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Www handrblock com Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. Www handrblock com Proc. Www handrblock com 2009-37 Table of Contents SECTION 1. Www handrblock com PURPOSE SECTION 2. Www handrblock com BACKGROUND SECTION 3. Www handrblock com SCOPE SECTION 4. Www handrblock com ELECTION PROCEDURES SECTION 5. Www handrblock com REQUIRED INFORMATION STATEMENT SECTION 6. Www handrblock com EFFECTIVE DATE SECTION 7. Www handrblock com TRANSITION RULE SECTION 8. Www handrblock com PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. Www handrblock com PURPOSE . Www handrblock com 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. Www handrblock com . Www handrblock com 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. Www handrblock com This revenue procedure describes the time and manner of providing this additional information. Www handrblock com . Www handrblock com 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. Www handrblock com Taxpayers should be aware that these regulations may be retroactive. Www handrblock com See § 7805(b)(2). Www handrblock com This revenue procedure may be modified to provide procedures consistent with additional guidance. Www handrblock com SECTION 2. Www handrblock com BACKGROUND . Www handrblock com 01 Section 108(i), Generally. Www handrblock com Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. Www handrblock com L. Www handrblock com No. Www handrblock com 111-5, 123 Stat. Www handrblock com 338. Www handrblock com In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. Www handrblock com Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). Www handrblock com The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. Www handrblock com 1273-1(d) of the Income Tax Regulations. Www handrblock com The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. Www handrblock com For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). Www handrblock com A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). Www handrblock com See § 108(i)(5)(D). Www handrblock com The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. Www handrblock com Section 108(i)(5)(D)(ii). Www handrblock com For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. Www handrblock com . Www handrblock com 02 Applicable Debt Instrument. Www handrblock com Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. Www handrblock com The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). Www handrblock com Section 108(i)(3)(B). Www handrblock com For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. Www handrblock com 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. Www handrblock com 1502-13(g)(5). Www handrblock com . Www handrblock com 03 Reacquisition. Www handrblock com Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). Www handrblock com The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. Www handrblock com See § 108(i)(4)(B). Www handrblock com The term “acquisition” also includes an indirect acquisition within the meaning of § 1. Www handrblock com 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). Www handrblock com For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. Www handrblock com . Www handrblock com 04 General Requirements for the Section 108(i) Election. Www handrblock com Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. Www handrblock com (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. Www handrblock com ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. Www handrblock com Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. Www handrblock com . Www handrblock com 05 Section 108(i) Elections Made by Pass-through Entities. Www handrblock com In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. Www handrblock com Section 108(i)(5)(B)(iii). Www handrblock com . Www handrblock com 06 Additional Information on Subsequent Years’ Returns. Www handrblock com Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. Www handrblock com . Www handrblock com 07 Exclusivity. Www handrblock com Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). Www handrblock com . Www handrblock com 08 Allocation of Deferred COD Income on Partnership Indebtedness. Www handrblock com Section 4. Www handrblock com 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. Www handrblock com If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Www handrblock com 704-1(b)(2)(iii). Www handrblock com Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). Www handrblock com The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). Www handrblock com The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). Www handrblock com . Www handrblock com 09 Partner’s Deferred § 752 Amount. Www handrblock com A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). Www handrblock com A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). Www handrblock com To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. Www handrblock com 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). Www handrblock com See Rev. Www handrblock com Rul. Www handrblock com 92-97, 1992-2 C. Www handrblock com B. Www handrblock com 124, and Rev. Www handrblock com Rul. Www handrblock com 94-4, 1994-1 C. Www handrblock com B. Www handrblock com 195. Www handrblock com A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). Www handrblock com . Www handrblock com 10 Allocation of Deferred COD Income on S Corporation Indebtedness. Www handrblock com For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. Www handrblock com . Www handrblock com 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. Www handrblock com (1) In general. Www handrblock com The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). Www handrblock com These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. Www handrblock com OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). Www handrblock com COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. Www handrblock com See § 1. Www handrblock com 56(g)-1(c)(1). Www handrblock com (2) Exceptions for certain special status corporations. Www handrblock com The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. Www handrblock com OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. Www handrblock com . Www handrblock com 12 Extension of Time to Make Election. Www handrblock com Under § 301. Www handrblock com 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. Www handrblock com An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. Www handrblock com Section 301. Www handrblock com 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. Www handrblock com SECTION 3. Www handrblock com SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). Www handrblock com SECTION 4. Www handrblock com ELECTION PROCEDURES . Www handrblock com 01 In General. Www handrblock com (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. Www handrblock com 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. Www handrblock com 07, 4. Www handrblock com 08, 4. Www handrblock com 09, or 4. Www handrblock com 10 of this revenue procedure. Www handrblock com (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. Www handrblock com 01(1)(a) of this revenue procedure for making the § 108(i) election. Www handrblock com The rules that apply to an automatic extension under § 301. Www handrblock com 9100-2(a) apply to this automatic extension. Www handrblock com . Www handrblock com 02 Section 108(i) Elections Made by Members of Consolidated Groups. Www handrblock com The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. Www handrblock com See § 1. Www handrblock com 1502-77(a). Www handrblock com . Www handrblock com 03 Aggregation Rule. Www handrblock com A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. Www handrblock com A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. Www handrblock com 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. Www handrblock com . Www handrblock com 04 Partial Elections. Www handrblock com (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. Www handrblock com Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. Www handrblock com The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. Www handrblock com (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). Www handrblock com Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. Www handrblock com (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Www handrblock com Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). Www handrblock com A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. Www handrblock com The provisions of this section 4. Www handrblock com 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. Www handrblock com . Www handrblock com 05 Contents of Election Statement. Www handrblock com A statement meets the requirements of this section 4. Www handrblock com 05 if the statement— (1) Label. Www handrblock com States “Section 108(i) Election” across the top. Www handrblock com (2) Required information. Www handrblock com Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. Www handrblock com 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. Www handrblock com . Www handrblock com 06 Supplemental information. Www handrblock com The statement described in section 4. Www handrblock com 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. Www handrblock com 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. Www handrblock com 05(2)(d) of this revenue procedure. Www handrblock com This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. Www handrblock com If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. Www handrblock com If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. Www handrblock com In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. Www handrblock com 08, 2. Www handrblock com 10 and, if applicable, 4. Www handrblock com 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. Www handrblock com . Www handrblock com 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. Www handrblock com The rules of this section 4. Www handrblock com 07 apply to partnerships other than partnerships described in section 4. Www handrblock com 10 of this revenue procedure. Www handrblock com (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). Www handrblock com For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. Www handrblock com , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Www handrblock com Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). Www handrblock com (2) Election information statement provided to partners. Www handrblock com The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. Www handrblock com 07(2). Www handrblock com The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Www handrblock com A statement meets the requirements of this section 4. Www handrblock com 07(2) if the statement— (a) Label. Www handrblock com States “Section 108(i) Election Information Statement for Partners” across the top. Www handrblock com (b) Required information. Www handrblock com Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. Www handrblock com 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. Www handrblock com 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. Www handrblock com 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. Www