forms online . State tax forms online 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). State tax forms online See Form 982 instructions and Publication 4681. State tax forms online This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. State tax forms online . State tax forms online 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. State tax forms online See Notice 2003-18, 2003-1 C. State tax forms online B. State tax forms online 699, and Rev. State tax forms online Rul. State tax forms online 79-356, 1979-2 C. State tax forms online B. State tax forms online 28. State tax forms online However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). State tax forms online See Rev. State tax forms online Rul. State tax forms online 2005-46, 2005-2 C. State tax forms online B. State tax forms online 120, and Rev. State tax forms online Rul. State tax forms online 75-246, 1975-1 C. State tax forms online B. State tax forms online 24. State tax forms online . State tax forms online 14 Under § 451 and § 1. State tax forms online 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. State tax forms online . State tax forms online 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. State tax forms online See § 6041(a) and (d) and § 1. State tax forms online 6041-1(a)(1) and (b). State tax forms online . State tax forms online 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. State tax forms online See § 6050P(a)-(c) and §§ 1. State tax forms online 6050P-1(a) and 1. State tax forms online 6050P-2(a) and (d). State tax forms online . State tax forms online 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. State tax forms online These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. State tax forms online Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. State tax forms online ” . State tax forms online 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. State tax forms online These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. State tax forms online Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. State tax forms online SECTION 4. State tax forms online FEDERAL INCOME TAX TREATMENT . State tax forms online 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. State tax forms online See § 1. State tax forms online 1001-3. State tax forms online At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. State tax forms online See also § 61(a)(12) and § 1. State tax forms online 61-12(c). State tax forms online . State tax forms online 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. State tax forms online Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. State tax forms online Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. State tax forms online . State tax forms online 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. State tax forms online Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. State tax forms online . State tax forms online 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. State tax forms online Therefore, for purposes of § 1. State tax forms online 1001-3, the date of the modification is the date of the permanent modification. State tax forms online . State tax forms online 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. State tax forms online 01 of this revenue procedure for the taxable year in which the permanent modification occurs. State tax forms online Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. State tax forms online The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. State tax forms online . State tax forms online 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. State tax forms online . State tax forms online 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. State tax forms online This is consistent with Rev. State tax forms online Rul. State tax forms online 2009-19, 2009-28 I. State tax forms online R. State tax forms online B. State tax forms online 111, which addressed the treatment of Pay-for-Performance Success Payments. State tax forms online . State tax forms online 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. State tax forms online If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. State tax forms online . State tax forms online 09 As described in section 2. State tax forms online 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. State tax forms online To the extent that the HAMP-PRA borrower is described in section 4. State tax forms online 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. State tax forms online To the extent that the HAMP-PRA borrower is described in section 4. State tax forms online 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. State tax forms online SECTION 5. State tax forms online INFORMATION-REPORTING OBLIGATIONS . State tax forms online 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. State tax forms online A copy of this form is required to be furnished to the borrower. State tax forms online . State tax forms online 02 As stated in sections 4. State tax forms online 01 and 4. State tax forms online 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. State tax forms online . State tax forms online 03 An investor is an applicable entity that is required under § 1. State tax forms online 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. State tax forms online Under § 1. State tax forms online 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. State tax forms online Identifiable events determine when Forms 1099-C have to be issued. State tax forms online Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. State tax forms online This rule under § 1. State tax forms online 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. State tax forms online . State tax forms online 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. State tax forms online That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). State tax forms online . State tax forms online 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. State tax forms online 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. State tax forms online Under § 6041, these payments are not subject to information reporting. State tax forms online See Notice 2011-14, 2011-11 I. State tax forms online R. State tax forms online B. State tax forms online 544, 546. State tax forms online . State tax forms online 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. State tax forms online 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. State tax forms online The payment is subject to the information reporting requirements of § 6041, as described in section 3. State tax forms online 15 of this revenue procedure. State tax forms online Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. State