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1040a Form To Print

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1040a Form To Print

1040a form to print Publication 537 - Main Content Table of Contents What Is an Installment Sale?Special rule. 1040a form to print General RulesFiguring Installment Sale Income Reporting Installment Sale Income Other RulesElecting Out of the Installment Method Payments Received or Considered Received Escrow Account Depreciation Recapture Income Sale to a Related Person Like-Kind Exchange Contingent Payment Sale Single Sale of Several Assets Sale of a Business Unstated Interest and Original Issue Discount (OID) Disposition of an Installment Obligation Repossession Interest on Deferred Tax Reporting an Installment SaleRelated person. 1040a form to print Several assets. 1040a form to print Special situations. 1040a form to print Schedule D (Form 1040). 1040a form to print Form 4797. 1040a form to print How To Get Tax Help What Is an Installment Sale? An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. 1040a form to print The rules for installment sales do not apply if you elect not to use the installment method (see Electing Out of the Installment Method under Other Rules, later) or the transaction is one for which the installment method may not apply. 1040a form to print The installment sales method cannot be used for the following. 1040a form to print Sale of inventory. 1040a form to print   The regular sale of inventory of personal property does not qualify as an installment sale even if you receive a payment after the year of sale. 1040a form to print See Sale of a Business under Other Rules, later. 1040a form to print Dealer sales. 1040a form to print   Sales of personal property by a person who regularly sells or otherwise disposes of the same type of personal property on the installment plan are not installment sales. 1040a form to print This rule also applies to real property held for sale to customers in the ordinary course of a trade or business. 1040a form to print However, the rule does not apply to an installment sale of property used or produced in farming. 1040a form to print Special rule. 1040a form to print   Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge. 1040a form to print For more information, see section 453(l). 1040a form to print Stock or securities. 1040a form to print   You cannot use the installment method to report gain from the sale of stock or securities traded on an established securities market. 1040a form to print You must report the entire gain on the sale in the year in which the trade date falls. 1040a form to print Installment obligation. 1040a form to print   The buyer's obligation to make future payments to you can be in the form of a deed of trust, note, land contract, mortgage, or other evidence of the buyer's debt to you. 1040a form to print General Rules If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method. 1040a form to print See Electing Out of the Installment Method under Other Rules, later, for information on recognizing the entire gain in the year of sale. 1040a form to print Sale at a loss. 1040a form to print   If your sale results in a loss, you cannot use the installment method. 1040a form to print If the loss is on an installment sale of business or investment property, you can deduct it only in the tax year of sale. 1040a form to print Unstated interest. 1040a form to print   If your sale calls for payments in a later year and the sales contract provides for little or no interest, you may have to figure unstated interest, even if you have a loss. 1040a form to print See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. 1040a form to print Figuring Installment Sale Income You can use the following discussions or Form 6252 to help you determine gross profit, contract price, gross profit percentage, and installment sale income. 1040a form to print Each payment on an installment sale usually consists of the following three parts. 1040a form to print Interest income. 1040a form to print Return of your adjusted basis in the property. 1040a form to print Gain on the sale. 1040a form to print In each year you receive a payment, you must include in income both the interest part and the part that is your gain on the sale. 1040a form to print You do not include in income the part that is the return of your basis in the property. 1040a form to print Basis is the amount of your investment in the property for installment sale purposes. 1040a form to print Interest Income You must report interest as ordinary income. 1040a form to print Interest is generally not included in a down payment. 1040a form to print However, you may have to treat part of each later payment as interest, even if it is not called interest in your agreement with the buyer. 1040a form to print Interest provided in the agreement is called stated interest. 1040a form to print If the agreement does not provide for enough stated interest, there may be unstated interest or original issue discount. 1040a form to print See Unstated Interest and Original Issue Discount (OID) under Other Rules, later. 1040a form to print Adjusted Basis and Installment Sale Income (Gain on Sale) After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of two parts. 1040a form to print A tax-free return of your adjusted basis in the property, and Your gain (referred to as installment sale income on Form 6252). 1040a form to print Figuring adjusted basis for installment sale purposes. 1040a form to print   You can use Worksheet A to figure your adjusted basis in the property for installment sale purposes. 1040a form to print When you have completed the worksheet, you will also have determined the gross profit percentage necessary to figure your installment sale income (gain) for this year. 1040a form to print Worksheet A. 1040a form to print Figuring Adjusted Basis and Gross Profit Percentage 1. 1040a form to print Enter the selling price for the property   2. 1040a form to print Enter your adjusted basis for the property     3. 1040a form to print Enter your selling expenses     4. 1040a form to print Enter any depreciation recapture     5. 1040a form to print Add lines 2, 3, and 4. 1040a form to print  This is your adjusted basis for installment sale purposes   6. 1040a form to print Subtract line 5 from line 1. 1040a form to print If zero or less, enter -0-. 1040a form to print  This is your gross profit     If the amount entered on line 6 is zero, stop here. 1040a form to print You cannot use the installment method. 1040a form to print   7. 1040a form to print Enter the contract price for the property   8. 1040a form to print Divide line 6 by line 7. 1040a form to print This is your gross profit percentage   Selling price. 1040a form to print   The selling price is the total cost of the property to the buyer and includes any of the following. 1040a form to print Any money you are to receive. 1040a form to print The fair market value (FMV) of any property you are to receive (FMV is discussed in Property Used As a Payment under Other Rules, later). 1040a form to print Any existing mortgage or other debt the buyer pays, assumes, or takes (a note, mortgage, or any other liability, such as a lien, accrued interest, or taxes you owe on the property). 1040a form to print Any of your selling expenses the buyer pays. 1040a form to print   Do not include stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount. 1040a form to print Adjusted basis for installment sale purposes. 1040a form to print   Your adjusted basis is the total of the following three items. 1040a form to print Adjusted basis. 1040a form to print Selling expenses. 1040a form to print Depreciation recapture. 1040a form to print Adjusted basis. 1040a form to print   Basis is your investment in the property for installment sale purposes. 1040a form to print The way you figure basis depends on how you acquire the property. 1040a form to print The basis of property you buy is generally its cost. 1040a form to print The basis of property you inherit, receive as a gift, build yourself, or receive in a tax-free exchange is figured differently. 1040a form to print   While you own property, various events may change your original basis. 1040a form to print Some events, such as adding rooms or making permanent improvements, increase basis. 1040a form to print Others, such as deductible casualty losses or depreciation previously allowed or allowable, decrease basis. 1040a form to print The result is adjusted basis. 1040a form to print   For more information on how to figure basis and adjusted basis, see Publication 551. 1040a form to print For more information regarding your basis in property you inherited from someone who died in 2010 and whose executor filed Form 8939, Allocation of Increase In Basis for Property Acquired From a Decedent, see Publication 4895. 1040a form to print Selling expenses. 1040a form to print   Selling expenses relate to the sale of the property. 1040a form to print They include commissions, attorney fees, and any other expenses paid on the sale. 1040a form to print Selling expenses are added to the basis of the sold property. 1040a form to print Depreciation recapture. 1040a form to print   If the property you sold was depreciable property, you may need to recapture part of the gain on the sale as ordinary income. 1040a form to print See Depreciation Recapture Income under Other Rules, later. 1040a form to print Gross profit. 1040a form to print   Gross profit is the total gain you report on the installment method. 1040a form to print   To figure your gross profit, subtract your adjusted basis for installment sale purposes from the selling price. 1040a form to print If the property you sold was your home, subtract from the gross profit any gain you can exclude. 1040a form to print See Sale of Your Home , later, under Reporting Installment Sale Income. 1040a form to print Contract price. 1040a form to print   Contract price equals: The selling price, minus The mortgages, debts, and other liabilities assumed or taken by the buyer, plus The amount by which the mortgages, debts, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes. 1040a form to print Gross profit percentage. 1040a form to print   A certain percentage of each payment (after subtracting interest) is reported as installment sale income. 1040a form to print This percentage is called the gross profit percentage and is figured by dividing your gross profit from the sale by the contract price. 1040a form to print   The gross profit percentage generally remains the same for each payment you receive. 1040a form to print However, see the Example under Selling Price Reduced, later, for a situation where the gross profit percentage changes. 1040a form to print Example. 1040a form to print You sell property at a contract price of $6,000 and your gross profit is $1,500. 1040a form to print Your gross profit percentage is 25% ($1,500 ÷ $6,000). 1040a form to print After subtracting interest, you report 25% of each payment, including the down payment, as installment sale income from the sale for the tax year you receive the payment. 1040a form to print The remainder (balance) of each payment is the tax-free return of your adjusted basis. 1040a form to print Amount to report as installment sale income. 1040a form to print   Multiply the payments you receive each year (less interest) by the gross profit percentage. 1040a form to print The result is your installment sale income for the tax year. 1040a form to print In certain circumstances, you may be treated as having received a payment, even though you received nothing directly. 1040a form to print A receipt of property or the assumption of a mortgage on the property sold may be treated as a payment. 1040a form to print For a detailed discussion, see Payments Received or Considered Received under Other Rules, later. 1040a form to print Selling Price Reduced If the selling price is reduced at a later date, the gross profit on the sale also will change. 1040a form to print You then must refigure the gross profit percentage for the remaining payments. 1040a form to print Refigure your gross profit using Worksheet B. 1040a form to print You will spread any remaining gain over future installments. 1040a form to print Worksheet B. 1040a form to print New Gross Profit Percentage — Selling Price Reduced 1. 1040a form to print Enter the reduced selling  price for the property   2. 1040a form to print Enter your adjusted  basis for the  property     3. 1040a form to print Enter your selling  expenses     4. 1040a form to print Enter any depreciation  recapture     5. 1040a form to print Add lines 2, 3, and 4. 1040a form to print   6. 1040a form to print Subtract line 5 from line 1. 1040a form to print  This is your adjusted  gross profit   7. 1040a form to print Enter any installment sale  income reported in  prior year(s)   8. 1040a form to print Subtract line 7 from line 6   9. 1040a form to print Future installments   10. 1040a form to print Divide line 8 by line 9. 1040a form to print  This is your new gross profit percentage*   * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 1040a form to print Example. 1040a form to print In 2011, you sold land with a basis of $40,000 for $100,000. 1040a form to print Your gross profit was $60,000. 1040a form to print You received a $20,000 down payment and the buyer's note for $80,000. 1040a form to print The note provides for four annual payments of $20,000 each, plus 8% interest, beginning in 2012. 1040a form to print Your gross profit percentage is 60%. 1040a form to print You reported a gain of $12,000 on each payment received in 2011 and 2012. 1040a form to print In 2013, you and the buyer agreed to reduce the purchase price to $85,000 and payments during 2013, 2014, and 2015 are reduced to $15,000 for each year. 1040a form to print The new gross profit percentage, 46. 1040a form to print 67%, is figured on Example—Worksheet B. 1040a form to print You will report a gain of $7,000 (46. 1040a form to print 67% of $15,000) on each of the $15,000 installments due in 2013, 2014, and 2015. 1040a form to print Example — Worksheet B. 1040a form to print New Gross Profit Percentage — Selling Price Reduced 1. 1040a form to print Enter the reduced selling  price for the property 85,000 2. 1040a form to print Enter your adjusted  basis for the  property 40,000   3. 