handrblock com (c) If a partner fails to provide the written statement required by section 4. Www handrblock com 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. Www handrblock com 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. Www handrblock com (3) Partner reporting requirements. Www handrblock com The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. Www handrblock com 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. Www handrblock com Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. Www handrblock com A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. Www handrblock com If a partner provides its written statement under this section 4. Www handrblock com 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. Www handrblock com 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. Www handrblock com . Www handrblock com 08 Additional Requirements for an S Corporation Making a § 108(i) Election. Www handrblock com (1) Information filing on Schedule K-1 (Form 1120S). Www handrblock com For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. Www handrblock com , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Www handrblock com S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. Www handrblock com (2) Election information statement provided to shareholders. Www handrblock com The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. Www handrblock com 08(2). Www handrblock com The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Www handrblock com A statement meets the requirements of this section 4. Www handrblock com 08(2) if the statement— (a) Label. Www handrblock com States “Section 108(i) Election Information Statement for Shareholders” across the top. Www handrblock com (b) Required information. Www handrblock com Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. Www handrblock com 06 of this revenue procedure. Www handrblock com . Www handrblock com 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. Www handrblock com The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. Www handrblock com 964-1(c)(3). Www handrblock com Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. Www handrblock com 05 of this revenue procedure and, if applicable, section 4. Www handrblock com 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. Www handrblock com . Www handrblock com 10 Section 108(i) Elections Made By Certain Foreign Partnerships. Www handrblock com The rules of this section 4. Www handrblock com 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). Www handrblock com See § 1. Www handrblock com 6031(a)-1(b). Www handrblock com (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. Www handrblock com 05 of this revenue procedure and, if applicable, section 4. Www handrblock com 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. Www handrblock com 6031(a)-1(b)(5) it files with the Service. Www handrblock com In addition, a nonfiling foreign partnership must include in the information required in section 4. Www handrblock com 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. Www handrblock com S. Www handrblock com persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). Www handrblock com (2) The nonfiling foreign partnership must make the election, in accordance with § 1. Www handrblock com 6031(a)-1(b)(5), by the date provided in section 4. Www handrblock com 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. Www handrblock com (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. Www handrblock com 07(1) of this revenue procedure. Www handrblock com Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Www handrblock com The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. Www handrblock com 07(2) of this revenue procedure by the date provided in section 4. Www handrblock com 01(1)(a) of this revenue procedure. Www handrblock com The partnership should not attach any statement described in section 4. Www handrblock com 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. Www handrblock com However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. Www handrblock com (4) The partnership and each affected partner must satisfy the requirements of section 4. Www handrblock com 07(3) of this revenue procedure. Www handrblock com . Www handrblock com 11 Protective § 108(i) Election. Www handrblock com (1) In general. Www handrblock com A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. Www handrblock com If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). Www handrblock com Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. Www handrblock com A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. Www handrblock com 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. Www handrblock com 01(1)(a) of this revenue procedure. Www handrblock com The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. Www handrblock com A statement meets the requirements of this section 4. Www handrblock com 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. Www handrblock com 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. Www handrblock com 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. Www handrblock com 06 of this revenue procedure. Www handrblock com (2) Statements provided to shareholders and partners. Www handrblock com (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. Www handrblock com 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. Www handrblock com 11(1)(d) of this revenue procedure. Www handrblock com (b) The partnership or S corporation should not attach the statements described in this section 4. Www handrblock com 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Www handrblock com . Www handrblock com 12 Election-Year Reporting by Tiered Pass-Through Entities. Www handrblock com (1) A partnership required to file a U. Www handrblock com S. Www handrblock com partnership return other than under § 1. Www handrblock com 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. Www handrblock com 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Www handrblock com 07(1)(a) through (d) of this revenue procedure). Www handrblock com (2) If a partnership described in section 4. Www handrblock com 12(1) of this revenue procedure receives a statement described in sections 4. Www handrblock com 07(2) or 4. Www handrblock com 10(3) of this revenue procedure or this section 4. Www handrblock com 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. Www handrblock com 07(2)(b)(x) of this revenue procedure. Www handrblock com If an S corporation receives a statement described in sections 4. Www handrblock com 07(2) or 4. Www handrblock com 10(3) of this revenue procedure or this section 4. Www handrblock com 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. Www handrblock com 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. Www handrblock com The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Www handrblock com The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Www handrblock com (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Www handrblock com 704-1(b)(2)(iii). Www handrblock com The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Www handrblock com No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. Www handrblock com The partnership allocates amounts described in section 4. Www handrblock com 06 of this revenue procedure under this section 4. Www handrblock com 12(3) as if the additional COD income was realized. Www handrblock com (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. Www handrblock com No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. Www handrblock com (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. Www handrblock com (6) This paragraph 4. Www handrblock com 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. Www handrblock com S. Www handrblock com Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. Www handrblock com 07(1) of this revenue procedure, or a statement described in sections 4. Www handrblock com 07(2) or 4. Www handrblock com 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Www handrblock com (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Www handrblock com 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. Www handrblock com 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Www handrblock com (b) A Category 2 filer must include its share of the information described in section 4. Www handrblock com 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Www handrblock com Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Www handrblock com (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. Www handrblock com 12(6)(a)(ii) and 4. Www handrblock com 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Www handrblock com However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Www handrblock com (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. Www handrblock com 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. Www handrblock com 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. Www handrblock com 12(1) and (2) of this revenue procedure. Www handrblock com Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Www handrblock com 12(6) of this revenue procedure. Www handrblock com (8) The provisions of section 4. Www handrblock com 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. Www handrblock com 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. Www handrblock com 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. Www handrblock com 11(1)(d) of this revenue procedure. Www handrblock com SECTION 5. Www handrblock com REQUIRED INFORMATION STATEMENT . Www handrblock com 01 Annual Information Statements. Www handrblock com Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. Www handrblock com 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. Www handrblock com 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. Www handrblock com . Www handrblock com 02 Contents of Statement. Www handrblock com A statement meets the requirements of this section 5. Www handrblock com 02 if the statement— (1) Label. Www handrblock com States “Section 108(i) Information Statement” across the top; (2) Required information. Www handrblock com Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Www handrblock com (3) Election attached. Www handrblock com Includes a copy of the election statement described in section 4. Www handrblock com 05 of this revenue procedure. Www handrblock com . Www handrblock com 03 Additional Annual Reporting Requirements for Certain Partnerships. Www handrblock com The rules of this section 5. Www handrblock com 03 apply to partnerships other than partnerships described in section 5. Www handrblock com 05 of this revenue procedure. Www handrblock com (1) In general. Www handrblock com A partnership that makes an election under § 108(i) (except for a protective election under section 4. Www handrblock com 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Www handrblock com 01 of this revenue procedure. Www handrblock com In addition, for each taxable year in which a statement is required under section 5. Www handrblock com 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. Www handrblock com 07(1) of this revenue procedure. Www handrblock com (2) Annual information statements provided to partners. Www handrblock com