tax forms online SECTION 6. State tax forms online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . State tax forms online 01 In general. State tax forms online The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). State tax forms online As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. State tax forms online Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. State tax forms online A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. State tax forms online 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. State tax forms online Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. State tax forms online 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. State tax forms online . State tax forms online 02 HAMP-PRA borrower options. State tax forms online A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. State tax forms online 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. State tax forms online If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. State tax forms online 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. State tax forms online . State tax forms online 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. State tax forms online (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. State tax forms online (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. State tax forms online 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. State tax forms online 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. State tax forms online This section 6. State tax forms online 03(2) applies only if the change to reporting the discharge using the method described in section 6. State tax forms online 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. State tax forms online To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. State tax forms online (3) Example. State tax forms online The following example illustrates the application of section 6. State tax forms online 03(2) of this revenue procedure. State tax forms online In 2010, B’s basis in B’s principal residence was $330,000. State tax forms online In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. State tax forms online B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). State tax forms online The trial period plan effective date also fell in 2010. State tax forms online B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. State tax forms online 02(2) of this revenue procedure. State tax forms online That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. State tax forms online The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. State tax forms online For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. State tax forms online 02(1) of this revenue procedure. State tax forms online Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. State tax forms online 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). State tax forms online (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. State tax forms online 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. State tax forms online 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. State tax forms online Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. State tax forms online 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. State tax forms online Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. State tax forms online (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. State tax forms online 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. State tax forms online The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. State tax forms online (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. State tax forms online The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). State tax forms online The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. State tax forms online . State tax forms online 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. State tax forms online (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. State tax forms online Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. State tax forms online Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. State tax forms online If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. State tax forms online (2) A HAMP-PRA borrower who has been using the method described in section 6. State tax forms online 02(1) of this revenue procedure may change to the method described in section 6. State tax forms online 02(2) but must comply with the consistency and open-year requirements described in section 6. State tax forms online 01 of this revenue procedure. State tax forms online SECTION 7. State tax forms online PENALTY RELIEF FOR 2012 . State tax forms online 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. State tax forms online 03 through 5. State tax forms online 04 and section 8. State tax forms online 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. State tax forms online 01 through 4. State tax forms online 04 of this revenue procedure) that is required to be reported for 2012. State tax forms online (2) Not later than March 28, 2013, a statement is sent to the Service. State tax forms online It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. State tax forms online 01(1) of this revenue procedure. State tax forms online The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . State tax forms online 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. State tax forms online 06 and 8. State tax forms online 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. State tax forms online . State tax forms online 03 Section 8. State tax forms online 03 and 8. State tax forms online 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. State tax forms online SECTION 8. State tax forms online SCOPE AND EFFECTIVE DATE . State tax forms online 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. State tax forms online . State tax forms online 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. State tax forms online . State tax forms online 03 Because of the effective date in section 8. State tax forms online 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. State tax forms online 03 through 5. State tax forms online 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. State tax forms online 03 through 5. State tax forms online 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. State tax forms online . State tax forms online 04 Because of the effective date in section 8. State tax forms online 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. State tax forms online 06 of this revenue procedure. State tax forms online SECTION 9. State tax forms online DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. State tax forms online Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. State tax forms online Pflanz and Sheldon A. State tax forms online Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. State tax forms online Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). State tax forms online For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). State tax forms online Prev  Up  Next   Home   More Internal Revenue Bulletins