1040a form to print Enter your selling  expenses -0-   4. 1040a form to print Enter any depreciation  recapture -0-   5. 1040a form to print Add lines 2, 3, and 4. 1040a form to print 40,000 6. 1040a form to print Subtract line 5 from line 1. 1040a form to print  This is your adjusted  gross profit 45,000 7. 1040a form to print Enter any installment sale  income reported in  prior year(s) 24,000 8. 1040a form to print Subtract line 7 from line 6 21,000 9. 1040a form to print Future installments 45,000 10. 1040a form to print Divide line 8 by line 9. 1040a form to print  This is your new gross profit percentage* 46. 1040a form to print 67% * Apply this percentage to all future payments to determine how much of each of those payments is installment sale income. 1040a form to print Reporting Installment Sale Income Generally, you will use Form 6252 to report installment sale income from casual sales of real or personal property during the tax year. 1040a form to print You also will have to report the installment sale income on Schedule D (Form 1040), Capital Gains and Losses, or Form 4797, or both. 1040a form to print See Schedule D (Form 1040) and Form 4797 , later. 1040a form to print If the property was your main home, you may be able to exclude part or all of the gain. 1040a form to print See Sale of Your Home , later. 1040a form to print Form 6252 Use Form 6252 to report an installment sale in the year it takes place and to report payments received, or considered received because of related party resales, in later years. 1040a form to print Attach it to your tax return for each year. 1040a form to print Form 6252 will help you determine the gross profit, contract price, gross profit percentage, and installment sale income. 1040a form to print Which parts to complete. 1040a form to print   Which part to complete depends on whether you are filing the form for the year of sale or a later year. 1040a form to print Year of sale. 1040a form to print   Complete lines 1 through 4, Part I, and Part II. 1040a form to print If you sold property to a related party during the year, also complete Part III. 1040a form to print Later years. 1040a form to print   Complete lines 1 through 4 and Part II for any year in which you receive a payment from an installment sale. 1040a form to print   If you sold a marketable security to a related party after May 14, 1980, and before January 1, 1987, complete Form 6252 for each year of the installment agreement, even if you did not receive a payment. 1040a form to print (After December 31, 1986, the installment method is not available for the sale of marketable securities. 1040a form to print ) Complete lines 1 through 4 and Part II for any year in which you receive a payment from the sale. 1040a form to print Complete Part III unless you received the final payment during the tax year. 1040a form to print   If you sold property other than a marketable security to a related party after May 14, 1980, complete Form 6252 for the year of sale and for 2 years after the year of sale, even if you did not receive a payment. 1040a form to print Complete lines 1 through 4 and Part II for any year during this 2-year period in which you receive a payment from the sale. 1040a form to print Complete Part III for the 2 years after the year of sale unless you received the final payment during the tax year. 1040a form to print Schedule D (Form 1040) Enter the gain figured on Form 6252 (line 26) for personal-use property (capital assets) on Schedule D (Form 1040), as a short-term gain (line 4) or long-term gain (line 11). 1040a form to print If your gain from the installment sale qualifies for long-term capital gain treatment in the year of sale, it will continue to qualify in later tax years. 1040a form to print Your gain is long-term if you owned the property for more than 1 year when you sold it. 1040a form to print Form 4797 An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. 1040a form to print All or part of any gain from the disposition of the property may be ordinary gain from depreciation recapture. 1040a form to print For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on Form 4797, line 4. 1040a form to print If the property was held 1 year or less or you have an ordinary gain from the sale of a noncapital asset (even if the holding period is more than 1 year), enter this amount on Form 4797, line 10, and write “From Form 6252. 1040a form to print ” Sale of Your Home If you sell your home, you may be able to exclude all or part of the gain on the sale. 1040a form to print See Publication 523 for information about excluding the gain. 1040a form to print If the sale is an installment sale, any gain you exclude is not included in gross profit when figuring your gross profit percentage. 1040a form to print Seller-financed mortgage. 1040a form to print   If you finance the sale of your home to an individual, both you and the buyer may have to follow special reporting procedures. 1040a form to print   When you report interest income received from a buyer who uses the property as a personal residence, write the buyer's name, address, and social security number (SSN) on line 1 of Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. 1040a form to print   When deducting the mortgage interest, the buyer must write your name, address, and SSN on line 11 of Schedule A (Form 1040), Itemized Deductions. 1040a form to print   If either person fails to include the other person's SSN, a $50 penalty will be assessed. 1040a form to print Other Rules The rules discussed in this part of the publication apply only in certain circumstances or to certain types of property. 1040a form to print The following topics are discussed. 1040a form to print Electing out of the installment method. 1040a form to print Payments received or considered received. 1040a form to print Escrow account. 1040a form to print Depreciation recapture income. 1040a form to print Sale to a related person. 1040a form to print Like-kind exchange. 1040a form to print Contingent payment sale. 1040a form to print Single sale of several assets. 1040a form to print Sale of a business. 1040a form to print Unstated interest and original issue discount. 1040a form to print Disposition of an installment obligation. 1040a form to print Repossession. 1040a form to print Interest on deferred tax. 1040a form to print Electing Out of the Installment Method If you elect not to use the installment method, you generally report the entire gain in the year of sale, even though you do not receive all the sale proceeds in that year. 1040a form to print To figure the amount of gain to report, use the fair market value (FMV) of the buyer's installment obligation that represents the buyer's debt to you. 1040a form to print Notes, mortgages, and land contracts are examples of obligations that are included at FMV. 1040a form to print You must figure the FMV of the buyer's installment obligation, whether or not you would actually be able to sell it. 1040a form to print If you use the cash method of accounting, the FMV of the obligation will never be considered to be less than the FMV of the property sold (minus any other consideration received). 1040a form to print Example. 1040a form to print You sold a parcel of land for $50,000. 1040a form to print You received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. 1040a form to print The buyer gave you a note for $40,000. 1040a form to print The note had an FMV of $40,000. 1040a form to print You paid a commission of 6%, or $3,000, to a broker for negotiating the sale. 1040a form to print The land cost $25,000, and you owned it for more than one year. 1040a form to print You decide to elect out of the installment method and report the entire gain in the year of sale. 1040a form to print Gain realized:     Selling price $50,000 Minus: Property's adj. 1040a form to print basis $25,000     Commission 3,000 28,000 Gain realized $22,000 Gain recognized in year of sale:   Cash $10,000 Market value of note 40,000 Total realized in year of sale $50,000 Minus: Property's adj. 1040a form to print basis $25,000     Commission 3,000 28,000 Gain recognized $22,000 The recognized gain of $22,000 is long-term capital gain. 1040a form to print You include the entire gain in income in the year of sale, so you do not include in income any principal payments you receive in later tax years. 1040a form to print The interest on the note is ordinary income and is reported as interest income each year. 1040a form to print How to elect out. 1040a form to print   To make this election, do not report your sale on Form 6252. 1040a form to print Instead, report it on Form 8949, Sales and Other Dispositions of Capital Assets, Form 4797, or both. 1040a form to print When to elect out. 1040a form to print   Make this election by the due date, including extensions, for filing your tax return for the year the sale takes place. 1040a form to print Automatic six-month extension. 1040a form to print   If you timely file your tax return without making the election, you still can make the election by filing an amended return within 6 months of the due date of your return (excluding extensions). 1040a form to print Write “Filed pursuant to section 301. 1040a form to print 9100-2” at the top of the amended return and file it where the original return was filed. 1040a form to print Revoking the election. 1040a form to print   Once made, the election can be revoked only with IRS approval. 1040a form to print A revocation is retroactive. 1040a form to print You will not be allowed to revoke the election if either of the following applies. 1040a form to print One of the purposes is to avoid federal income tax. 1040a form to print The tax year in which any payment was received has closed. 1040a form to print Payments Received or Considered Received You must figure your gain each year on the payments you receive, or are treated as receiving, from an installment sale. 1040a form to print In certain situations, you are considered to have received a payment, even though the buyer does not pay you directly. 1040a form to print These situations occur when the buyer assumes or pays any of your debts, such as a loan, or pays any of your expenses, such as a sales commission. 1040a form to print However, as discussed later, the buyer's assumption of your debt is treated as a recovery of your basis rather than as a payment in many cases. 1040a form to print Buyer Pays Seller's Expenses If the buyer pays any of your expenses related to the sale of your property, it is considered a payment to you in the year of sale. 1040a form to print Include these expenses in the selling and contract prices when figuring the gross profit percentage. 1040a form to print Buyer Assumes Mortgage If the buyer assumes or pays off your mortgage, or otherwise takes the property subject to the mortgage, the following rules apply. 1040a form to print Mortgage not more than basis. 1040a form to print   If the buyer assumes a mortgage that is not more than your installment sale basis in the property, it is not considered a payment to you. 1040a form to print It is considered a recovery of your basis. 1040a form to print The contract price is the selling price minus the mortgage. 1040a form to print Example. 1040a form to print You sell property with an adjusted basis of $19,000. 1040a form to print You have selling expenses of $1,000. 1040a form to print The buyer assumes your existing mortgage of $15,000 and agrees to pay you $10,000 (a cash down payment of $2,000 and $2,000 (plus 12% interest) in each of the next 4 years). 1040a form to print The selling price is $25,000 ($15,000 + $10,000). 1040a form to print Your gross profit is $5,000 ($25,000 − $20,000 installment sale basis). 1040a form to print The contract price is $10,000 ($25,000 − $15,000 mortgage). 1040a form to print Your gross profit percentage is 50% ($5,000 ÷ $10,000). 1040a form to print You report half of each $2,000 payment received as gain from the sale. 1040a form to print You also report all interest you receive as ordinary income. 1040a form to print Mortgage more than basis. 1040a form to print   If the buyer assumes a mortgage that is more than your installment sale basis in the property, you recover your entire basis. 1040a form to print The part of the mortgage greater than your basis is treated as a payment received in the year of sale. 1040a form to print   To figure the contract price, subtract the mortgage from the selling price. 1040a form to print This is the total amount (other than interest) you will receive directly from the buyer. 1040a form to print Add to this amount the payment you are considered to have received (the difference between the mortgage and your installment sale basis). 1040a form to print The contract price is then the same as your gross profit from the sale. 1040a form to print    If the mortgage the buyer assumes is equal to or more than your installment sale basis, the gross profit percentage always will be 100%. 1040a form to print Example. 1040a form to print The selling price for your property is $9,000. 1040a form to print The buyer will pay you $1,000 annually (plus 8% interest) over the next 3 years and assume an existing mortgage of $6,000. 1040a form to print Your adjusted basis in the property is $4,400. 1040a form to print You have selling expenses of $600, for a total installment sale basis of $5,000. 1040a form to print The part of the mortgage that is more than your installment sale basis is $1,000 ($6,000 − $5,000). 1040a form to print This amount is included in the contract price and treated as a payment received in the year of sale. 1040a form to print The contract price is $4,000: Selling price $9,000 Minus: Mortgage (6,000) Amount actually received $3,000 Add difference:   Mortgage $6,000   Minus: Installment sale basis 5,000 1,000 Contract price $4,000       Your gross profit on the sale is also $4,000: Selling price $9,000 Minus: Installment sale basis (5,000) Gross profit $4,000 Your gross profit percentage is 100%. 1040a form to print Report 100% of each payment (less interest) as gain from the sale. 1040a form to print Treat the $1,000 difference between the mortgage and your installment sale basis as a payment and report 100% of it as gain in the year of sale. 1040a form to print Mortgage Canceled If the buyer of your property is the person who holds the mortgage on it, your debt is canceled, not assumed. 