The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. Www handrblock com 01 of this revenue procedure, a statement meeting the requirements of this section 5. Www handrblock com 03(2). Www handrblock com The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Www handrblock com A statement meets the requirements of this section 5. Www handrblock com 03(2) if the statement— (a) Label. Www handrblock com States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. Www handrblock com (b) Required information. Www handrblock com Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. Www handrblock com If a partner fails to provide the written statement required by section 4. Www handrblock com 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. Www handrblock com 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. Www handrblock com . Www handrblock com 04 Additional Annual Reporting Requirements for an S Corporation. Www handrblock com (1) In general. Www handrblock com An S corporation that makes an election under § 108(i) (except for a protective election under section 4. Www handrblock com 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Www handrblock com 01 of this revenue procedure. Www handrblock com In addition, for each taxable year in which a statement is required under section 5. Www handrblock com 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. Www handrblock com 08(1) of this revenue procedure. Www handrblock com (2) Annual information statements provided to shareholders. Www handrblock com The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. Www handrblock com 01 of this revenue procedure a statement meeting the requirements of this section 5. Www handrblock com 04(2). Www handrblock com The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Www handrblock com A statement meets the requirements of this section 5. Www handrblock com 04(2) if the statement— (a) Label. Www handrblock com States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. Www handrblock com Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Www handrblock com . Www handrblock com 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. Www handrblock com (1) The rules of this section 5. Www handrblock com 05 apply to nonfiling foreign partnerships. Www handrblock com (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. Www handrblock com 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. Www handrblock com 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. Www handrblock com 01 of this revenue procedure. Www handrblock com (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. Www handrblock com 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. Www handrblock com (4) For each taxable year in which a statement is required under section 5. Www handrblock com 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. Www handrblock com 07(1) of this revenue procedure. Www handrblock com Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Www handrblock com The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. Www handrblock com 6031(b)-1T(b). Www handrblock com The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. Www handrblock com 05(2) of this revenue procedure. Www handrblock com (5) For each taxable year for which a statement is required under section 5. Www handrblock com 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. Www handrblock com 03(2) of this revenue procedure. Www handrblock com The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. Www handrblock com . Www handrblock com 06 Information Statements Made on Behalf of Certain Foreign Corporations. Www handrblock com Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. Www handrblock com 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. Www handrblock com 01 of this revenue procedure. Www handrblock com . Www handrblock com 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. Www handrblock com (1) A partnership required to file a U. Www handrblock com S. Www handrblock com partnership return other than under § 1. Www handrblock com 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. Www handrblock com 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Www handrblock com 07(1)(a) through (d) of this revenue procedure). Www handrblock com (2) If a partnership described in section 5. Www handrblock com 07(1) of this revenue procedure receives a statement described in sections 5. Www handrblock com 03(2) or 5. Www handrblock com 05(5) of this revenue procedure or this section 5. Www handrblock com 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. Www handrblock com If an S corporation receives a statement described in sections 5. Www handrblock com 03(2) or 5. Www handrblock com 05(5) of this revenue procedure or this section 5. Www handrblock com 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. Www handrblock com 03(2)(b)(i) through (viii) of this revenue procedure. Www handrblock com The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Www handrblock com The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Www handrblock com (3) This paragraph 5. Www handrblock com 07(3) provides the rules for persons described in section 4. Www handrblock com 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. Www handrblock com 03(1) of this revenue procedure, or a statement described in sections 5. Www handrblock com 03(2) or 5. Www handrblock com 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Www handrblock com (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Www handrblock com 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. Www handrblock com 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Www handrblock com (b) A Category 2 filer must include its share of the information described in section 4. Www handrblock com 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Www handrblock com Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Www handrblock com (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. Www handrblock com 07(3)(a)(ii) and 5. Www handrblock com 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Www handrblock com However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Www handrblock com (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. Www handrblock com 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. Www handrblock com 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. Www handrblock com 07(1) and (2) of this revenue procedure. Www handrblock com Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Www handrblock com 12(6) of this revenue procedure. Www handrblock com SECTION 6. Www handrblock com EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. Www handrblock com SECTION 7. Www handrblock com TRANSITION RULE . Www handrblock com 01 Noncomplying Election. Www handrblock com Except as otherwise provided in this section 7. Www handrblock com 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. Www handrblock com However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. Www handrblock com . Www handrblock com 02 Modification of Election. Www handrblock com A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). Www handrblock com To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. Www handrblock com . Www handrblock com 03 Notations. Www handrblock com A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. Www handrblock com A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. Www handrblock com See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. Www handrblock com SECTION 8. Www handrblock com PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. Www handrblock com S. Www handrblock com C. Www handrblock com 3507) under control number 1545-2147. Www handrblock com An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Www handrblock com The collection of information in this revenue procedure is in sections 4, 5 and 7. Www handrblock com This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. Www handrblock com This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. Www handrblock com The collection of information is required to obtain a benefit. Www handrblock com The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. Www handrblock com The estimated total annual reporting burden is 300,000 hours. Www handrblock com The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. Www handrblock com The estimated number of respondents is 50,000. Www handrblock com Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Www handrblock com Generally, tax returns and return information are confidential, as required by § 6103. Www handrblock com DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. Www handrblock com Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). Www handrblock com For further information regarding this revenue procedure, contact Megan A. Www handrblock com Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. Www handrblock com Blanchard at (202) 622-3950 for questions involving OID, Ronald M. Www handrblock com Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). Www handrblock com Prev  Up  Next   Home   More Internal Revenue Bulletins
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Www handrblock com 14. Www handrblock com   Sale of Property Table of Contents Reminder Introduction Useful Items - You may want to see: Sales and TradesWhat Is a Sale or Trade? How To Figure Gain or Loss Nontaxable Trades Transfers Between Spouses Related Party Transactions Capital Gains and LossesCapital or Ordinary Gain or Loss Capital Assets and Noncapital Assets Holding Period Nonbusiness Bad Debts Wash Sales Rollover of Gain From Publicly Traded Securities Reminder Foreign income. Www handrblock com  If you are a U. Www handrblock com S. Www handrblock com citizen who sells property located outside the United States, you must report all gains and losses from the sale of that property on your tax return unless it is exempt by U. Www handrblock com S. Www handrblock com law. Www handrblock com This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer. Www handrblock com Introduction This chapter discusses the tax consequences of selling or trading investment property. Www handrblock com It explains the following. Www handrblock com What a sale or trade is. Www handrblock com Figuring gain or loss. Www handrblock com Nontaxable trades. Www handrblock com Related party transactions. Www handrblock com Capital gains or losses. Www handrblock com Capital assets and noncapital assets. Www handrblock com Holding period. Www handrblock com Rollover of gain from publicly traded securities. Www handrblock com Other property transactions. Www handrblock com   Certain transfers of property are not discussed here. Www handrblock com They are discussed in other IRS publications. Www handrblock com These include the following. Www handrblock com Sales of a main home, covered in chapter 15. Www handrblock com Installment sales, covered in Publication 537, Installment Sales. Www handrblock com Transactions involving business property, covered in Publication 544, Sales and Other Dispositions of Assets. Www handrblock com Dispositions of an interest in a passive activity, covered in Publication 925, Passive Activity and At-Risk Rules. Www handrblock com    Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), provides