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The State Tax Forms Online

State tax forms online 7. State tax forms online   Costs You Can Deduct or Capitalize Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: Carrying Charges Research and Experimental CostsProduct. State tax forms online Costs not included. State tax forms online Intangible Drilling Costs Exploration CostsPartnerships and S corporations. State tax forms online Development Costs Circulation Costs Business Start-Up and Organizational Costs Reforestation Costs Retired Asset Removal Costs Barrier Removal CostsOther barrier removals. State tax forms online Film and Television Production Costs What's New Film and television productions costs. State tax forms online  The election to expense film and television production costs does not apply to productions that begin after December 31, 2013. State tax forms online See Film and Television Production Costs , later. State tax forms online Introduction This chapter discusses costs you can elect to deduct or capitalize. State tax forms online You generally deduct a cost as a current business expense by subtracting it from your income in either the year you incur it or the year you pay it. State tax forms online If you capitalize a cost, you may be able to recover it over a period of years through periodic deductions for amortization, depletion, or depreciation. State tax forms online When you capitalize a cost, you add it to the basis of property to which it relates. State tax forms online A partnership, corporation, estate, or trust makes the election to deduct or capitalize the costs discussed in this chapter except for exploration costs for mineral deposits. State tax forms online Each individual partner, shareholder, or beneficiary elects whether to deduct or capitalize exploration costs. State tax forms online You may be subject to the alternative minimum tax (AMT) if you deduct research and experimental, intangible drilling, exploration, development, circulation, or business organizational costs. State tax forms online For more information on the alternative minimum tax, see the instructions for the following forms. State tax forms online Form 6251, Alternative Minimum Tax—Individuals. State tax forms online Form 4626, Alternative Minimum Tax—Corporations. State tax forms online Topics - This chapter discusses: Carrying charges Research and experimental costs Intangible drilling costs Exploration costs Development costs Circulation costs Qualified disaster expenses Business start-up and organizational costs Reforestation costs Retired asset removal costs Barrier removal costs Film and television production costs Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets Form (and Instructions) 3468 Investment Credit 8826 Disabled Access Credit See chapter 12 for information about getting publications and forms. State tax forms online Carrying Charges Carrying charges include the taxes and interest you pay to carry or develop real property or to carry, transport, or install personal property. State tax forms online Certain carrying charges must be capitalized under the uniform capitalization rules. State tax forms online (For information on capitalization of interest, see chapter 4 . State tax forms online ) You can elect to capitalize carrying charges not subject to the uniform capitalization rules, but only if they are otherwise deductible. State tax forms online You can elect to capitalize carrying charges separately for each project you have and for each type of carrying charge. State tax forms online For unimproved and unproductive real property, your election is good for only 1 year. State tax forms online You must decide whether to capitalize carrying charges each year the property remains unimproved and unproductive. State tax forms online For other real property, your election to capitalize carrying charges remains in effect until construction or development is completed. State tax forms online For personal property, your election is effective until the date you install or first use it, whichever is later. State tax forms online How to make the election. State tax forms online   To make the election to capitalize a carrying charge, attach a statement to your original tax return for the year the election is to be effective indicating which charges you are electing to capitalize. State tax forms online 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). State tax forms online Attach the statement to the amended return and write “Filed pursuant to section 301. State tax forms online 9100-2” on the statement. State tax forms online File the amended return at the same address you filed the original return. State tax forms online Research and Experimental Costs The costs of research and experimentation are generally capital expenses. State tax forms online However, you can elect to deduct these costs as a current business expense. State tax forms online Your election to deduct these costs is binding for the year it is made and for all later years unless you get IRS approval to make a change. State tax forms online If you meet certain requirements, you may elect to defer and amortize research and experimental costs. State tax forms online For information on electing to defer and amortize these costs, see Research and Experimental Costs in chapter 8. State tax forms online Research and experimental costs defined. State tax forms online   Research and experimental costs are reasonable costs you incur in your trade or business for activities intended to provide information that would eliminate uncertainty about the development or improvement of a product. State tax forms online Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product. State tax forms online Whether costs qualify as research and experimental costs depends on the nature of the activity to which the costs relate rather than on the nature of the product or improvement being developed or the level of technological advancement. State tax forms online      The costs of obtaining a patent, including attorneys' fees paid or incurred in making and perfecting a patent application, are research and experimental costs. State tax forms online However, costs paid or incurred