1040a form to print You are considered to receive a payment equal to the outstanding canceled debt. 1040a form to print Example. 1040a form to print Mary Jones loaned you $45,000 in 2009 in exchange for a note and a mortgage in a tract of land you owned. 1040a form to print On April 4, 2013, she bought the land for $70,000. 1040a form to print At that time, $30,000 of her loan to you was outstanding. 1040a form to print She agreed to forgive this $30,000 debt and to pay you $20,000 (plus interest) on August 1, 2013, and $20,000 on August 1, 2014. 1040a form to print She did not assume an existing mortgage. 1040a form to print She canceled the $30,000 debt you owed her. 1040a form to print You are considered to have received a $30,000 payment at the time of the sale. 1040a form to print Buyer Assumes Other Debts If the buyer assumes any other debts, such as a loan or back taxes, it may be considered a payment to you in the year of sale. 1040a form to print If the buyer assumes the debt instead of paying it off, only part of it may have to be treated as a payment. 1040a form to print Compare the debt to your installment sale basis in the property being sold. 1040a form to print If the debt is less than your installment sale basis, none of it is treated as a payment. 1040a form to print If it is more, only the difference is treated as a payment. 1040a form to print If the buyer assumes more than one debt, any part of the total that is more than your installment sale basis is considered a payment. 1040a form to print These rules are the same as the rules discussed earlier under Buyer Assumes Mortgage . 1040a form to print However, they apply only to the following types of debt the buyer assumes. 1040a form to print Those acquired from ownership of the property you are selling, such as a mortgage, lien, overdue interest, or back taxes. 1040a form to print Those acquired in the ordinary course of your business, such as a balance due for inventory you purchased. 1040a form to print If the buyer assumes any other type of debt, such as a personal loan or your legal fees relating to the sale, it is treated as if the buyer had paid off the debt at the time of the sale. 1040a form to print The value of the assumed debt is then considered a payment to you in the year of sale. 1040a form to print Property Used As a Payment If you receive property other than money from the buyer, it is still considered a payment in the year received. 1040a form to print However, see Like-Kind Exchange , later. 1040a form to print Generally, the amount of the payment is the property's FMV on the date you receive it. 1040a form to print Exception. 1040a form to print   If the property the buyer gives you is payable on demand or readily tradable, the amount you should consider as payment in the year received is: The FMV of the property on the date you receive it if you use the cash method of accounting, The face amount of the obligation on the date you receive it if you use the accrual method of accounting, or The stated redemption price at maturity less any original issue discount (OID) or, if there is no OID, the stated redemption price at maturity appropriately discounted to reflect total unstated interest. 1040a form to print See Unstated Interest and Original Issue Discount (OID) , later. 1040a form to print Debt not payable on demand. 1040a form to print   Any evidence of debt you receive from the buyer not payable on demand is not considered a payment. 1040a form to print This is true even if the debt is guaranteed by a third party, including a government agency. 1040a form to print Fair market value (FMV). 1040a form to print   This is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of all the necessary facts. 1040a form to print Third-party note. 1040a form to print   If the property the buyer gives you is a third-party note (or other obligation of a third party), you are considered to have received a payment equal to the note's FMV. 1040a form to print Because the FMV of the note is itself a payment on your installment sale, any payments you later receive from the third party are not considered payments on the sale. 1040a form to print The excess of the note's face value over its FMV is interest. 1040a form to print Exclude this interest in determining the selling price of the property. 1040a form to print However, see Exception under Property Used As a Payment, earlier. 1040a form to print Example. 1040a form to print You sold real estate in an installment sale. 1040a form to print As part of the down payment, the buyer assigned to you a $50,000, 8% interest third-party note. 1040a form to print The FMV of the third-party note at the time of the sale was $30,000. 1040a form to print This amount, not $50,000, is a payment to you in the year of sale. 1040a form to print The third-party note had an FMV equal to 60% of its face value ($30,000 ÷ $50,000), so 60% of each principal payment you receive on this note is a nontaxable return of capital. 1040a form to print The remaining 40% is interest taxed as ordinary income. 1040a form to print Bond. 1040a form to print   A bond or other evidence of debt you receive from the buyer that is payable on demand or readily tradable in an established securities market is treated as a payment in the year you receive it. 1040a form to print For more information on the amount you should treat as a payment, see Exception under Property Used As a Payment, earlier. 1040a form to print    If you receive a government or corporate bond for a sale before October 22, 2004, and the bond has interest coupons attached or can be readily traded in an established securities market, you are considered to have received payment equal to the bond's FMV. 1040a form to print However, see Exception under Property Used As a Payment, earlier. 1040a form to print Buyer's note. 1040a form to print   The buyer's note (unless payable on demand) is not considered payment on the sale. 1040a form to print However, its full face value is included when figuring the selling price and the contract price. 1040a form to print Payments you receive on the note are used to figure your gain in the year received. 1040a form to print Installment Obligation Used as Security (Pledge Rule) If you use an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. 1040a form to print This is known as the pledge rule, and it applies if the selling price of the property is over $150,000. 1040a form to print It does not apply to the following dispositions. 1040a form to print Sales of property used or produced in farming. 1040a form to print Sales of personal-use property. 1040a form to print Qualifying sales of time-shares and residential lots. 1040a form to print The net debt proceeds are the gross debt minus the direct expenses of getting the debt. 1040a form to print The amount treated as a payment is considered received on the later of the following dates. 1040a form to print The date the debt becomes secured. 1040a form to print The date you receive the debt proceeds. 1040a form to print A debt is secured by an installment obligation to the extent that payment of principal or interest on the debt is directly secured (under the terms of the loan or any underlying arrangement) by any interest in the installment obligation. 1040a form to print For sales after December 16, 1999, payment on a debt is treated as directly secured by an interest in an installment obligation to the extent an arrangement allows you to satisfy all or part of the debt with the installment obligation. 1040a form to print Limit. 1040a form to print   The net debt proceeds treated as a payment on the pledged installment obligation cannot be more than the excess of item (1) over item (2), below. 1040a form to print The total contract price on the installment sale. 1040a form to print Any payments received on the installment obligation before the date the net debt proceeds are treated as a payment. 1040a form to print Installment payments. 1040a form to print   The pledge rule accelerates the reporting of the installment obligation payments. 1040a form to print Do not report payments received on the obligation after it has been pledged until the payments received exceed the amount reported under the pledge rule. 1040a form to print Exception. 1040a form to print   The pledge rule does not apply to pledges made after December 17, 1987, to refinance a debt under the following circumstances. 1040a form to print The debt was outstanding on December 17, 1987. 1040a form to print The debt was secured by that installment sale obligation on that date and at all times thereafter until the refinancing occurred. 1040a form to print   A refinancing as a result of the creditor's calling of the debt is treated as a continuation of the original debt so long as a person other than the creditor or a person related to the creditor provides the refinancing. 1040a form to print   This exception applies only to refinancing that does not exceed the principal of the original debt immediately before the refinancing. 1040a form to print Any excess is treated as a payment on the installment obligation. 1040a form to print Escrow Account In some cases, the sales agreement or a later agreement may call for the buyer to establish an irrevocable escrow account from which the remaining installment payments (including interest) are to be made. 1040a form to print These sales cannot be reported on the installment method. 1040a form to print The buyer's obligation is paid in full when the balance of the purchase price is deposited into the escrow account. 1040a form to print When an escrow account is established, you no longer rely on the buyer for the rest of the payments, but on the escrow arrangement. 1040a form to print Example. 1040a form to print You sell property for $100,000. 1040a form to print The sales agreement calls for a down payment of $10,000 and payment of $15,000 in each of the next 6 years to be made from an irrevocable escrow account containing the balance of the purchase price plus interest. 1040a form to print You cannot report the sale on the installment method because the full purchase price is considered received in the year of sale. 1040a form to print You report the entire gain in the year of sale. 1040a form to print Escrow established in a later year. 1040a form to print   If you make an installment sale and in a later year an irrevocable escrow account is established to pay the remaining installments plus interest, the amount placed in the escrow account represents payment of the balance of the installment obligation. 1040a form to print Substantial restriction. 1040a form to print   If an escrow arrangement imposes a substantial restriction on your right to receive the sale proceeds, the sale can be reported on the installment method, provided it otherwise qualifies. 1040a form to print For an escrow arrangement to impose a substantial restriction, it must serve a bona fide purpose of the buyer, that is, a real and definite restriction placed on the seller or a specific economic benefit conferred on the buyer. 1040a form to print Depreciation Recapture Income If you sell property for which you claimed or could have claimed a depreciation deduction, you must report any depreciation recapture income in the year of sale, whether or not an installment payment was received that year. 1040a form to print Figure your depreciation recapture income (including the section 179 deduction and the section 179A deduction recapture) in Part III of Form 4797. 1040a form to print Report the recapture income in Part II of Form 4797 as ordinary income in the year of sale. 1040a form to print The recapture income is also included in Part I of Form 6252. 1040a form to print However, the gain equal to the recapture income is reported in full in the year of the sale. 1040a form to print Only the gain greater than the recapture income is reported on the installment method. 1040a form to print For more information on depreciation recapture, see chapter 3 in Publication 544. 1040a form to print The recapture income reported in the year of sale is included in your installment sale basis in determining your gross profit on the installment sale. 1040a form to print Determining gross profit is discussed under General Rules , earlier. 1040a form to print Sale to a Related Person If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. 1040a form to print If you sell property to a related person and the related person disposes of the property before you receive all payments with respect to the sale, you may have to treat the amount realized by the related person as received by you when the related person disposes of the property. 1040a form to print These rules are explained under Sale of Depreciable Property and under Sale and Later Disposition , later. 1040a form to print Sale of Depreciable Property If you sell depreciable property to certain related persons, you generally cannot report the sale using the installment method. 1040a form to print Instead, all payments to be received are considered received in the year of sale. 1040a form to print However, see Exception , below. 1040a form to print Depreciable property for this rule is any property the purchaser can depreciate. 1040a form to print Payments to be received include the total of all noncontingent payments and the FMV of any payments contingent as to amount. 1040a form to print In the case of contingent payments for which the FMV cannot be reasonably determined, your basis in the property is recovered proportionately. 1040a form to print The purchaser cannot increase the basis of the property acquired in the sale before the seller includes a like amount in income. 1040a form to print Exception. 1040a form to print   You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale. 1040a form to print You must show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purposes of the sale. 1040a form to print Related person. 1040a form to print   Related persons include the following. 1040a form to print A person and all controlled entities with respect to that person. 1040a form to print A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless that beneficiary's interest in the trust is a remote contingent interest. 1040a form to print Except in the case of a sale or exchange in satisfaction of a pecuniary bequest, an executor of an estate and a beneficiary of that estate. 