a more detailed discussion about sales and trades of investment property. Www handrblock com Publication 550 includes information about the rules covering nonbusiness bad debts, straddles, section 1256 contracts, puts and calls, commodity futures, short sales, and wash sales. Www handrblock com It also discusses investment-related expenses. Www handrblock com Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 8949 Sales and Other Dispositions of Capital Assets 8824 Like-Kind Exchanges Sales and Trades If you sold property such as stocks, bonds, or certain commodities through a broker during the year, you should receive, for each sale, a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or substitute statement, from the broker. Www handrblock com Generally, you should receive the statement by February 15 of the next year. Www handrblock com It will show the gross proceeds from the sale. Www handrblock com If you sold a covered security in 2013, your 1099-B (or substitute statement) will show your basis. Www handrblock com Generally, a covered security is a security you acquired after 2010, with certain exceptions. Www handrblock com See the Instructions for Form 8949. Www handrblock com The IRS will also get a copy of Form 1099-B from the broker. Www handrblock com Use Form 1099-B (or substitute statement received from your broker) to complete Form 8949. Www handrblock com What Is a Sale or Trade? This section explains what is a sale or trade. Www handrblock com It also explains certain transactions and events that are treated as sales or trades. Www handrblock com A sale is generally a transfer of property for money or a mortgage, note, or other promise to pay money. Www handrblock com A trade is a transfer of property for other property or services and may be taxed in the same way as a sale. Www handrblock com Sale and purchase. Www handrblock com   Ordinarily, a transaction is not a trade when you voluntarily sell property for cash and immediately buy similar property to replace it. Www handrblock com The sale and purchase are two separate transactions. Www handrblock com But see Like-kind exchanges under Nontaxable Trades, later. Www handrblock com Redemption of stock. Www handrblock com   A redemption of stock is treated as a sale or trade and is subject to the capital gain or loss provisions unless the redemption is a dividend or other distribution on stock. Www handrblock com Dividend versus sale or trade. Www handrblock com   Whether a redemption is treated as a sale, trade, dividend, or other distribution depends on the circumstances in each case. Www handrblock com Both direct and indirect ownership of stock will be considered. Www handrblock com The redemption is treated as a sale or trade of stock if: The redemption is not essentially equivalent to a dividend (see chapter 8), There is a substantially disproportionate redemption of stock, There is a complete redemption of all the stock of the corporation owned by the shareholder, or The redemption is a distribution in partial liquidation of a corporation. Www handrblock com Redemption or retirement of bonds. Www handrblock com   A redemption or retirement of bonds or notes at their maturity is generally treated as a sale or trade. Www handrblock com   In addition, a significant modification of a bond is treated as a trade of the original bond for a new bond. Www handrblock com For details, see Regulations section 1. Www handrblock com 1001-3. Www handrblock com Surrender of stock. Www handrblock com   A surrender of stock by a dominant shareholder who retains ownership of more than half of the corporation's voting shares is treated as a contribution to capital rather than as an immediate loss deductible from taxable income. Www handrblock com The surrendering shareholder must reallocate his or her basis in the surrendered shares to the shares he or she retains. Www handrblock com Worthless securities. Www handrblock com    Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became completely worthless during the tax year are treated as though they were sold on the last day of the tax year. Www handrblock com This affects whether your capital loss is long term or short term. Www handrblock com See Holding Period , later. Www handrblock com   Worthless securities also include securities that you abandon after March 12, 2008. Www handrblock com To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it. Www handrblock com All the facts and circumstances determine whether the transaction is properly characterized as an abandonment or other type of transaction, such as an actual sale or exchange, contribution to capital, dividend, or gift. Www handrblock com    If you are a cash basis taxpayer and make payments on a negotiable promissory note that you issued for stock that became worthless, you can deduct these payments as losses in the years you actually make the payments. Www handrblock com Do not deduct them in the year the stock became worthless. Www handrblock com How to report loss. Www handrblock com    Report worthless securities in Part I or Part II, whichever applies, of Form 8949. Www handrblock com In column (a), enter “Worthless. Www handrblock com ”    Report your worthless securities transactions on Form 8949 with the correct box checked for these transactions. Www handrblock com See Form 8949 and the Instructions for Form 8949. Www handrblock com For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Www handrblock com See also Schedule D (Form 1040), Form 8949, and their separate instructions. Www handrblock com Filing a claim for refund. Www handrblock com   If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. Www handrblock com You must use Form 1040X, Amended U. Www handrblock com S. Www handrblock com Individual Income Tax Return, to amend your return for the year the security became worthless. Www handrblock com You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Www handrblock com For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Www handrblock com How To Figure Gain or Loss You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Www handrblock com Gain. Www handrblock com   If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Www handrblock com Loss. Www handrblock com   If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. Www handrblock com Adjusted basis. Www handrblock com   The adjusted basis of property is your original cost or other original basis properly adjusted (increased or decreased) for certain items. Www handrblock com See chapter 13 for more information about determining the adjusted basis of property. Www handrblock com Amount realized. Www handrblock com   The amount you realize from a sale or trade of property is everything you receive for the property minus your expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees). Www handrblock com Amount realized includes the money you receive plus the fair market value of any property or services you receive. Www handrblock com If you received a note or other debt instrument for the property, see How To Figure Gain or Loss in chapter 4 of Publication 550 to figure the amount realized. Www handrblock com If you finance the buyer's purchase of your property and the debt instrument does not provide for adequate stated interest, the unstated interest that you must report as ordinary income will reduce the amount realized from the sale. Www handrblock com For more information, see Publication 537. Www handrblock com Fair market value. Www handrblock com   Fair market value is the price at which the property would change hands between a buyer and a seller, neither being forced to buy or sell and both having reasonable knowledge of all the relevant facts. Www handrblock com Example. Www handrblock com You trade A Company stock with an adjusted basis of $7,000 for B Company stock with a fair market value of $10,000, which is your amount realized. Www handrblock com Your gain is $3,000 ($10,000 − $7,000). Www handrblock com Debt paid off. Www handrblock com    A debt against the property, or against you, that is paid off as a part of the transaction, or that is assumed by the buyer, must be included in the amount realized. Www handrblock com This is true even if neither you nor the buyer is personally liable for the debt. Www handrblock com For example, if you sell or trade property that is subject to a nonrecourse loan, the amount you realize generally includes the full amount of the note assumed by the buyer even if the amount of the note is more than the fair market value of the property. Www handrblock com Example. Www handrblock com You sell stock that you had pledged as security for a bank loan of $8,000. Www handrblock com Your basis in the stock is $6,000. Www handrblock com The buyer pays off your bank loan and pays you $20,000 in cash. Www handrblock com The amount realized is $28,000 ($20,000 + $8,000). Www handrblock com Your gain is $22,000 ($28,000 − $6,000). Www handrblock com Payment of cash. Www handrblock com   If you trade property and cash for other property, the amount you realize is the fair market value of the property you receive. Www handrblock com Determine your gain or loss by subtracting the cash you pay plus the adjusted basis of the property you trade in from the amount you realize. Www handrblock com If the result is a positive number, it is a gain. Www handrblock com If the result is a negative number, it is a loss. Www handrblock com No gain or loss. Www handrblock com   You may have to use a basis for figuring gain that is different from the basis used for figuring loss. Www handrblock com In this case, you may have neither a gain nor a loss. Www handrblock com See Basis Other Than Cost in chapter 13. Www handrblock com Nontaxable Trades This section discusses trades that generally do not result in a taxable gain or deductible loss. Www handrblock com For more information on nontaxable trades, see chapter 1 of Publication 544. Www handrblock com Like-kind exchanges. Www handrblock com   If you trade business or investment property for other business or investment property of a like kind, you do not pay tax on any gain or deduct any loss until you sell or dispose of the property you receive. Www handrblock com To be nontaxable, a trade must meet all six of the following conditions. Www handrblock com The property must be business or investment property. Www handrblock com You must hold both the property you trade and the property you receive for productive use in your trade or business or for investment. Www handrblock com Neither property may be property used for personal purposes, such as your home or family car. Www handrblock com The property must not be held primarily for sale. Www handrblock com The property you trade and the property you receive must not be property you sell to customers, such as merchandise. Www handrblock com The property must not be stocks, bonds, notes, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest, including partnership interests. Www handrblock com However, see Special rules for mutual ditch, reservoir, or irrigation company stock, in chapter 4 of Publication 550 for an exception. Www handrblock com Also, you can have a nontaxable trade of corporate stocks under a different rule, as discussed later. Www handrblock com There must be a trade of like property. Www handrblock com The