to obtain another's patent are not research and experimental costs. State tax forms online Product. State tax forms online   The term “product” includes any of the following items. State tax forms online Formula. State tax forms online Invention. State tax forms online Patent. State tax forms online Pilot model. State tax forms online Process. State tax forms online Technique. State tax forms online Property similar to the items listed above. State tax forms online It also includes products used by you in your trade or business or held for sale, lease, or license. State tax forms online Costs not included. State tax forms online   Research and experimental costs do not include expenses for any of the following activities. State tax forms online Advertising or promotions. State tax forms online Consumer surveys. State tax forms online Efficiency surveys. State tax forms online Management studies. State tax forms online Quality control testing. State tax forms online Research in connection with literary, historical, or similar projects. State tax forms online The acquisition of another's patent, model, production, or process. State tax forms online When and how to elect. State tax forms online   You make the election to deduct research and experimental costs by deducting them on your tax return for the year in which you first pay or incur research and experimental costs. State tax forms online If you do not make the election to deduct research and experimental costs in the first year in which you pay or incur the costs, you can deduct the costs in a later year only with approval from the IRS. State tax forms online Deducting or Amortizing Research and Experimentation Costs IF you . State tax forms online . State tax forms online . State tax forms online THEN . State tax forms online . State tax forms online . State tax forms online Elect to deduct research and experimental costs as a current business expense Deduct all research and experimental costs in the first year you pay or incur the costs and all later years. State tax forms online Do not deduct research and experimental costs as a current business expense If you meet the requirements, amortize them over at least 60 months, starting with the month you first receive an economic benefit from the research. State tax forms online See Research and Experimental Costs in chapter 8. State tax forms online Research credit. State tax forms online   If you pay or incur qualified research expenses, you may be able to take the research credit. State tax forms online For more information see Form 6765, Credit for Increasing Research Activities and its instructions. State tax forms online Intangible Drilling Costs The costs of developing oil, gas, or geothermal wells are ordinarily capital expenditures. State tax forms online You can usually recover them through depreciation or depletion. State tax forms online However, you can elect to deduct intangible drilling costs (IDCs) as a current business expense. State tax forms online These are certain drilling and development costs for wells in the United States in which you hold an operating or working interest. State tax forms online You can deduct only costs for drilling or preparing a well for the production of oil, gas, or geothermal steam or hot water. State tax forms online You can elect to deduct only the costs of items with no salvage value. State tax forms online These include wages, fuel, repairs, hauling, and supplies related to drilling wells and preparing them for production. State tax forms online Your cost for any drilling or development work done by contractors under any form of contract is also an IDC. State tax forms online However, see Amounts paid to contractor that must be capitalized , later. State tax forms online You can also elect to deduct the cost of drilling exploratory bore holes to determine the location and delineation of offshore hydrocarbon deposits if the shaft is capable of conducting hydrocarbons to the surface on completion. State tax forms online It does not matter whether there is any intent to produce hydrocarbons. State tax forms online If you do not elect to deduct your IDCs as a current business expense, you can elect to deduct them over the 60-month period beginning with the month they were paid or incurred. State tax forms online Amounts paid to contractor that must be capitalized. State tax forms online   Amounts paid to a contractor must be capitalized if they are either: Amounts properly allocable to the cost of depreciable property, or Amounts paid only out of production or proceeds from production if these amounts are depletable income to the recipient. State tax forms online How to make the election. State tax forms online   You elect to deduct IDCs as a current business expense by taking the deduction on your income tax return for the first tax year you have eligible costs. State tax forms online No formal statement is required. State tax forms online If you file Schedule C (Form 1040), enter these costs under “Other expenses. State tax forms online ”   For oil and gas wells, your election is binding for the year it is made and for all later years. State tax forms online For geothermal wells, your election can be revoked by the filing of an amended return on which you do not take the deduction. State tax forms online You can file the amended return for the year up to the normal time of expiration for filing a claim for credit or refund, generally, within 3 years after the date you filed the original return or within 2 years after the date you paid the tax, whichever is later. State tax forms online Energy credit for costs of geothermal wells. State tax forms online   If you capitalize the drilling and development costs of geothermal wells that you place in service during the tax year, you may be able to claim a business energy credit. State tax forms online See the Instructions for Form 3468 for more information. State tax forms online Nonproductive well. State tax forms online   If you capitalize your IDCs, you have another option if the well is nonproductive. State tax forms online You can deduct the IDCs of the nonproductive well as an ordinary loss. State tax forms online You must indicate and clearly state your election on your tax return for the year the well is completed. State tax forms online Once made, the election for oil and gas wells is binding for all later years. State tax forms online You can revoke your election for a geothermal well by filing an amended return that does not claim the loss. State tax forms online Costs incurred outside the United States. State tax forms online   You cannot deduct as a current business expense all the IDCs paid or incurred for an oil, gas, or