1040a form to print Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests. 1040a form to print   For information about which entities are controlled entities, see section 1239(c). 1040a form to print Sale and Later Disposition Generally, a special rule applies if you sell or exchange property to a related person on the installment method (first disposition) who then sells, exchanges, or gives away the property (second disposition) under the following circumstances. 1040a form to print The related person makes the second disposition before making all payments on the first disposition. 1040a form to print The related person disposes of the property within 2 years of the first disposition. 1040a form to print This rule does not apply if the property involved is marketable securities. 1040a form to print Under this rule, you treat part or all of the amount the related person realizes (or the FMV if the disposed property is not sold or exchanged) from the second disposition as if you received it at the time of the second disposition. 1040a form to print See Exception , later. 1040a form to print Related person. 1040a form to print   Related persons include the following. 1040a form to print Members of a family, including only brothers and sisters (either whole or half), husband and wife, ancestors, and lineal descendants. 1040a form to print A partnership or estate and a partner or beneficiary. 1040a form to print A trust (other than a section 401(a) employees trust) and a beneficiary. 1040a form to print A trust and an owner of the trust. 1040a form to print Two corporations that are members of the same controlled group as defined in section 267(f). 1040a form to print The fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. 1040a form to print A tax-exempt educational or charitable organization and a person (if an individual, including members of the individual's family) who directly or indirectly controls such an organization. 1040a form to print An individual and a corporation when the individual owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. 1040a form to print A fiduciary of a trust and a corporation when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. 1040a form to print The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. 1040a form to print Any two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. 1040a form to print An S corporation and a corporation that is not an S corporation if the same persons own more than 50% in value of the outstanding stock of each corporation. 1040a form to print 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 or profits interest in the partnership. 1040a form to print An executor and a beneficiary of an estate unless the sale is in satisfaction of a pecuniary bequest. 1040a form to print Example 1. 1040a form to print In 2012, Harvey Green sold farm land to his son Bob for $500,000, which was to be paid in five equal payments over 5 years, plus adequate stated interest on the balance due. 1040a form to print His installment sale basis for the farm land was $250,000 and the property was not subject to any outstanding liens or mortgages. 1040a form to print His gross profit percentage is 50% (gross profit of $250,000 ÷ contract price of $500,000). 1040a form to print He received $100,000 in 2012 and included $50,000 in income for that year ($100,000 × 0. 1040a form to print 50). 1040a form to print Bob made no improvements to the property and sold it to Alfalfa Inc. 1040a form to print , in 2013 for $600,000 after making the payment for that year. 1040a form to print The amount realized from the second disposition is $600,000. 1040a form to print Harvey figures his installment sale income for 2013 as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $500,000 Subtract: Sum of payments from Bob in 2012 and 2013 - 200,000 Amount treated as received because of second disposition $300,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $400,000 Multiply by gross profit % × . 1040a form to print 50 Installment sale income for 2013 $200,000 Harvey will not include in his installment sale income any principal payments he receives on the installment obligation for 2014, 2015, and 2016 because he has already reported the total payments of $500,000 from the first disposition ($100,000 in 2012 and $400,000 in 2013). 1040a form to print Example 2. 1040a form to print Assume the facts are the same as Example 1 except that Bob sells the property for only $400,000. 1040a form to print The gain for 2013 is figured as follows: Lesser of: 1) Amount realized on second disposition, or 2) Contract price on first disposition $400,000 Subtract: Sum of payments from Bob in 2012 and 2013 − 200,000 Amount treated as received because of second disposition $200,000 Add: Payment from Bob in 2013 + 100,000 Total payments received and treated as received for 2013 $300,000 Multiply by gross profit % × . 1040a form to print 50 Installment sale income for 2013 $150,000     Harvey receives a $100,000 payment in 2014 and another in 2015. 1040a form to print They are not taxed because he treated the $200,000 from the disposition in 2013 as a payment received and paid tax on the installment sale income. 1040a form to print In 2016, he receives the final $100,000 payment. 1040a form to print He figures the installment sale income he must recognize in 2016 as follows: Total payments from the first disposition received by the end of 2016 $500,000 Minus the sum of:     Payment from 2012 $100,000   Payment from 2013 100,000   Amount treated as received in 2013 200,000   Total on which gain was previously recognized  − 400,000 Payment on which gain is recognized for 2016  $100,000 Multiply by gross profit % × . 1040a form to print 50 Installment sale income for 2016 $ 50,000 Exception. 1040a form to print   This rule does not apply to a second disposition, and any later transfer, if you can show to the satisfaction of the IRS that neither the first disposition (to the related person) nor the second disposition had as one of its principal purposes the avoidance of federal income tax. 1040a form to print Generally, an involuntary second disposition will qualify under the nontax avoidance exception, such as when a creditor of the related person forecloses on the property or the related person declares bankruptcy. 1040a form to print   The nontax avoidance exception also applies to a second disposition that is also an installment sale if the terms of payment under the installment resale are substantially equal to or longer than those for the first installment sale. 1040a form to print However, the exception does not apply if the resale terms permit significant deferral of recognition of gain from the first sale. 1040a form to print   In addition, any sale or exchange of stock to the issuing corporation is not treated as a first disposition. 1040a form to print An involuntary conversion is not treated as a second disposition if the first disposition occurred before the threat of conversion. 1040a form to print A transfer after the death of the person making the first disposition or the related person's death, whichever is earlier, is not treated as a second disposition. 1040a form to print Like-Kind Exchange If you trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. 1040a form to print These trades are known as like-kind exchanges. 1040a form to print The property you receive in a like-kind exchange is treated as if it were a continuation of the property you gave up. 1040a form to print You do not have to report any part of your gain if you receive only like-kind property. 1040a form to print However, if you also receive money or other property (boot) in the exchange, you must report your gain to the extent of the money and the FMV of the other property received. 1040a form to print For more information on like-kind exchanges, see Like-Kind Exchanges in chapter 1 of Publication 544. 1040a form to print Installment payments. 1040a form to print   If, in addition to like-kind property, you receive an installment obligation in the exchange, the following rules apply to determine the installment sale income each year. 1040a form to print The contract price is reduced by the FMV of the like-kind property received in the trade. 1040a form to print The gross profit is reduced by any gain on the trade that can be postponed. 1040a form to print Like-kind property received in the trade is not considered payment on the installment obligation. 1040a form to print Example. 1040a form to print In 2013, George Brown trades personal property with an installment sale basis of $400,000 for like-kind property having an FMV of $200,000. 1040a form to print He also receives an installment note for $800,000 in the trade. 1040a form to print Under the terms of the note, he is to receive $100,000 (plus interest) in 2014 and the balance of $700,000 (plus interest) in 2015. 1040a form to print George's selling price is $1,000,000 ($800,000 installment note + $200,000 FMV of like-kind property received). 1040a form to print His gross profit is $600,000 ($1,000,000 − $400,000 installment sale basis). 1040a form to print The contract price is $800,000 ($1,000,000 − $200,000). 1040a form to print The gross profit percentage is 75% ($600,000 ÷ $800,000). 1040a form to print He reports no gain in 2013 because the like-kind property he receives is not treated as a payment for figuring gain. 1040a form to print He reports $75,000 gain for 2014 (75% of $100,000 payment received) and $525,000 gain for 2015 (75% of $700,000 payment received). 1040a form to print Deferred exchanges. 1040a form to print   A deferred exchange is one in which you transfer property you use in business or hold for investment and receive like-kind property later that you will use in business or hold for investment. 1040a form to print Under this type of exchange, the person receiving your property may be required to place funds in an escrow account or trust. 1040a form to print If certain rules are met, these funds will not be considered a payment until you have the right to receive the funds or, if earlier, the end of the exchange period. 1040a form to print See Regulations section 1. 1040a form to print 1031(k)-1(j)(2) for these rules. 1040a form to print Contingent Payment Sale A contingent payment sale is one in which the total selling price cannot be determined by the end of the tax year of sale. 1040a form to print This happens, for example, if you sell your business and the selling price includes a percentage of its profits in future years. 1040a form to print If the selling price cannot be determined by the end of the tax year, you must use different rules to figure the contract price and the gross profit percentage than those you use for an installment sale with a fixed selling price. 1040a form to print For rules on using the installment method for a contingent payment sale, see Regulations section 15a. 1040a form to print 453-1(c). 1040a form to print Single Sale of Several Assets If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. 1040a form to print You also have to allocate part of the selling price to each asset. 1040a form to print If you sell assets that constitute a trade or business, see Sale of a Business , later. 1040a form to print Unless an allocation of the selling price has been agreed to by both parties in an arm's-length transaction, you must allocate the selling price to an asset based on its FMV. 1040a form to print If the buyer assumes a debt, or takes the property subject to a debt, you must reduce the FMV of the property by the debt. 1040a form to print This becomes the net FMV. 1040a form to print A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method. 1040a form to print However, if an asset is sold at a loss, its disposition cannot be reported on the installment method. 1040a form to print It must be reported separately. 1040a form to print The remaining assets sold at a gain are reported together. 1040a form to print Example. 1040a form to print You sold three separate and unrelated parcels of real property (A, B, and C) under a single contract calling for a total selling price of $130,000. 1040a form to print The total selling price consisted of a cash payment of $20,000, the buyer's assumption of a $30,000 mortgage on parcel B, and an installment obligation of $80,000 payable in eight annual installments, plus interest at 8% a year. 1040a form to print Your installment sale basis for each parcel was $15,000. 1040a form to print Your net gain was $85,000 ($130,000 − $45,000). 1040a form to print You report the gain on the installment method. 1040a form to print The sales contract did not allocate the selling price or the cash payment received in the year of sale among the individual parcels. 1040a form to print The FMV of parcels A, B, and C were $60,000, $60,000, and $10,000, respectively. 1040a form to print The installment sale basis for parcel C was more than its FMV, so it was sold at a loss and must be treated separately. 1040a form to print You must allocate the total selling price and the amounts received in the year of sale between parcel C and the remaining parcels. 1040a form to print Of the total $130,000 selling price, you must allocate $120,000 to parcels A and B together and $10,000 to parcel C. 1040a form to print You should allocate the cash payment of $20,000 received in the year of sale and the note receivable on the basis of their proportionate net FMV. 1040a form to print The allocation is figured as follows:   Parcels   A and B Parcel C FMV $120,000 $10,000 Minus: Mortgage assumed 30,000 -0- Net FMV $ 90,000 $10,000 Proportionate net FMV:     Percentage of total 90% 10% Payments in year of sale:     $20,000 × 90% $18,000   $20,000 × 10%   $2,000 Excess of parcel B mortgage over installment sale basis 15,000 -0- Allocation of payments  received (or considered  received) in year of sale $ 33,000 $ 2,000 You cannot report the sale of parcel C on the installment method because the sale results in a loss. 1040a form to print You report this loss of $5,000 ($10,000 selling price − $15,000 installment sale basis) in the year of sale. 1040a form to print However, if parcel C was held for personal use, the loss is not deductible. 1040a form to print You allocate the installment obligation of $80,000 to the properties sold based on their proportionate net FMVs (90% to parcels A and B, 10% to parcel C). 