trade of real estate for real estate, or personal property for similar personal property, is a trade of like property. Www handrblock com The trade of an apartment house for a store building, or a panel truck for a pickup truck, is a trade of like property. Www handrblock com The trade of a piece of machinery for a store building is not a trade of like property. Www handrblock com Real property located in the United States and real property located outside the United States are not like property. Www handrblock com Also, personal property used predominantly within the United States and personal property used predominantly outside the United States are not like property. Www handrblock com The property to be received must be identified in writing within 45 days after the date you transfer the property given up in the trade. Www handrblock com The property to be received must be received by the earlier of: The 180th day after the date on which you transfer the property given up in the trade, or The due date, including extensions, for your tax return for the year in which the transfer of the property given up occurs. Www handrblock com    If you trade property with a related party in a like-kind exchange, a special rule may apply. Www handrblock com See Related Party Transactions , later in this chapter. Www handrblock com Also, see chapter 1 of Publication 544 for more information on exchanges of business property and special rules for exchanges using qualified intermediaries or involving multiple properties. Www handrblock com Partly nontaxable exchange. Www handrblock com   If you receive money or unlike property in addition to like property, and the above six conditions are met, you have a partly nontaxable trade. Www handrblock com You are taxed on any gain you realize, but only up to the amount of the money and the fair market value of the unlike property you receive. Www handrblock com You cannot deduct a loss. Www handrblock com Like property and unlike property transferred. Www handrblock com   If you give up unlike property in addition to the like property, you must recognize gain or loss on the unlike property you give up. Www handrblock com The gain or loss is the difference between the adjusted basis of the unlike property and its fair market value. Www handrblock com Like property and money transferred. Www handrblock com   If all of the above conditions (1) – (6) are met, you have a nontaxable trade even if you pay money in addition to the like property. Www handrblock com Basis of property received. Www handrblock com   To figure the basis of the property received, see Nontaxable Exchanges in chapter 13. Www handrblock com How to report. Www handrblock com   You must report the trade of like property on Form 8824. Www handrblock com If you figure a recognized gain or loss on Form 8824, report it on Schedule D (Form 1040), or on Form 4797, Sales of Business Property, whichever applies. Www handrblock com See the instructions for Line 22 in the Instructions for Form 8824. Www handrblock com   For information on using Form 4797, see chapter 4 of Publication 544. Www handrblock com Corporate stocks. Www handrblock com   The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss. Www handrblock com Corporate reorganizations. Www handrblock com   In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. Www handrblock com If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss. Www handrblock com Stock for stock of the same corporation. Www handrblock com   You can exchange common stock for common stock or preferred stock for preferred stock in the same corporation without having a recognized gain or loss. Www handrblock com This is true for a trade between two stockholders as well as a trade between a stockholder and the corporation. Www handrblock com Convertible stocks and bonds. Www handrblock com   You generally will not have a recognized gain or loss if you convert bonds into stock or preferred stock into common stock of the same corporation according to a conversion privilege in the terms of the bond or the preferred stock certificate. Www handrblock com Property for stock of a controlled corporation. Www handrblock com   If you transfer property to a corporation solely in exchange for stock in that corporation, and immediately after the trade you are in control of the corporation, you ordinarily will not recognize a gain or loss. Www handrblock com This rule applies both to individuals and to groups who transfer property to a corporation. Www handrblock com It does not apply if the corporation is an investment company. Www handrblock com   For this purpose, to be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock of the corporation. Www handrblock com   If this provision applies to you, you may have to attach to your return a complete statement of all facts pertinent to the exchange. Www handrblock com For details, see Regulations section 1. Www handrblock com 351-3. Www handrblock com Additional information. Www handrblock com   For more information on trades of stock, see Nontaxable Trades in chapter 4 of Publication 550. Www handrblock com Insurance policies and annuities. Www handrblock com   You will not have a recognized gain or loss if the insured or annuitant is the same under both contracts and you trade: A life insurance contract for another life insurance contract or for an endowment or annuity contract or for a qualified long-term care insurance contract, An endowment contract for another endowment contract that provides for regular payments beginning at a date no later than the beginning date under the old contract or for an annuity contract or for a qualified long-term insurance contract, An annuity contract for annuity contract or for a qualified long-term care insurance contract, or A qualified long-term care insurance contract for a qualified long-term care insurance contract. Www handrblock com   You also may not have to recognize gain or loss on an exchange of a portion of an annuity contract for another annuity contract. Www handrblock com For transfers completed before October 24, 2011, see Revenue Ruling 2003-76 in Internal Revenue Bulletin 2003-33 and Revenue Procedure 2008-24 in Internal Revenue Bulletin 2008-13. Www handrblock com Revenue Ruling 2003-76 is available at www. Www handrblock com irs. Www handrblock com gov/irb/2003-33_IRB/ar11. Www handrblock com html. Www handrblock com Revenue Procedure 2008-24 is available at www. Www handrblock com irs. Www handrblock com gov/irb/2008-13_IRB/ar13. Www handrblock com html. Www handrblock com For transfers completed on or after October 24, 2011, see Revenue Ruling 2003-76, above, and Revenue Procedure 2011-38, in Internal Revenue Bulletin 2011-30. Www handrblock com Revenue Procedure 2011-38 is available at www. Www handrblock com irs. Www handrblock com gov/irb/2011-30_IRB/ar09. Www handrblock com html. Www handrblock com   For tax years beginning after December 31, 2010, amounts received as an annuity for a period of 10 years or more, or for the lives of one or more individuals, under any portion of an annuity, endowment, or life insurance contract, are treated as a separate contract and are considered partial annuities. Www handrblock com A portion of an annuity, endowment, or life insurance contract may be annuitized, provided that the annuitization period is for 10 years or more or for the lives of one or more individuals. Www handrblock com The investment in the contract is allocated between the part of the contract from which amounts are received as an annuity and the part of the contract from which amounts are not received as an annuity. Www handrblock com   Exchanges of contracts not included in this list, such as an annuity contract for an endowment contract, or an annuity or endowment contract for a life insurance contract, are taxable. Www handrblock com Demutualization of life insurance companies. Www handrblock com   If you received stock in exchange for your equity interest as a policyholder or an annuitant, you generally will not have a recognized gain or loss. Www handrblock com See Demutualization of Life Insurance Companies in Publication 550. Www handrblock com U. Www handrblock com S. Www handrblock com Treasury notes or bonds. Www handrblock com   You can trade certain issues of U. Www handrblock com S. Www handrblock com Treasury obligations for other issues designated by the Secretary of the Treasury, with no gain or loss recognized on the trade. Www handrblock com See Savings bonds traded in chapter 1 of Publication 550 for more information. Www handrblock com Transfers Between Spouses Generally, no gain or loss is recognized on a transfer of property from an individual to (or in trust for the benefit of) a spouse, or if incident to a divorce, a former spouse. Www handrblock com This nonrecognition rule does not apply in the following situations. Www handrblock com The recipient spouse or former spouse is a nonresident alien. Www handrblock com Property is transferred in trust and liability exceeds basis. Www handrblock com Gain must be recognized to the extent the amount of the liabilities assumed by the trust, plus any liabilities on the property, exceed the adjusted basis of the property. Www handrblock com For other situations, see Transfers Between Spouses in chapter 4 of Publication 550. Www handrblock com Any transfer of property to a spouse or former spouse on which gain or loss is not recognized is treated by the recipient as a gift and is not considered a sale or exchange. Www handrblock com The recipient's basis in the property will be the same as the adjusted basis of the giver immediately before the transfer. Www handrblock com This carryover basis rule applies whether the adjusted basis of the transferred property is less than, equal to, or greater than either its fair market value at the time of transfer or any consideration paid by the recipient. Www handrblock com This rule applies for purposes of determining loss as well as gain. Www handrblock com Any gain recognized on a transfer in trust increases the basis. Www handrblock com A transfer of property is incident to a divorce if the transfer occurs within 1 year after the date on which the marriage ends, or if the transfer is related to the ending of the marriage. Www handrblock com Related Party Transactions Special rules apply to the sale or trade of property between related parties. Www handrblock com Gain on sale or trade of depreciable property. Www handrblock com   Your gain from the sale or trade of property to a related party may be ordinary income, rather than capital gain, if the property can be depreciated by the party receiving it. Www handrblock com See chapter 3 of Publication 544 for more information. Www handrblock com Like-kind exchanges. Www handrblock com   Generally, if you trade business or investment property for other business or investment property of a like kind, no gain or loss is recognized. Www handrblock com See Like-kind exchanges , earlier, under Nontaxable Trades. Www handrblock com   This rule also applies to trades of property between related parties, defined next under Losses on sales or trades of property. Www handrblock com However, if either you or the related party disposes of the like property within 2 years after the trade, you both must report any gain or loss not recognized on the original