geothermal well located outside the United States. State tax forms online However, you can elect to include the costs in the adjusted basis of the well to figure depletion or depreciation. State tax forms online If you do not make this election, you can deduct the costs over the 10-year period beginning with the tax year in which you paid or incurred them. State tax forms online These rules do not apply to a nonproductive well. State tax forms online Exploration Costs The costs of determining the existence, location, extent, or quality of any mineral deposit are ordinarily capital expenditures if the costs lead to the development of a mine. State tax forms online You recover these costs through depletion as the mineral is removed from the ground. State tax forms online However, you can elect to deduct domestic exploration costs paid or incurred before the beginning of the development stage of the mine (except those for oil and gas wells). State tax forms online How to make the election. State tax forms online   You elect to deduct exploration costs by taking the deduction on your income tax return, or on an amended income tax return, for the first tax year for which you wish to deduct the costs paid or incurred during the tax year. State tax forms online Your return must adequately describe and identify each property or mine, and clearly state how much is being deducted for each one. State tax forms online The election applies to the tax year you make this election and all later tax years. State tax forms online Partnerships and S corporations. State tax forms online   Each partner, not the partnership, elects whether to capitalize or to deduct that partner's share of exploration costs. State tax forms online Each shareholder, not the S corporation, elects whether to capitalize or to deduct that shareholder's share of exploration costs. State tax forms online Reduced corporate deductions for exploration costs. State tax forms online   A corporation (other than an S corporation) can deduct only 70% of its domestic exploration costs. State tax forms online It must capitalize the remaining 30% of costs and amortize them over the 60-month period starting with the month the exploration costs are paid or incurred. State tax forms online A corporation may also elect to capitalize and amortize mining exploration costs over a 10-year period. State tax forms online For more information on this method of amortization, see Internal Revenue Code section 59(e). State tax forms online   The 30% the corporation capitalizes cannot be added to its basis in the property to figure cost depletion. State tax forms online However, the amount amortized is treated as additional depreciation and is subject to recapture as ordinary income on a disposition of the property. State tax forms online See Section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. State tax forms online   These rules also apply to the deduction of development costs by corporations. State tax forms online See Development Costs , later. State tax forms online Recapture of exploration expenses. State tax forms online   When your mine reaches the producing stage, you must recapture any exploration costs you elected to deduct. State tax forms online Use either of the following methods. State tax forms online Method 1—Include the deducted costs in gross income for the tax year the mine reaches the producing stage. State tax forms online Your election must be clearly indicated on the return. State tax forms online Increase your adjusted basis in the mine by the amount included in income. State tax forms online Generally, you must elect this recapture method by the due date (including extensions) of your return. State tax forms online 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). State tax forms online Make the election on your amended return and write “Filed pursuant to section 301. State tax forms online 9100-2” on the form where you are including the income. State tax forms online File the amended return at the same address you filed the original return. State tax forms online Method 2—Do not claim any depletion deduction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. State tax forms online   You also must recapture deducted exploration costs if you receive a bonus or royalty from mine property before it reaches the producing stage. State tax forms online Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. State tax forms online   Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. State tax forms online Under these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. State tax forms online If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your adjusted exploration costs. State tax forms online Foreign exploration costs. State tax forms online   If you pay or incur exploration costs for a mine or other natural deposit located outside the United States, you cannot deduct all the costs in the current year. State tax forms online You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjusted basis of the mineral property to figure cost depletion. State tax forms online (Cost depletion is discussed in chapter 9 . State tax forms online ) If you do not make this election, you must deduct the costs over the 10-year period beginning with the tax year in which you pay or incur them. State tax forms online These rules also apply to foreign development costs. State tax forms online Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. State tax forms online These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. State tax forms online Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. State tax forms online Development costs do not include the costs for the acquisition or improvement of depreciable property. State tax forms online Instead of deducting development costs in the year paid or incurred, you can elect to treat the cost as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. State tax forms online This election applies each tax year to expenses paid or incurred in that year. State tax forms online Once made, the election is binding for the year and cannot be revoked for any reason. State tax forms online How to make the election. State tax forms online   The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. State tax forms online Generally, you must make the election by the due date of the return (including extensions). State tax forms online 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). State tax forms online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms online 9100-2. State tax forms online ” File the amended return at the same address you filed the original return. State tax forms online Foreign development costs. State tax