1040a form to print Sale of a Business The installment sale of an entire business for one overall price under a single contract is not the sale of a single asset. 1040a form to print Allocation of Selling Price To determine whether any of the gain on the sale of the business can be reported on the installment method, you must allocate the total selling price and the payments received in the year of sale between each of the following classes of assets. 1040a form to print Assets sold at a loss. 1040a form to print Real and personal property eligible for the installment method. 1040a form to print Real and personal property ineligible for the installment method, including: Inventory, Dealer property, and Stocks and securities. 1040a form to print Inventory. 1040a form to print   The sale of inventories of personal property cannot be reported on the installment method. 1040a form to print All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years. 1040a form to print   If inventory items are included in an installment sale, you may have an agreement stating which payments are for inventory and which are for the other assets being sold. 1040a form to print If you do not, each payment must be allocated between the inventory and the other assets sold. 1040a form to print   Report the amount you receive (or will receive) on the sale of inventory items as ordinary business income. 1040a form to print Use your basis in the inventory to figure the cost of goods sold. 1040a form to print Deduct the part of the selling expenses allocated to inventory as an ordinary business expense. 1040a form to print Residual method. 1040a form to print   Except for assets exchanged under the like-kind exchange rules, both the buyer and seller of a business must use the residual method to allocate the sale price to each business asset sold. 1040a form to print This method determines gain or loss from the transfer of each asset and the buyer's basis in the assets. 1040a form to print   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. 1040a form to print This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b). 1040a form to print   A group of assets constitutes a trade or business if goodwill or going concern value could, under any circumstances, attach to the assets or if the use of the assets would constitute an active trade or business under section 355. 1040a form to print   The residual method provides for the consideration to be reduced first by cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). 1040a form to print The consideration remaining after this reduction must be allocated among the various business assets in a certain order. 1040a form to print   For asset acquisitions occurring after March 15, 2001, make the allocation among the following assets in proportion to (but not more than) their fair market value on the purchase date in the following order. 1040a form to print Certificates of deposit, U. 1040a form to print S. 1040a form to print Government securities, foreign currency, and actively traded personal property, including stock and securities. 1040a form to print Accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. 1040a form to print However, see Regulations section 1. 1040a form to print 338-6(b)(2)(iii) for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. 1040a form to print Property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. 1040a form to print All other assets except section 197 intangibles. 1040a form to print Section 197 intangibles except goodwill and going concern value. 1040a form to print Goodwill and going concern value (whether or not they qualify as section 197 intangibles). 1040a form to print   If an asset described in (1) through (6) is includible in more than one category, include it in the lower number category. 1040a form to print For example, if an asset is described in both (4) and (6), include it in (4). 1040a form to print Agreement. 1040a form to print   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. 1040a form to print This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. 1040a form to print Reporting requirement. 1040a form to print   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. 1040a form to print Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. 1040a form to print The buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. 1040a form to print Sale of Partnership Interest A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. 1040a form to print The sale of a partnership interest is treated as the sale of a single capital asset. 1040a form to print The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary income. 1040a form to print (The term “unrealized receivables” includes depreciation recapture income, discussed earlier. 1040a form to print ) The gain allocated to the unrealized receivables and the inventory cannot be reported under the installment method. 1040a form to print The gain allocated to the other assets can be reported under the installment method. 1040a form to print For more information on the treatment of unrealized receivables and inventory, see Publication 541. 1040a form to print Example — Sale of a Business On June 4, 2013, you sold the machine shop you had operated since 2005. 1040a form to print You received a $100,000 down payment and the buyer's note for $120,000. 1040a form to print The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2014. 1040a form to print The total selling price is $220,000. 1040a form to print Your selling expenses are $11,000. 1040a form to print The selling expenses are divided among all the assets sold, including inventory. 1040a form to print Your selling expense for each asset is 5% of the asset's selling price ($11,000 selling expense ÷ $220,000 total selling price). 1040a form to print The FMV, adjusted basis, and depreciation claimed on each asset sold are as follows:     Depre- ciation Adj. 1040a form to print Asset FMV Claimed Basis Inventory $ 10,000 -0- $ 8,000 Land 42,000 -0- 15,000 Building 48,000 $9,000 36,000 Machine A 71,000 27,200 63,800 Machine B 24,000 12,960 22,040 Truck 6,500 18,624 5,376   $201,500 $67,784 $150,216         Under the residual method, you allocate the selling price to each of the assets based on their FMV ($201,500). 1040a form to print The remaining $18,500 ($220,000 - $201,500) is allocated to your section 197 intangible, goodwill. 1040a form to print The assets included in the sale, their selling prices based on their FMVs, the selling expense allocated to each asset, the adjusted basis, and the gain for each asset are shown in the following chart. 1040a form to print   Sale  Price Sale   Exp. 1040a form to print Adj. 1040a form to print   Basis Gain Inventory $ 10,000 $ 500 $ 8,000 $ 1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Mch. 1040a form to print A 71,000 3,550 63,800 3,650 Mch. 1040a form to print B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill 18,500 925 -0- 17,575   $220,000 $11,000 $150,216 $58,784 The building was acquired in 2005, the year the business began, and it is section 1250 property. 1040a form to print There is no depreciation recapture income because the building was depreciated using the straight line method. 1040a form to print All gain on the truck, machine A, and machine B is depreciation recapture income since it is the lesser of the depreciation claimed or the gain on the sale. 1040a form to print Figure depreciation recapture in Part III of Form 4797. 1040a form to print The total depreciation recapture income reported in Part II of Form 4797 is $5,209. 1040a form to print This consists of $3,650 on machine A, $799 on the truck, and $760 on machine B (the gain on each item because it was less than the depreciation claimed). 1040a form to print These gains are reported in full in the year of sale and are not included in the installment sale computation. 1040a form to print Of the $220,000 total selling price, the $10,000 for inventory assets cannot be reported using the installment method. 1040a form to print The selling prices of the truck and machines are also removed from the total selling price because gain on these items is reported in full in the year of sale. 1040a form to print The selling price equals the contract price for the installment sale ($108,500). 1040a form to print The assets included in the installment sale, their selling price, and their installment sale bases are shown in the following chart. 1040a form to print   Selling  Price Install- ment  Sale  Basis Gross  Profit Land $ 42,000 $17,100 $24,900 Building 48,000 38,400 9,600 Goodwill 18,500 925 17,575 Total $108,500 $56,425 $52,075         The gross profit percentage (gross profit ÷ contract price) for the installment sale is 48% ($52,075 ÷ $108,500). 1040a form to print The gross profit percentage for each asset is figured as follows: Percentage Land— $24,900 ÷ $108,500 22. 1040a form to print 95 Building— $9,600 ÷ $108,500 8. 1040a form to print 85 Goodwill— $17,575 ÷ $108,500 16. 1040a form to print 20 Total 48. 1040a form to print 00 The sale includes assets sold on the installment method and assets for which the gain is reported in full in the year of sale, so payments must be allocated between the installment part of the sale and the part reported in the year of sale. 1040a form to print The selling price for the installment sale is $108,500. 1040a form to print This is 49. 1040a form to print 3% of the total selling price of $220,000 ($108,500 ÷ $220,000). 1040a form to print The selling price of assets not reported on the installment method is $111,500. 1040a form to print This is 50. 1040a form to print 7% ($111,500 ÷ $220,000) of the total selling price. 1040a form to print Multiply principal payments by 49. 1040a form to print 3% to determine the part of the payment for the installment sale. 1040a form to print The balance, 50. 1040a form to print 7%, is for the part reported in the year of the sale. 1040a form to print The gain on the sale of the inventory, machines, and truck is reported in full in the year of sale. 1040a form to print When you receive principal payments in later years, no part of the payment for the sale of these assets is included in gross income. 1040a form to print Only the part for the installment sale (49. 1040a form to print 3%) is used in the installment sale computation. 1040a form to print The only payment received in 2013 is the down payment of $100,000. 1040a form to print The part of the payment for the installment sale is $49,300 ($100,000 × 49. 1040a form to print 3%). 1040a form to print This amount is used in the installment sale computation. 1040a form to print Installment income for 2013. 1040a form to print   Your installment income for each asset is the gross profit percentage for that asset times $49,300, the installment income received in 2013. 1040a form to print Income Land—22. 1040a form to print 95% of $49,300 $11,314 Building—8. 1040a form to print 85% of $49,300 4,363 Goodwill—16. 1040a form to print 2% of $49,300 7,987 Total installment income for 2013 $23,664 Installment income after 2013. 1040a form to print   You figure installment income for years after 2013 by applying the same gross profit percentages to 49. 1040a form to print 3% of the total payments you receive on the buyer's note during the year. 1040a form to print Unstated Interest and Original Issue Discount (OID) An installment sale contract may provide that each deferred payment on the sale will include interest or that there will be an interest payment in addition to the principal payment. 1040a form to print Interest provided in the contract is called stated interest. 1040a form to print If an installment sale contract does not provide for adequate stated interest, part of the stated principal amount of the contract may be recharacterized as interest. 1040a form to print If section 483 applies to the contract, this interest is called unstated interest. 1040a form to print If section 1274 applies to the contract, this interest is called original issue discount (OID). 1040a form to print An installment sale contract does not provide for adequate stated interest if the stated interest rate is lower than the test rate (defined later). 1040a form to print Treatment of unstated interest and OID. 1040a form to print   Generally, if a buyer gives a debt in consideration for personal use property, the unstated interest rules do not apply. 1040a form to print As a result, the buyer cannot deduct the unstated interest. 1040a form to print The seller must report the unstated interest as income. 1040a form to print   Personal-use property is any property in which substantially all of its use by the buyer is not in connection with a trade or business or an investment activity. 1040a form to print   If the debt is subject to the section 483 rules and is also subject to the below-market loan rules, such as a gift loan, compensation-related loan, or corporation-shareholder loan, then both parties are subject to the below-market loan rules rather than the unstated interest rules. 1040a form to print Rules for the seller. 1040a form to print   If either section 1274 or section 483 applies to the installment sale contract, you must treat part of the installment sale price as interest, even though interest is not called for in the sales agreement. 1040a form to print If either section applies, you must reduce the stated selling price of the property and increase your interest income by this unstated interest. 1040a form to print   Include the unstated interest in income based on your regular method of accounting. 1040a form to print Include OID in income over the term of the contract. 1040a form to print   The OID includible in income each year is based on the constant yield method described in section 1272. 1040a form to print (In some cases, the OID on an installment sale contract also may include all or part of the stated interest, especially if the stated interest is not paid at least annually. 1040a form to print )   If you do not use the installment method to report the sale, report the entire gain under your method of accounting in the year of sale. 1040a form to print Reduce the selling price by any stated principal treated as interest to determine the gain. 1040a form to print   Report unstated interest or OID on your tax return, in addition to stated interest. 1040a form to print Rules for the buyer. 1040a form to print   Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer's basis in the property and increases the buyer's interest expense. 1040a form to print These rules do not apply to personal-use property (for example, property not used in a trade or business). 1040a form to print Adequate stated interest. 1040a form to print   An installment sale contract generally provides for adequate stated interest if the contract's stated principal amount is at least equal to the sum of the present values of all principal and interest payments called for under the contract. 1040a form to print The present value of a payment is determined based on the test rate of interest, defined next. 1040a form to print (If section 483 applies to the contract, payments due within six months after the sale are taken into account at face value. 1040a form to print ) In general, an installment sale contract provides for adequate stated interest if the stated interest rate (based on an appropriate compounding period) is at least equal to the test rate of interest. 1040a form to print Test rate of interest. 1040a form to print   The test rate of interest for a contract is the 3-month rate. 1040a form to print The 3-month rate is the lower of the following applicable federal rates (AFRs). 1040a form to print The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the first month in which there is a binding written contract that substantially provides the terms under which the sale or exchange is ultimately completed. 1040a form to print The lowest AFR (based on the appropriate compounding period) in effect during the 3-month period ending with the month in which the sale or exchange occurs. 1040a form to print Applicable federal rate (AFR). 1040a form to print   The AFR depends on the month the binding