trade on your return filed for the year in which the later disposition occurs. Www handrblock com See Related Party Transactions in chapter 4 of Publication 550 for exceptions. Www handrblock com Losses on sales or trades of property. Www handrblock com   You cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation, if the transaction is directly or indirectly between you and the following related parties. Www handrblock com Members of your family. Www handrblock com This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Www handrblock com ), and lineal descendants (children, grandchildren, etc. Www handrblock com ). Www handrblock com A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Www handrblock com A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Www handrblock com (See Constructive ownership of stock , later. Www handrblock com ) A tax-exempt charitable or educational organization directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Www handrblock com   In addition, a loss on the sale or trade of property is not deductible if the transaction is directly or indirectly between the following related parties. Www handrblock com A grantor and fiduciary, or the fiduciary and beneficiary, of any trust. Www handrblock com Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Www handrblock com A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust. Www handrblock com A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership. Www handrblock com Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Www handrblock com Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Www handrblock com An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest). Www handrblock com Two corporations that are members of the same controlled group. Www handrblock com (Under certain conditions, however, these losses are not disallowed but must be deferred. Www handrblock com ) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profit interests in both partnerships. Www handrblock com Multiple property sales or trades. Www handrblock com   If you sell or trade to a related party a number of blocks of stock or pieces of property in a lump sum, you must figure the gain or loss separately for each block of stock or piece of property. Www handrblock com The gain on each item may be taxable. Www handrblock com However, you cannot deduct the loss on any item. Www handrblock com Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items. Www handrblock com Indirect transactions. Www handrblock com   You cannot deduct your loss on the sale of stock through your broker if, under a prearranged plan, a related party buys the same stock you had owned. Www handrblock com This does not apply to a trade between related parties through an exchange that is purely coincidental and is not prearranged. Www handrblock com Constructive ownership of stock. Www handrblock com   In determining whether a person directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Www handrblock com Rule 1. Www handrblock com   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. Www handrblock com Rule 2. Www handrblock com   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Www handrblock com Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Www handrblock com Rule 3. Www handrblock com   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. Www handrblock com Rule 4. Www handrblock com   When applying rule 1, 2, or 3, stock constructively owned by a person under rule 1 is treated as actually owned by that person. Www handrblock com But stock constructively owned by an individual under rule 2 or rule 3 is not treated as owned by that individual for again applying either rule 2 or rule 3 to make another person the constructive owner of the stock. Www handrblock com Property received from a related party. Www handrblock com    If you sell or trade at a gain property you acquired from a related party, you recognize the gain only to the extent it is more than the loss previously disallowed to the related party. Www handrblock com This rule applies only if you are the original transferee and you acquired the property by purchase or exchange. Www handrblock com This rule does not apply if the related party's loss was disallowed because of the wash sale rules described in chapter 4 of Publication 550 under Wash Sales. Www handrblock com   If you sell or trade at a loss property you acquired from a related party, you cannot recognize the loss that was not allowed to the related party. Www handrblock com Example 1. Www handrblock com Your brother sells you stock for $7,600. Www handrblock com His cost basis is $10,000. Www handrblock com Your brother cannot deduct the loss of $2,400. Www handrblock com Later, you sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900. Www handrblock com Your reportable gain is $500 (the $2,900 gain minus the $2,400 loss not allowed to your brother). Www handrblock com Example 2. Www handrblock com If, in Example 1, you sold the stock for $6,900 instead of $10,500, your recognized loss is only $700 (your $7,600 basis minus $6,900). Www handrblock com You cannot deduct the loss that was not allowed to your brother. Www handrblock com Capital Gains and Losses This section discusses the tax treatment of gains and losses from different types of investment transactions. Www handrblock com Character of gain or loss. Www handrblock com   You need to classify your gains and losses as either ordinary or capital gains or losses. Www handrblock com You then need to classify your capital gains and losses as either short term or long term. Www handrblock com If you have long-term gains and losses, you must identify your 28% rate gains and losses. Www handrblock com If you have a net capital gain, you must also identify any unrecaptured section 1250 gain. Www handrblock com   The correct classification and identification helps you figure the limit on capital losses and the correct tax on capital gains. Www handrblock com Reporting capital gains and losses is explained in chapter 16. Www handrblock com Capital or Ordinary Gain or Loss If you have a taxable gain or a deductible loss from a transaction, it may be either a capital gain or loss or an ordinary gain or loss, depending on the circumstances. Www handrblock com Generally, a sale or trade of a capital asset (defined next) results in a capital gain or loss. Www handrblock com A sale or trade of a noncapital asset generally results in ordinary gain or loss. Www handrblock com Depending on the circumstances, a gain or loss on a sale or trade of property used in a trade or business may be treated as either capital or ordinary, as explained in Publication 544. Www handrblock com In some situations, part of your gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. Www handrblock com Capital Assets and Noncapital Assets For the most part, everything you own and use for personal purposes, pleasure, or investment is a capital asset. Www handrblock com Some examples are: Stocks or bonds held in your personal account, A house owned and used by you and your family, Household furnishings, A car used for pleasure or commuting, Coin or stamp collections, Gems and jewelry, and Gold, silver, or any other metal. Www handrblock com Any property you own is a capital asset, except the following noncapital assets. Www handrblock com Property held mainly for sale to customers or property that will physically become a part of the merchandise for sale to customers. Www handrblock com For an exception, see Capital Asset Treatment for Self-Created Musical Works , later. Www handrblock com Depreciable property used in your trade or business, even if fully depreciated. Www handrblock com Real property used in your trade or business. Www handrblock com A copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property that is: Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Acquired under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Www handrblock com For an exception to this rule, see Capital Asset Treatment for Self-Created Musical Works , later. Www handrblock com Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property described in (1). Www handrblock com U. Www handrblock com S. Www handrblock com Government publications that you received from the government free or for less than the normal sales price, or that you acquired under circumstances entitling you to the basis of someone who received the publications free or for less than the normal sales price. Www handrblock com Certain commodities derivative financial instruments held by commodities derivatives dealers. Www handrblock com Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into. Www handrblock com Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Www handrblock com Investment Property Investment property is a capital asset. Www handrblock com Any gain or loss from its sale or trade is generally a capital gain or loss. Www handrblock com Gold, silver, stamps, coins, gems, etc. Www handrblock com   These are capital assets except when they are held for sale by a dealer. Www handrblock com Any gain or loss you have from their sale or trade generally is a capital gain or loss. Www handrblock com Stocks, stock rights, and bonds. Www handrblock com   All of these (including stock received as a dividend) are capital assets except when held for sale by a securities dealer. Www handrblock com However, if you own small business stock, see Losses on Section 1244 (Small Business) Stock , later, and Losses on Small Business Investment Company Stock, in chapter 4 of Publication 550. Www handrblock com Personal Use Property Property held for personal use only, rather than for investment, is a capital asset, and you must report a gain from its sale as a capital gain. Www handrblock com However, you cannot deduct a loss from selling personal use property. Www handrblock com Capital Asset Treatment for Self-Created Musical Works You can elect to treat musical compositions and copyrights in musical works as capital assets when you sell or exchange them if: Your personal efforts created the property, or You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced. Www handrblock com You must make a separate election for each musical composition (or copyright in a musical work) sold or exchanged during the tax year. Www handrblock com You must make the election on or before the due date (including extensions) of the income tax return for the tax year of the sale or exchange. Www handrblock com You must make the election on Form 8949 by treating the sale or exchange as the sale or exchange of a capital asset, according to Form 8949, Schedule D (Form 1040), and their separate instructions. Www handrblock com For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Www handrblock com See also Schedule D (Form 1040), Form 8949, and their separate instructions. Www handrblock com You can revoke the election if you have IRS approval. Www handrblock com To get IRS approval, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. Www handrblock com See, for example, Rev. Www handrblock com Proc. Www handrblock com 2013-1, corrected by Announcement 2013–9, and amplified and modified by Rev. Www handrblock com Proc. Www handrblock com 2013–32, available at www. Www handrblock com irs. Www handrblock com gov/irb/2013-01_IRB/ar06. Www handrblock com html. Www