forms online   The rules discussed earlier for foreign exploration costs apply to foreign development costs. State tax forms online Reduced corporate deductions for development costs. State tax forms online   The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs. State tax forms online Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. State tax forms online For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new subscriptions through telephone calls. State tax forms online Circulation costs are deductible even if they normally would be capitalized. State tax forms online This rule does not apply to the following costs that must be capitalized. State tax forms online The purchase of land or depreciable property. State tax forms online The acquisition of circulation through the purchase of any part of the business of another publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. State tax forms online Other treatment of circulation costs. State tax forms online   If you do not want to deduct circulation costs as a current business expense, you can elect one of the following ways to recover these costs. State tax forms online Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1 ). State tax forms online Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. State tax forms online How to make the election. State tax forms online   You elect to capitalize circulation costs by attaching a statement to your return for the first tax year the election applies. State tax forms online Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. State tax forms online Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. State tax forms online However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. State tax forms online The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. State tax forms online Any remaining costs must be amortized. State tax forms online For information about amortizing start-up and organizational costs, see chapter 8 . State tax forms online Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. State tax forms online Organizational costs include the costs of creating a corporation. State tax forms online For more information on start-up and organizational costs, see chapter 8 . State tax forms online How to make the election. State tax forms online   You elect to deduct the start-up or organizational costs by claiming the deduction on your income tax return (filed by the due date including extensions) for the tax year in which the active trade or business begins. State tax forms online 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). State tax forms online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms online 9100-2. State tax forms online ” File the amended return at the same address you filed the original return. State tax forms online The election applies when computing taxable income for the current tax year and all subsequent years. State tax forms online Reforestation Costs Reforestation costs are generally capital expenditures. State tax forms online However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. State tax forms online The remaining costs can be amortized over an 84-month period. State tax forms online For information about amortizing reforestation costs, see chapter 8 . State tax forms online Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. State tax forms online Qualified timber property is property that contains trees in significant commercial quantities. State tax forms online See chapter 8 for more information on qualifying reforestation costs and qualified timber property. State tax forms online If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. State tax forms online Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed. State tax forms online How to make the election. State tax forms online   You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. State tax forms online If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. State tax forms online If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made. State tax forms online The unique stand identification numbers. State tax forms online The total number of acres reforested during the tax year. State tax forms online The nature of the reforestation treatments. State tax forms online The total amounts of qualified reforestation expenditures eligible to be amortized or deducted. State tax forms online   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). State tax forms online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms online 9100-2. State tax forms online ” File the amended return at the same address you filed the original return. State tax forms online The election applies when computing taxable income for the current tax year and all subsequent years. State tax forms online   For additional information on reforestation costs, see chapter 8 . State tax forms online Recapture. State tax forms online   This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. State tax forms online For more information on recapturing the deduction, see Depreciation Recapture in Publication 544. State tax forms online Retired Asset Removal Costs If you retire and remove a depreciable asset in connection with the installation or production of a replacement asset, you can deduct the costs of removing the retired asset. State tax forms online However, if you replace a component (part) of a depreciable asset, capitalize the removal costs if the replacement is an improvement and deduct the costs if the replacement is a repair. State tax forms online Barrier Removal Costs The cost of an improvement to a business asset is normally a capital expense. State tax forms online However, you can elect to deduct the costs of making a facility or public transportation vehicle more accessible to and usable by those who are disabled or elderly. State tax forms online You must own or lease the facility or vehicle for use in connection with your trade or business. State tax forms online A facility is all or any part of buildings, structures, equipment, roads, walks, parking lots, or similar real or personal property. State tax forms online A public transportation vehicle is a vehicle, such as a bus or railroad car, that provides transportation service to the public (including service for your customers, even if you are not in the business of providing transportation services). State tax forms online You cannot deduct any costs that you paid or incurred to completely renovate or build a facility or public transportation vehicle or to replace depreciable property in the normal course of business. State tax forms online Deduction limit. State tax forms online   The most you can deduct as a cost of removing barriers