Publication 17 (2013), Your Federal Income Tax

For Individuals

For use in preparing 2013 Returns


Table of Contents


More Online Publications

The 1040a Form To Print

1040a form to print Publication 3920 - Main Contents Table of Contents Tax ForgivenessYears Eligible for Tax Forgiveness Amount of Tax Forgiven Refund of Taxes Paid How To Claim Tax Forgiveness Payments to SurvivorsSeptember 11th Victim Compensation Fund of 2001 Qualified Disaster Relief Payments Disability Payments Death Benefits Canceled Debt Payments to Survivors of Public Safety Officers Postponed Tax DeadlinesCovered area. 1040a form to print Disaster Area Losses Estate Tax Reduction Structured Settlement Factoring Transactions Illustrated Worksheets B and C Additional Worksheets How To Get Tax Help Tax Forgiveness The IRS will forgive the federal income tax liabilities of decedents who died as a result of the Oklahoma City attack, September 11 attacks, and anthrax attacks. 1040a form to print Income tax is forgiven for these decedents whether they were killed in an attack or in rescue or recovery operations. 1040a form to print Any forgiven tax liability owed to the IRS will not have to be paid. 1040a form to print Any forgiven tax liability that has already been paid will be refunded. 1040a form to print (See Refund of Taxes Paid, later. 1040a form to print ) To determine the amount of tax to be forgiven, read Years Eligible for Tax Forgiveness first. 1040a form to print Then read Amount of Tax Forgiven. 1040a form to print Decedents whose total forgiven tax liability for all eligible years is less than $10,000 are entitled to $10,000 minimum relief. 1040a form to print Even decedents who were not required to file tax returns for the eligible tax years are entitled to $10,000 minimum relief. 1040a form to print See Minimum Amount of Relief later under Amount of Tax Forgiven. 1040a form to print Years Eligible for Tax Forgiveness The following paragraphs explain which years are eligible for tax forgiveness. 1040a form to print Oklahoma City attack. 1040a form to print   For those who died from this attack, income tax is forgiven for 1994 and all later years up to and including the year of death. 1040a form to print Example 1. 1040a form to print A man was killed in the bombing of the federal building in Oklahoma City on April 19, 1995. 1040a form to print His income tax is forgiven for 1994 and 1995. 1040a form to print Example 2. 1040a form to print A woman was wounded while walking outside the federal building in Oklahoma City on April 19, 1995. 1040a form to print She subsequently died of her wounds in 1996. 1040a form to print Her income tax is forgiven for 1994, 1995, and 1996. 1040a form to print September 11 attacks and anthrax attacks. 1040a form to print   For those who die from these attacks, income tax is forgiven for 2000 and all later years up to and including the year of death. 1040a form to print Example 1. 1040a form to print A Pentagon employee died in the September 11 attack. 1040a form to print Her income tax is forgiven for 2000 and 2001. 1040a form to print Example 2. 1040a form to print A visitor to the World Trade Center died in 2002 of wounds he sustained in the September 11 attack. 1040a form to print His income tax liability is forgiven for 2000, 2001, and 2002. 1040a form to print Amount of Tax Forgiven The IRS will forgive the decedent's income tax liability for all years eligible for tax forgiveness. 1040a form to print On a joint return, only the decedent's part of the joint income tax liability is eligible for forgiveness. 1040a form to print To figure the tax to be forgiven, use the following worksheets. 1040a form to print Use Worksheet A for any eligible year the decedent filed a return as single, married filing separately, head of household, or qualifying widow(er). 1040a form to print Use Worksheet B for any eligible year the decedent filed a joint return. 1040a form to print See the illustrated Worksheet B near the end of this publication. 1040a form to print Do not complete Worksheet A or B if the decedent was not required to file tax returns for the eligible tax years. 1040a form to print Instead, complete Worksheet C and file a return for the decedent's last tax year. 1040a form to print See Minimum Amount of Relief, later. 1040a form to print If you need assistance, call the IRS at 1–866–562–5227 Monday through Friday during the following times. 1040a form to print In English–7 a. 1040a form to print m. 1040a form to print to 10 p. 1040a form to print m. 1040a form to print local time. 1040a form to print In Spanish–8 a. 1040a form to print m. 1040a form to print to 9:30 p. 1040a form to print m. 1040a form to print local time. 1040a form to print Both spouses died. 1040a form to print   If both spouses died as a result of a terrorist attack and they filed a joint return for an eligible tax year, fill out Worksheet B for each spouse for that year. 1040a form to print Do this to determine if each spouse qualifies for the minimum relief of $10,000 (discussed later under Minimum Amount of Relief). 1040a form to print If you are certain that neither spouse's total forgiven tax liability for all eligible years is less than $10,000, skip Worksheet B. 1040a form to print However, attach a computation of the forgiven tax liability to the final income tax return or amended tax return for each eligible year. 1040a form to print The forgiven tax liability is the total tax shown on the joint return minus the taxes listed in the instructions for line 4 of Worksheet B. 1040a form to print Residents of community property states. 1040a form to print   If the decedent was domiciled in a community property state and the spouse reported half the community income on a separate return, the surviving spouse can get a refund of taxes paid on his or her share of the decedent's income for the eligible years. 1040a form to print Also, all of the decedent's income taxes paid for the eligible years will be refunded to either the executor or administrator of the estate, or to the surviving spouse if there is no legal representative. 1040a form to print Worksheet B. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1       2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2       3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4       5 Subtract line 4 from line 3. 1040a form to print 5       6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 6       7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8       9 Subtract line 8 from line 7. 1040a form to print 9       10 Add lines 5 and 9. 1040a form to print 10       11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11       12 Add lines 4 and 8. 1040a form to print 12       13 Subtract line 12 from line 11. 1040a form to print 13       14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14       15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet B. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1       2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2       3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4       5 Subtract line 4 from line 3. 1040a form to print 5       6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 6       7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8       9 Subtract line 8 from line 7. 1040a form to print 9       10 Add lines 5 and 9. 1040a form to print 10       11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11       12 Add lines 4 and 8. 1040a form to print 12       13 Subtract line 12 from line 11. 1040a form to print 13       14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14       15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Instructions for Worksheet B Table 1. 1040a form to print Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. 1040a form to print * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. 1040a form to print ** File Form 4506 to get a transcript of the decedent's account. 1040a form to print Table 1. 1040a form to print Total Tax Line on Decedent's Return Note: Use this table to find the total tax line on the decedent's income tax return. 1040a form to print * Form 1994 1995 1996 2000 2001 1040 Line 53 Line 54 Line 51 Line 57 Line 58 1040A Line 27 Line 28 Line 28 Line 35 File Form 1040 1040EZ Line 9 Line 10 Line 10 Line 10 TeleFile Tax Record ** Line E Line J Line K 1040NR Line 51 Line 52 Line 49 Line 54 Line 54 1040NR–EZ N/A Line 17 Line 17 Line 18 File Form 1040NR * Line numbers for the 2002 forms were not available when this publication went to print. 1040a form to print ** File Form 4506 to get a transcript of the decedent's account. 1040a form to print Lines 2 and 6. 1040a form to print   Allocate income and deductions in the same manner they would have been allocated if the spouses had filed separate returns. 1040a form to print   Allocate wages and salaries to the spouse who performed the services and received the Form W-2. 1040a form to print Business and investment income (including capital gains) are generally allocated to the spouse who owned the business or investment that produced the income. 1040a form to print Income from a jointly owned business or investment should be allocated equally between the spouses unless there is evidence that shows a different allocation is appropriate. 1040a form to print   Allocate business deductions to the owner of the business. 1040a form to print Allocate personal deductions (such as itemized deductions for mortgage interest and taxes) equally between the spouses unless there is evidence that shows a different allocation is appropriate. 1040a form to print Lines 3 and 7. 1040a form to print   Figure the total tax as if a separate return had been filed. 1040a form to print The total tax is the tax that would have been entered on the tax return line shown in Table 1 if a separate return had been filed. 1040a form to print When figuring the tax using the Tax Table or Tax Rate Schedule, use the “Married filing separately” column in the Tax Table or Tax Rate Schedule Y-2. 1040a form to print   When figuring the total tax, allocate credits and other taxes, if any, in the same manner as they would have been allocated if the spouses had filed separate returns. 1040a form to print If a credit would not have been allowed on a separate return, allocate the credit shown on the joint return between the spouses. 1040a form to print Examples of credits generally not allowed on a separate return are the child and dependent care credit, credit for the elderly, adoption credit, education credits, and earned income credit. 1040a form to print Line 4. 1040a form to print   Enter the total, if any, of the following taxes. 1040a form to print Self-employment tax. 1040a form to print Social security and Medicare tax on tip income not reported to employer. 1040a form to print Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040a form to print Tax on excess accumulation in qualified retirement plans. 1040a form to print Household employment taxes. 1040a form to print Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040a form to print Tax on golden parachute payments. 1040a form to print Minimum Amount of Relief The minimum amount of relief is $10,000. 1040a form to print If the decedent's total forgiven tax liability for all eligible years is less than $10,000, the difference between $10,000 and the total forgiven tax liability for those years will be treated as a tax payment for the decedent's last tax year. 1040a form to print The IRS will refund the difference as explained under Refund of Taxes Paid. 1040a form to print Use Worksheet C to figure the additional tax payment. 1040a form to print But first complete Worksheet A or B, unless the decedent was not required to file tax returns for the eligible tax years. 1040a form to print Example 1. 1040a form to print An individual who died in the September 11 attacks had an income tax liability of $-0- for 2000 and $6,400 for 2001. 1040a form to print The $6,400 is eligible for forgiveness. 1040a form to print The IRS will forgive $6,400 and treat the difference between $10,000 and $6,400 ($3,600) as a tax payment for 2001. 1040a form to print Example 2. 1040a form to print A child who died in the September 11 attacks had no (-0-) income tax liability for 2000 or 2001. 1040a form to print The IRS will treat $10,000 as a tax payment for 2001. 1040a form to print Income received after date of death. 1040a form to print   Generally, income of the decedent received after the date of death must be reported on Form 1041 if the estate has gross income for the tax year of $600 or more. 1040a form to print Examples are the final paycheck or dividends on stock owned by the decedent. 