handrblock com Alternatively, you are granted an automatic 6-month extension from the due date of your income tax return (excluding extensions) to revoke the election, provided you timely file your income tax return, and within this 6-month extension period, you file Form 1040X that treats the sale or exchange as the sale or exchange of property that is not a capital asset. Www handrblock com Discounted Debt Instruments Treat your gain or loss on the sale, redemption, or retirement of a bond or other debt instrument originally issued at a discount or bought at a discount as capital gain or loss, except as explained in the following discussions. Www handrblock com Short-term government obligations. Www handrblock com   Treat gains on short-term federal, state, or local government obligations (other than tax-exempt obligations) as ordinary income up to your ratable share of the acquisition discount. Www handrblock com This treatment applies to obligations with a fixed maturity date not more than 1 year from the date of issue. Www handrblock com Acquisition discount is the stated redemption price at maturity minus your basis in the obligation. Www handrblock com   However, do not treat these gains as income to the extent you previously included the discount in income. Www handrblock com See Discount on Short-Term Obligations in chapter 1 of Publication 550. Www handrblock com Short-term nongovernment obligations. Www handrblock com   Treat gains on short-term nongovernment obligations as ordinary income up to your ratable share of original issue discount (OID). Www handrblock com This treatment applies to obligations with a fixed maturity date of not more than 1 year from the date of issue. Www handrblock com   However, to the extent you previously included the discount in income, you do not have to include it in income again. Www handrblock com See Discount on Short-Term Obligations in chapter 1 of Publication 550. Www handrblock com Tax-exempt state and local government bonds. Www handrblock com   If these bonds were originally issued at a discount before September 4, 1982, or you acquired them before March 2, 1984, treat your part of OID as tax-exempt interest. Www handrblock com To figure your gain or loss on the sale or trade of these bonds, reduce the amount realized by your part of OID. Www handrblock com   If the bonds were issued after September 3, 1982, and acquired after March 1, 1984, increase the adjusted basis by your part of OID to figure gain or loss. Www handrblock com For more information on the basis of these bonds, see Discounted Debt Instruments in chapter 4 of Publication 550. Www handrblock com   Any gain from market discount is usually taxable on disposition or redemption of tax-exempt bonds. Www handrblock com If you bought the bonds before May 1, 1993, the gain from market discount is capital gain. Www handrblock com If you bought the bonds after April 30, 1993, the gain is ordinary income. Www handrblock com   You figure the market discount by subtracting the price you paid for the bond from the sum of the original issue price of the bond and the amount of accumulated OID from the date of issue that represented interest to any earlier holders. Www handrblock com For more information, see Market Discount Bonds in chapter 1 of Publication 550. Www handrblock com    A loss on the sale or other disposition of a tax-exempt state or local government bond is deductible as a capital loss. Www handrblock com Redeemed before maturity. Www handrblock com   If a state or local bond issued before June 9, 1980, is redeemed before it matures, the OID is not taxable to you. Www handrblock com   If a state or local bond issued after June 8, 1980, is redeemed before it matures, the part of OID earned while you hold the bond is not taxable to you. Www handrblock com However, you must report the unearned part of OID as a capital gain. Www handrblock com Example. Www handrblock com On July 2, 2002, the date of issue, you bought a 20-year, 6% municipal bond for $800. Www handrblock com The face amount of the bond was $1,000. Www handrblock com The $200 discount was OID. Www handrblock com At the time the bond was issued, the issuer had no intention of redeeming it before it matured. Www handrblock com The bond was callable at its face amount beginning 10 years after the issue date. Www handrblock com The issuer redeemed the bond at the end of 11 years (July 2, 2013) for its face amount of $1,000 plus accrued annual interest of $60. Www handrblock com The OID earned during the time you held the bond, $73, is not taxable. Www handrblock com The $60 accrued annual interest also is not taxable. Www handrblock com However, you must report the unearned part of OID ($127) as a capital gain. Www handrblock com Long-term debt instruments issued after 1954 and before May 28, 1969 (or before July 2, 1982, if a government instrument). Www handrblock com   If you sell, trade, or redeem for a gain one of these debt instruments, the part of your gain that is not more than your ratable share of the OID at the time of the sale or redemption is ordinary income. Www handrblock com The rest of the gain is capital gain. Www handrblock com If, however, there was an intention to call the debt instrument before maturity, all of your gain that is not more than the entire OID is treated as ordinary income at the time of the sale. Www handrblock com This treatment of taxable gain also applies to corporate instruments issued after May 27, 1969, under a written commitment that was binding on May 27, 1969, and at all times thereafter. Www handrblock com Long-term debt instruments issued after May 27, 1969 (or after July 1, 1982, if a government instrument). Www handrblock com   If you hold one of these debt instruments, you must include a part of OID in your gross income each year you own the instrument. Www handrblock com Your basis in that debt instrument is increased by the amount of OID that you have included in your gross income. Www handrblock com See Original Issue Discount (OID) in chapter 7 for information about OID that you must report on your tax return. Www handrblock com   If you sell or trade the debt instrument before maturity, your gain is a capital gain. Www handrblock com However, if at the time the instrument was originally issued there was an intention to call it before its maturity, your gain generally is ordinary income to the extent of the entire OID reduced by any amounts of OID previously includible in your income. Www handrblock com In this case, the rest of the gain is capital gain. Www handrblock com Market discount bonds. Www handrblock com   If the debt instrument has market discount and you chose to include the discount in income as it accrued, increase your basis in the debt instrument by the accrued discount to figure capital gain or loss on its disposition. Www handrblock com If you did not choose to include the discount in income as it accrued, you must report gain as ordinary interest income up to the instrument's accrued market discount. Www handrblock com The rest of the gain is capital gain. Www handrblock com See Market Discount Bonds in chapter 1 of Publication 550. Www handrblock com   A different rule applies to market discount bonds issued before July 19, 1984, and purchased by you before May 1, 1993. Www handrblock com See Market discount bonds under Discounted Debt Instruments in chapter 4 of Publication 550. Www handrblock com Retirement of debt instrument. Www handrblock com   Any amount you receive on the retirement of a debt instrument is treated in the same way as if you had sold or traded that instrument. Www handrblock com Notes of individuals. Www handrblock com   If you hold an obligation of an individual issued with OID after March 1, 1984, you generally must include the OID in your income currently, and your gain or loss on its sale or retirement is generally capital gain or loss. Www handrblock com An exception to this treatment applies if the obligation is a loan between individuals and all the following requirements are met. Www handrblock com The lender is not in the business of lending money. Www handrblock com The amount of the loan, plus the amount of any outstanding prior loans, is $10,000 or less. Www handrblock com Avoiding federal tax is not one of the principal purposes of the loan. Www handrblock com   If the exception applies, or the obligation was issued before March 2, 1984, you do not include the OID in your income currently. Www handrblock com When you sell or redeem the obligation, the part of your gain that is not more than your accrued share of OID at that time is ordinary income. Www handrblock com The rest of the gain, if any, is capital gain. Www handrblock com Any loss on the sale or redemption is capital loss. Www handrblock com Deposit in Insolvent or Bankrupt Financial Institution If you lose money you have on deposit in a bank, credit union, or other financial institution that becomes insolvent or bankrupt, you may be able to deduct your loss in one of three ways. Www handrblock com Ordinary loss. Www handrblock com Casualty loss. Www handrblock com Nonbusiness bad debt (short-term capital loss). Www handrblock com  For more information, see Deposit in Insolvent or Bankrupt Financial Institution, in chapter 4 of Publication 550. Www handrblock com Sale of Annuity The part of any gain on the sale of an annuity contract before its maturity date that is based on interest accumulated on the contract is ordinary income. Www handrblock com Losses on Section 1244 (Small Business) Stock You can deduct as an ordinary loss, rather than as a capital loss, your loss on the sale, trade, or worthlessness of section 1244 stock. Www handrblock com Report the loss on Form 4797, line 10. Www handrblock com Any gain on section 1244 stock is a capital gain if the stock is a capital asset in your hands. Www handrblock com Report the gain on Form 8949. Www handrblock com See Losses on Section 1244 (Small Business) Stock in chapter 4 of Publication 550. Www handrblock com For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Www handrblock com See also Schedule D (Form 1040), Form 8949, and their separate instructions. Www handrblock com Holding Period If you sold or traded investment property, you must determine your holding period for the property. Www handrblock com Your holding period determines whether any capital gain or loss was a short-term or long-term capital gain or loss. Www handrblock com Long-term or short-term. Www handrblock com   If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. Www handrblock com If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss. Www handrblock com   To determine how long you held the investment property, begin counting on the date after the day you acquired the property. Www handrblock com The day you disposed of the property is part of your holding period. Www handrblock com Example. Www handrblock com If you bought investment property on February 6, 2012, and sold it on February 6, 2013, your holding period is not more than 1 year and you have a short-term capital gain or loss. Www handrblock com If you sold it on February 7, 2013, your holding period is more than 1 year and you will have a long-term capital gain or loss. Www handrblock com Securities traded on established market. Www handrblock com   