to the disabled and the elderly for any tax year is $15,000. State tax forms online However, you can add any costs over this limit to the basis of the property and depreciate these excess costs. State tax forms online Partners and partnerships. State tax forms online   The $15,000 limit applies to a partnership and also to each partner in the partnership. State tax forms online A partner can allocate the $15,000 limit in any manner among the partner's individually incurred costs and the partner's distributive share of partnership costs. State tax forms online If the partner cannot deduct the entire share of partnership costs, the partnership can add any costs not deducted to the basis of the improved property. State tax forms online   A partnership must be able to show that any amount added to basis was not deducted by the partner and that it was over a partner's $15,000 limit (as determined by the partner). State tax forms online If the partnership cannot show this, it is presumed that the partner was able to deduct the distributive share of the partnership's costs in full. State tax forms online Example. State tax forms online Emilio Azul's distributive share of ABC partnership's deductible expenses for the removal of architectural barriers was $14,000. State tax forms online Emilio had $12,000 of similar expenses in his sole proprietorship. State tax forms online He elected to deduct $7,000 of them. State tax forms online Emilio allocated the remaining $8,000 of the $15,000 limit to his share of ABC's expenses. State tax forms online Emilio can add the excess $5,000 of his own expenses to the basis of the property used in his business. State tax forms online Also, if ABC can show that Emilio could not deduct $6,000 ($14,000 – $8,000) of his share of the partnership's expenses because of how Emilio applied the limit, ABC can add $6,000 to the basis of its property. State tax forms online Qualification standards. State tax forms online   You can deduct your costs as a current expense only if the barrier removal meets the guidelines and requirements issued by the Architectural and Transportation Barriers Compliance Board under the Americans with Disabilities Act (ADA) of 1990. State tax forms online You can view the Americans with Disabilities Act at www. State tax forms online ada. State tax forms online gov/pubs/ada. State tax forms online htm. State tax forms online   The following is a list of some architectural barrier removal costs that can be deducted. State tax forms online Ground and floor surfaces. State tax forms online Walks. State tax forms online Parking lots. State tax forms online Ramps. State tax forms online Entrances. State tax forms online Doors and doorways. State tax forms online Stairs. State tax forms online Floors. State tax forms online Toilet rooms. State tax forms online Water fountains. State tax forms online Public telephones. State tax forms online Elevators. State tax forms online Controls. State tax forms online Signage. State tax forms online Alarms. State tax forms online Protruding objects. State tax forms online Symbols of accessibility. State tax forms online You can find the ADA guidelines and requirements for architectural barrier removal at www. State tax forms online usdoj. State tax forms online gov/crt/ada/reg3a. State tax forms online html. State tax forms online   The costs for removal of transportation barriers from rail facilities, buses, and rapid and light rail vehicles are deductible. State tax forms online You can find the guidelines and requirements for transportation barrier removal at www. State tax forms online fta. State tax forms online dot. State tax forms online gov. State tax forms online   Also, you can access the ADA website at www. State tax forms online ada. State tax forms online gov for additional information. State tax forms online Other barrier removals. State tax forms online   To be deductible, expenses of removing any barrier not covered by the above standards must meet all three of the following tests. State tax forms online The removed barrier must be a substantial barrier to access or use of a facility or public transportation vehicle by persons who have a disability or are elderly. State tax forms online The removed barrier must have been a barrier for at least one major group of persons who have a disability or are elderly (such as people who are blind, deaf, or wheelchair users). State tax forms online The barrier must be removed without creating any new barrier that significantly impairs access to or use of the facility or vehicle by a major group of persons who have a disability or are elderly. State tax forms online How to make the election. State tax forms online   If you elect to deduct your costs for removing barriers to the disabled or the elderly, claim the deduction on your income tax return (partnership return for partnerships) for the tax year the expenses were paid or incurred. State tax forms online Identify the deduction as a separate item. State tax forms online The election applies to all the qualifying costs you have during the year, up to the $15,000 limit. State tax forms online If you make this election, you must maintain adequate records to support your deduction. State tax forms online   For your election to be valid, you generally must file your return by its due date, including extensions. State tax forms online 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). State tax forms online Clearly indicate the election on your amended return and write “Filed pursuant to section 301. State tax forms online 9100-2. State tax forms online ” File the amended return at the same address you filed the original return. State tax forms online Your election is irrevocable after the due date, including extensions, of your return. State tax forms online Disabled access credit. State tax forms online   If you make your business accessible to persons with disabilities and your business is an eligible small business, you may be able to claim the disabled access credit. State tax forms online If you choose to claim the credit, you must reduce the amount you deduct or capitalize by the amount of the credit. State tax forms online   For more information, see Form 8826, Disabled Access Credit. State tax forms online Film and Television Production Costs Film and television production costs are generally capital expenses. State tax forms online However, you can elect to deduct costs paid or incurred for certain productions commencing before January 1, 2014. State tax forms online For more information, see section 181 of the Internal Revenue Code and the related Treasury Regulations. State tax forms online Prev  Up  Next   Home   More Online Publications