1040a form to print However, this income is exempt from income tax and is not included on Form 1041 if it is received: After the date of the decedent's death, and Before the end of the decedent's tax year (determined without regard to death). 1040a form to print Nonqualifying income. 1040a form to print   The following income is not exempt from tax. 1040a form to print The tax on it is not eligible for forgiveness. 1040a form to print Deferred compensation that would have been payable if the death had occurred because of an event other than these attacks. 1040a form to print Amounts that would not have been payable but for an action taken after September 11, 2001. 1040a form to print The following are examples of nonqualifying income. 1040a form to print Amounts payable from a qualified retirement plan or IRA to the beneficiary or estate of the decedent. 1040a form to print Amounts payable only as death or survivor's benefits from pre-existing arrangements that would have been paid if the death had occurred for another reason. 1040a form to print Income received as a result of adjustments made by the decedent's employer to a plan or arrangement to accelerate the vesting of restricted property or the payment of nonqualified deferred compensation after the date of the attack. 1040a form to print Interest on savings bonds cashed by the beneficiary of the decedent. 1040a form to print If you are responsible for the estate of a decedent, see Publication 559. 1040a form to print Publication 559 discusses how to complete and file federal income tax returns and explains your responsibility to pay any taxes due. 1040a form to print Instructions for lines 2–9 of Worksheet C. 1040a form to print   The tax that would have been payable on the exempt income (discussed earlier) must be considered when determining whether a decedent is entitled to the $10,000 minimum relief. 1040a form to print To figure the tax that would have been payable, you can use lines 2 through 9 of Worksheet C. 1040a form to print Or, if special requirements are met, you can use the alternative computation instead. 1040a form to print See Alternative computation, later. 1040a form to print   You have to use lines 2–9 (or the alternative computation) to figure the tax that would have been payable even if Form 1041 was not required to be filed. 1040a form to print Use Form 1041 to figure what the taxable income would be without including the exempt income. 1040a form to print Then enter that taxable income (even if a negative number) on line 2 of Worksheet C (or line 1 of Worksheet D, Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C)). 1040a form to print Alternative computation. 1040a form to print   Instead of using lines 2–8 of Worksheet C to figure the tax on exempt income (line 9 of Worksheet C), you may be able to use Worksheet D. 1040a form to print You can use Worksheet D to figure the tax on the exempt income payable by the estate and its beneficiaries only if both of the following requirements are met. 1040a form to print The estate claimed an income distribution deduction on line 18 (Form 1041). 1040a form to print Each beneficiary submits the information necessary to refigure the income tax payable on the exempt income received from the decedent's estate. 1040a form to print If requirement (2) is met but requirement (1) is not, you can still use Worksheet D if: Form 1041 was not required because exempt income was received, and The estate would have claimed an income distribution deduction if the exempt income were taxable. 1040a form to print If you use this alternative computation, skip lines 2–8 of Worksheet C and enter the amount from line 8 of Worksheet D on line 9 of Worksheet C. 1040a form to print Complete the rest of Worksheet C to determine the additional payment allowed. 1040a form to print Worksheet C. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum relief amount. 1040a form to print Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3       4 Add lines 2 and 3. 1040a form to print 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5       6 Add lines 4 and 5. 1040a form to print 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8       9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10       11 Add lines 9 and 10. 1040a form to print 11   12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12   Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print Worksheet C. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum relief amount. 1040a form to print Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3       4 Add lines 2 and 3. 1040a form to print 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5       6 Add lines 4 and 5. 1040a form to print 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8       9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10       11 Add lines 9 and 10. 1040a form to print 11   12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12   Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print Worksheet D. 1040a form to print Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). 1040a form to print 4   5 Figure the tax on line 1 using Schedule G (Form 1041). 1040a form to print 5   6 Estate's tax on exempt income. 1040a form to print Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. 1040a form to print Figure the total tax that would have been payable by all beneficiaries. 1040a form to print Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. 1040a form to print Add the amounts by which each beneficiary's income tax is increased. 1040a form to print 7   8 Add lines 6 and 7. 1040a form to print Enter this amount on line 9 of Worksheet C. 1040a form to print 8   Worksheet D. 1040a form to print Alternative Computation of Tax on Exempt Income (Line 9 of Worksheet C) 1 Enter the taxable income from line 22 (Form 1041) 1   2 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 2   3 Add lines 1 and 2 3   4 Figure the tax on line 3 using Schedule G (Form 1041). 1040a form to print 4   5 Figure the tax on line 1 using Schedule G (Form 1041). 1040a form to print 5   6 Estate's tax on exempt income. 1040a form to print Subtract line 5 from line 4 6   7 Beneficiaries' tax on exempt income. 1040a form to print Figure the total tax that would have been payable by all beneficiaries. 1040a form to print Do this by including in each beneficiary's gross income the exempt income received from the decedent's estate and refiguring the income tax. 1040a form to print Add the amounts by which each beneficiary's income tax is increased. 1040a form to print 7   8 Add lines 6 and 7. 1040a form to print Enter this amount on line 9 of Worksheet C. 1040a form to print 8   Refund of Taxes Paid The IRS will refund the following forgiven income tax liabilities. 1040a form to print Income tax liabilities that have been paid. 1040a form to print Income tax liabilities treated as paid because the total tax liability for all years eligible for tax forgiveness is less than $10,000. 1040a form to print See Minimum Amount of Relief, earlier. 1040a form to print Example 1. 1040a form to print A man who died in the September 11 attacks had an income tax liability of $7,500 for 2000 and $6,500 for 2001. 1040a form to print The total, $14,000, is eligible for tax forgiveness. 1040a form to print However, he paid only $13,000 of that amount. 1040a form to print The IRS will refund the $13,000 paid. 1040a form to print Example 2. 1040a form to print A child who died in the September 11 attacks had no income tax liability for 2000 or 2001. 1040a form to print The child qualifies for the minimum relief of $10,000. 1040a form to print The $10,000 is treated as a tax payment for 2001 and will be refunded. 1040a form to print Period for filing a claim for credit or refund. 1040a form to print   To obtain a tax refund on a previously filed income tax return, file an amended return (Form 1040X or an amended Form 1041) within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. 1040a form to print For example, you have until April 15, 2004, to file an amended return on a 2000 Form 1040, 1040A, or 1040EZ that was filed by April 16, 2001, and for which the tax was paid when due. 1040a form to print To obtain a refund on a return that has not been filed, file the return within 3 years of the original due date of the return. 1040a form to print Extension of time for victims of Oklahoma City attack. 1040a form to print   The period described above has been extended for victims of the Oklahoma City attack. 1040a form to print Survivors and personal representatives of these victims have until January 22, 2003, to file an original or amended return. 1040a form to print How To Claim Tax Forgiveness Use the following procedures to claim income tax forgiveness. 1040a form to print Which Form To Use The form you use depends on whether an income tax return for the eligible year was already filed for the decedent. 1040a form to print Return required but not yet filed. 1040a form to print   File Form 1040 if the decedent was a U. 1040a form to print S. 1040a form to print citizen or resident. 1040a form to print File Form 1040NR if the decedent was a nonresident alien. 1040a form to print A nonresident alien is someone who is not a U. 1040a form to print S. 1040a form to print citizen or resident. 1040a form to print Return required and already filed. 1040a form to print   File a separate Form 1040X for each year you are claiming tax relief. 1040a form to print Return not required and not filed. 1040a form to print   File Form 1040 only for the year of death if the decedent was a U. 1040a form to print S. 1040a form to print citizen or resident. 1040a form to print File Form 1040NR if the decedent was a nonresident alien. 1040a form to print Return not required but already filed. 1040a form to print   File Form 1040X only for the year of death. 1040a form to print How to complete the returns. 1040a form to print   Fill out Form 1040 or 1040NR according to its instructions but do not reduce the decedent's tax liability by any taxes that will be forgiven. 1040a form to print Attach to each return a computation of the income tax to be forgiven or a copy of Worksheet A or B. 1040a form to print If filing Form 1040 or Form 1040NR, also attach any Forms W–2. 1040a form to print If the total forgiven tax liability for all eligible years is less than $10,000, attach to the decedent's final return a computation of the additional tax payment allowed or a copy of Worksheet C. 1040a form to print Also, please write one of the following across the top of page 1 of each return. 1040a form to print KITA—Oklahoma City KITA—9/11 KITA—Anthrax “KITA” means “killed in terrorist attack. 1040a form to print ” Need a copy of a previously filed return?   You will find it easier to prepare Form 1040X if you have a copy of the decedent's previously filed tax return. 1040a form to print If you need a copy, use Form 4506. 1040a form to print The IRS will provide a free copy of the tax return if you write “DISASTER” in the top margin of Form 4506. 1040a form to print Attach Letters Testamentary or other evidence to establish that you are authorized to act for the decedent's estate. 1040a form to print Send Form 4506 to the address shown in the form instructions. 1040a form to print Taxpayer identification number. 1040a form to print   A taxpayer identification number must be furnished on the decedent's returns. 1040a form to print This is usually the decedent's social security number (SSN). 1040a form to print However, a nonresident alien who is not eligible to get an SSN should have an individual taxpayer identification number (ITIN). 1040a form to print If the decedent was a nonresident alien, had neither an SSN nor an ITIN, and was not required to file a U. 1040a form to print S. 1040a form to print income tax return for any tax year, do not apply for an ITIN. 1040a form to print You may claim a refund by filing Form 1040NR without an SSN or ITIN. 1040a form to print Necessary Documents Please attach the following documents to the return or amended return. 1040a form to print Proof of death. 1040a form to print   Attach a copy of the death certificate. 1040a form to print If the Department of Defense issued DD Form 1300, Report of Casualty, you can attach that form instead of the death certificate. 1040a form to print Form 1310. 1040a form to print   You must send Form 1310 with all returns and claims for refund, unless either of the following applies. 1040a form to print You are a surviving spouse filing an original or amended joint return with the decedent. 1040a form to print You are a personal representative filing an original Form 1040 or Form 1040NR for the decedent and a court certificate showing your appointment is attached to the return. 1040a form to print A personal representative is an executor or administrator of a decedent's estate, as certified or appointed by the court. 1040a form to print A copy of the decedent's will cannot be accepted as evidence that you are the personal representative. 1040a form to print      If you have proof of death but do not have enough tax information to file a timely claim for a refund, file Form 1040X with Form 1310. 1040a form to print Include a statement saying an amended return will be filed as soon as the necessary tax information is available. 1040a form to print Where To File The IRS has set up a special office for processing returns and claims for tax forgiveness. 1040a form to print Use one of the addresses shown below. 1040a form to print Where you file the returns or claims depends on whether you use the U. 1040a form to print S. 1040a form to print Postal Service or a private delivery service. 1040a form to print Please do not send these returns or claims to any of the addresses shown in the tax form instructions. 1040a form to print U. 1040a form to print S. 1040a form to print Postal Service. 1040a form to print   If you use the U. 1040a form to print S. 1040a form to print Postal Service, file these returns and claims at the following address. 1040a form to print Internal Revenue Service P. 1040a form to print O. 1040a form to print Box 4053 Woburn, MA 01888 Private delivery service. 1040a form to print   Private delivery services cannot deliver items to P. 1040a form to print O. 1040a form to print boxes. 