For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them. Www handrblock com    Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made. Www handrblock com Example. Www handrblock com You are a cash method, calendar year taxpayer. Www handrblock com You sold stock at a gain on December 30, 2013. Www handrblock com According to the rules of the stock exchange, the sale was closed by delivery of the stock 4 trading days after the sale, on January 6, 2014. Www handrblock com You received payment of the sales price on that same day. Www handrblock com Report your gain on your 2013 return, even though you received the payment in 2014. Www handrblock com The gain is long term or short term depending on whether you held the stock more than 1 year. Www handrblock com Your holding period ended on December 30. Www handrblock com If you had sold the stock at a loss, you would also report it on your 2013 return. Www handrblock com U. Www handrblock com S. Www handrblock com Treasury notes and bonds. Www handrblock com   The holding period of U. Www handrblock com S. Www handrblock com Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. Www handrblock com The holding period of U. Www handrblock com S. Www handrblock com Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted. Www handrblock com Automatic investment service. Www handrblock com   In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. Www handrblock com Your holding period starts on the day after the bank's purchase date. Www handrblock com If a share was bought over more than one purchase date, your holding period for that share is a split holding period. Www handrblock com A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds. Www handrblock com Nontaxable trades. Www handrblock com   If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property. Www handrblock com Property received as a gift. Www handrblock com   If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started. Www handrblock com   If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift. Www handrblock com Inherited property. Www handrblock com   Generally, if you inherited investment property, your capital gain or loss on any later disposition of that property is long-term capital gain or loss. Www handrblock com This is true regardless of how long you actually held the property. Www handrblock com However, if you inherited property from someone who died in 2010, see the information below. Www handrblock com Inherited property from someone who died in 2010. Www handrblock com   If you inherit investment property from a decedent who died in 2010, and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your holding period. Www handrblock com Real property bought. Www handrblock com   To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. Www handrblock com However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. Www handrblock com The holding period cannot start until there is an actual contract of sale. Www handrblock com The holding period of the seller cannot end before that time. Www handrblock com Real property repossessed. Www handrblock com   If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale and the period after the repossession. Www handrblock com Your holding period does not include the time between the original sale and the repossession. Www handrblock com That is, it does not include the period during which the first buyer held the property. Www handrblock com Stock dividends. Www handrblock com   The holding period for stock you received as a taxable stock dividend begins on the date of distribution. Www handrblock com   The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. Www handrblock com This rule also applies to stock acquired in a “spin-off,” which is a distribution of stock or securities in a controlled corporation. Www handrblock com Nontaxable stock rights. Www handrblock com   Your holding period for nontaxable stock rights begins on the same day as the holding period of the underlying stock. Www handrblock com The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised. Www handrblock com Nonbusiness Bad Debts If someone owes you money that you cannot collect, you have a bad debt. Www handrblock com You may be able to deduct the amount owed to you when you figure your tax for the year the debt becomes worthless. Www handrblock com Generally, nonbusiness bad debts are bad debts that did not come from operating your trade or business, and are deductible as short-term capital losses. Www handrblock com To be deductible, nonbusiness bad debts must be totally worthless. Www handrblock com You cannot deduct a partly worthless nonbusiness debt. Www handrblock com Genuine debt required. Www handrblock com   A debt must be genuine for you to deduct a loss. Www handrblock com A debt is genuine if it arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable sum of money. Www handrblock com Basis in bad debt required. Www handrblock com    To deduct a bad debt, you must have a basis in it—that is, you must have already included the amount in your income or loaned out your cash. Www handrblock com For example, you cannot claim a bad debt deduction for court-ordered child support not paid to you by your former spouse. Www handrblock com If you are a cash method taxpayer (as most individuals are), you generally cannot take a bad debt deduction for unpaid salaries, wages, rents, fees, interest, dividends, and similar items. Www handrblock com When deductible. Www handrblock com   You can take a bad debt deduction only in the year the debt becomes worthless. Www handrblock com You do not have to wait until a debt is due to determine whether it is worthless. Www handrblock com A debt becomes worthless when there is no longer any chance that the amount owed will be paid. Www handrblock com   It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. Www handrblock com You must only show that you have taken reasonable steps to collect the debt. Www handrblock com Bankruptcy of your debtor is generally good evidence of the worthlessness of at least a part of an unsecured and unpreferred debt. Www handrblock com How to report bad debts. Www handrblock com    Deduct nonbusiness bad debts as short-term capital losses on Form 8949. Www handrblock com    Make sure you report your bad debt(s) (and any other short-term transactions for which you did not receive a Form 1099-B) on Form 8949, Part I, with box C checked. Www handrblock com    For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in chapter 16. Www handrblock com See also Schedule D (Form 1040), Form 8949, and their separate instructions. Www handrblock com   For each bad debt, attach a statement to your return that contains: A description of the debt, including the amount, and the date it became due, The name of the debtor, and any business or family relationship between you and the debtor, The efforts you made to collect the debt, and Why you decided the debt was worthless. Www handrblock com For example, you could show that the borrower has declared bankruptcy, or that legal action to collect would probably not result in payment of any part of the debt. Www handrblock com Filing a claim for refund. Www handrblock com    If you do not deduct a bad debt on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the bad debt. Www handrblock com To do this, use Form 1040X to amend your return for the year the debt became worthless. Www handrblock com You must file it within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Www handrblock com For more information about filing a claim, see Amended Returns and Claims for Refund in chapter 1. Www handrblock com Additional information. Www handrblock com   For more information, see Nonbusiness Bad Debts in Publication 550. Www handrblock com For information on business bad debts, see chapter 10 of Publication 535, Business Expenses. Www handrblock com Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. Www handrblock com A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. Www handrblock com If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). Www handrblock com The result is your basis in the new stock or securities. Www handrblock com This adjustment postpones the loss deduction until the disposition of the new stock or securities. Www handrblock com Your holding period for the new stock or securities includes the holding period of the stock or securities sold. Www handrblock com For more information, see Wash Sales, in chapter 4 of Publication 550. Www handrblock com Rollover of Gain From Publicly Traded Securities You may qualify for a tax-free rollover of certain gains from the sale of publicly traded securities. Www handrblock com This means that if you buy certain replacement property and make the choice described in this section, you postpone part or all of your gain. Www handrblock com You postpone the gain by adjusting the basis of the replacement property as described in Basis of replacement property , later. Www handrblock com This postpones your gain until the year you dispose of the replacement property. Www handrblock com You qualify to make this choice if you meet all the following tests. Www handrblock com You sell publicly traded securities at a gain. Www handrblock com Publicly traded securities are securities traded on an established securities market. Www handrblock com Your gain from the sale is a capital gain. Www handrblock com During the 60-day period beginning on the date of the sale, you buy replacement property. Www handrblock com This replacement property must be either common stock of, or a partnership interest in a specialized small business investment company (SSBIC). Www handrblock com This is any partnership or corporation licensed by the Small Business Administration under section 301(d) of the Small Business Investment Act of 1958, as in effect on May 13, 1993. Www handrblock com Amount of gain recognized. Www handrblock com   If you make the choice described in this section, you must recognize gain only up to the following amount. Www handrblock com The amount realized on the sale, minus The cost of any common stock or partnership interest in an SSBIC that you bought during the 60-day period beginning on the date of sale (and did not previously take into account on an earlier sale of publicly traded securities). Www handrblock com  If this amount is less than the amount of your gain, you can postpone the rest of your gain, subject to the limit described next. Www handrblock com If this amount is equal to or more than the amount of your gain, you must recognize the full amount of your gain. Www handrblock com Limit on gain postponed. Www handrblock com   The amount of gain you can postpone each year is limited to the smaller of: $50,000 ($25,000 if you are married and file a separate return), or $500,000 ($250,000 if you are married and file a separate return), minus the amount of gain you postponed for all earlier years. Www handrblock com Basis of replacement property. Www handrblock com   You must subtract the amount of postponed gain from the basis of your replacement property. Www handrblock com How to report and postpone gain. Www handrblock com    See How to report and postpone gain under Rollover of Gain From Publicly Traded Securities in chapter 4 of Publication 550 for details. 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