1040a form to print If you use a private delivery service, file these returns and claims at the following address. 1040a form to print Internal Revenue Service Stop 661 310 Lowell St. 1040a form to print Andover, MA 01810 Designated private delivery services. 1040a form to print   You can use the following private delivery services to file these returns and claims. 1040a form to print Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, and Second Day Service. 1040a form to print DHL Worldwide Express (DHL): DHL “Same Day” Service, and DHL USA Overnight. 1040a form to print Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, and FedEx 2Day. 1040a form to print United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 1040a form to print M. 1040a form to print , UPS Worldwide Express Plus, and UPS Worldwide Express. 1040a form to print The private delivery service can tell you how to get written proof of the mailing date. 1040a form to print Payments to Survivors The following section discusses the tax treatment of certain amounts received by survivors. 1040a form to print September 11th Victim Compensation Fund of 2001 Payments from the September 11th Victim Compensation Fund of 2001 are not included in income. 1040a form to print Qualified Disaster Relief Payments Qualified disaster relief payments are not included in income. 1040a form to print These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). 1040a form to print No withholding applies to these payments. 1040a form to print Qualified disaster relief payments include payments you receive (regardless of the source) after September 10, 2001, for the following expenses. 1040a form to print Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a terrorist attack. 1040a form to print Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a terrorist attack. 1040a form to print (A personal residence can be a rented residence or one you own. 1040a form to print ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a terrorist attack. 1040a form to print Qualified disaster relief payments also include the following. 1040a form to print Payments made by common carriers (for example, American Airlines and United Airlines regarding the September 11 attacks) because of death or physical injury incurred as a result of a terrorist attack. 1040a form to print Amounts paid by a federal, state, or local government in connection with a terrorist attack to those affected by the attack. 1040a form to print Qualified disaster relief payments do not include: Insurance or other reimbursements for expenses, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. 1040a form to print Disability Payments For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies), whether outside or within the United States, are not included in income. 1040a form to print Death Benefits Payments received by an individual or the estate of a decedent from the employer of an employee who died as a result of the Oklahoma City or September 11 terrorist attacks, or as a result of the anthrax attacks, are not included in income. 1040a form to print Only the amount that exceeds the benefits that would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack is excludable. 1040a form to print However, the exclusion does apply to incidental death benefits paid under a qualified retirement plan even if these amounts would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack. 1040a form to print If you included death benefits in income on a previously filed return and they are now excludable under the above rule, file Form 1040X to amend that return. 1040a form to print For information on the period for filing Form 1040X, see Period for filing claim for credit or refund earlier under Refund of Taxes Paid. 1040a form to print If that period has expired, you are granted an extension. 1040a form to print You have until January 22, 2003, to file Form 1040X to exclude the death benefits. 1040a form to print On top of page 1 of Form 1040X, write “Extension of Limitations Under PL 107–134, sec. 1040a form to print 102(b)(2). 1040a form to print ” Canceled Debt Canceled debt is not included in your income (or the income of the estate) if: You (or the estate) were liable, or became liable, for the debt of a decedent, and The debt was canceled after September 10, 2001, and before January 1, 2002, because the decedent died as a result of the September 11 attacks or anthrax attacks. 1040a form to print The lender is not required to report the canceled debt on Form 1099–C, Cancellation of Debt. 1040a form to print Payments to Survivors of Public Safety Officers If you are a survivor of a public safety officer who died in the line of duty, certain amounts you receive are not included in income. 1040a form to print Bureau of Justice Assistance payments. 1040a form to print   If you are a surviving dependent of a public safety officer (law enforcement officer or firefighter) who died in the line of duty, do not include in your income the death benefit paid to you by the Bureau of Justice Assistance. 1040a form to print Government plan annuity. 1040a form to print   If you receive a survivor annuity as the child or spouse (or former spouse) of a public safety officer who was killed in the line of duty, you generally do not have to include it in income. 1040a form to print This exclusion applies to the amount of the annuity based on the officer's service as a public safety officer. 1040a form to print For this purpose, the term public safety officer includes police and law enforcement officers, firefighters, and rescue squad and ambulance crews. 1040a form to print More information. 1040a form to print   For more information, see Publication 559. 1040a form to print Postponed Tax Deadlines The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a terrorist attack. 1040a form to print The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. 1040a form to print If any tax deadline is postponed, the IRS will publicize the postponement in the affected area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). 1040a form to print Affected taxpayers. 1040a form to print   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. 1040a form to print Any individual whose main home is located in a covered area (defined later). 1040a form to print Any business entity or sole proprietor whose principal place of business is located in a covered area. 1040a form to print Any individual, business entity, or sole proprietor whose records needed to meet a postponed deadline are maintained in a covered area. 1040a form to print The main home or principal place of business does not have to be located in the covered area. 1040a form to print Any estate or trust whose tax records necessary to meet a postponed tax deadline are maintained in a covered area. 1040a form to print Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered area. 1040a form to print The spouse on a joint return with a taxpayer who is eligible for postponements. 1040a form to print Any other person determined by the IRS to be affected by a terrorist attack. 1040a form to print Covered area. 1040a form to print   This is an area in which a terrorist attack took place and in which the IRS has decided to postpone tax deadlines for up to 1 year. 1040a form to print Abatement of interest. 1040a form to print   The IRS may abate (forgive) the interest on any underpaid income tax for the length of any postponement. 1040a form to print Disaster Area Losses If your property was damaged or destroyed as a result of the September 11 attacks, you can choose to deduct your disaster loss on your 2000 return (or amended return) rather than on your 2001 return. 1040a form to print You must make this choice to deduct your loss on your 2000 return by the later of the following dates. 1040a form to print The due date (without extensions) for filing your 2001 income tax return (April 15, 2002, if you are a calendar year taxpayer). 1040a form to print The due date (with extensions) for the 2000 return. 1040a form to print For more information about disaster area losses, see Publication 547. 1040a form to print Estate Tax Reduction The federal estate tax is reduced for taxable estates of individuals who died as a result of the Oklahoma City attack, the September 11 attacks, and the anthrax attacks. 1040a form to print The estate tax is computed using a new rate schedule on page 25 of the November 2001 revision of the instructions for Form 706. 1040a form to print The estate tax is reduced by credits against the estate tax, including the unified credit and the state death tax credit. 1040a form to print These credits may reduce or eliminate the estate tax due. 1040a form to print A special rule extends until January 22, 2003, the period of time allowed to file a claim for a refund of estate taxes that have been paid. 1040a form to print Recovery from the September 11th Victim Compensation Fund. 1040a form to print   The value of claims for a decedent's pain and suffering is normally included in the gross estate. 1040a form to print However, if the estate chooses to seek recovery from this fund, the IRS has determined that, in view of the unique circumstances of this situation and the high likelihood that such claims will be valued at a nominal or zero amount, the claims will be valued at zero for estate tax purposes. 1040a form to print Thus, there are no federal estate tax consequences if an estate or beneficiary receives a recovery from this fund. 1040a form to print Which estates must file a return. 1040a form to print   For decedents dying in 2001, Form 706 must be filed by the executor for the estate of every U. 1040a form to print S. 1040a form to print citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $675,000. 1040a form to print Form 706 must be filed within 9 months after the date of decedent's death unless you receive an extension of time to file. 1040a form to print Use Form 4768, Application for Extension of Time To File a Return and/or Pay U. 1040a form to print S. 1040a form to print Estate (and Generation-Skipping Transfer) Taxes, to apply for an extension. 1040a form to print Where to file. 1040a form to print   Returns on which the new rate schedule is used should be sent to the following address, which was not available when Form 706 went to print. 1040a form to print Internal Revenue Service E & G Department/Stop 824T 201 W. 1040a form to print Rivercenter Blvd. 1040a form to print Covington, KY 41011 More information. 1040a form to print   For more information on the federal estate tax, see the instructions for Form 706. 1040a form to print Structured Settlement Factoring Transactions A person who acquires payment rights in a structured settlement arrangement after February 21, 2002, may be subject to a 40% excise tax unless the transfer of the payment rights was approved in advance in a qualified order. 1040a form to print The excise tax is figured on the excess of the undiscounted amount of the payments being acquired over the total amount actually paid to acquire them. 1040a form to print However, this tax will not apply to transactions entered into from February 22, 2002, to July 1, 2002, if certain requirements are met. 1040a form to print For information about these requirements, see Internal Revenue Code section 5891. 1040a form to print Worksheet B Illustrated. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1 2000 2001   2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2 $17,259 $14,295   3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4 3,532 3,109   5 Subtract line 4 from line 3. 1040a form to print 5 2,591 2,141   6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions for line 2. 1040a form to print 6 29,025 29,850   7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8 0 0   9 Subtract line 8 from line 7. 1040a form to print 9 5,277 5,391   10 Add lines 5 and 9. 1040a form to print 10 7,868 7,532   11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11 10,789 9,728   12 Add lines 4 and 8. 1040a form to print 12 3,532 3,109   13 Subtract line 12 from line 11. 1040a form to print 13 7,257 6,619   14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14 . 1040a form to print 329 . 1040a form to print 284   15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15 $2,388 $1,880   Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet B Illustrated. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1 2000 2001   2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2 $17,259 $14,295   3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3 6,123 5,250   4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4 3,532 3,109   5 Subtract line 4 from line 3. 1040a form to print 5 2,591 2,141   6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions for line 2. 1040a form to print 6 29,025 29,850   7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7 5,277 5,391   8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8 0 0   9 Subtract line 8 from line 7. 1040a form to print 9 5,277 5,391   10 Add lines 5 and 9. 1040a form to print 10 7,868 7,532   11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11 10,789 9,728   12 Add lines 4 and 8. 1040a form to print 12 3,532 3,109   13 Subtract line 12 from line 11. 1040a form to print 13 7,257 6,619   14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14 . 1040a form to print 329 . 1040a form to print 284   15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15 $2,388 $1,880   Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Illustrated Worksheets B and C A wife lost her husband in the September 11 attack on the World Trade Center. 1040a form to print They filed a joint return for 2000 and the wife chose to file a joint return as a surviving spouse for 2001. 1040a form to print The returns for 2000 and 2001 showed the following income, deductions, and tax liabilities. 1040a form to print After the husband died, his estate received income of $4,000. 1040a form to print Of that amount, $1,000 is net profit from Schedule C received before the end of 2001. 1040a form to print This net profit is exempt from income tax as explained earlier under Income received after date of death. 1040a form to print The wife files Form 1041 because the gross income of the estate for the tax year ($3,000) is $600 or more. 1040a form to print To determine how much of the husband's tax liability for 2000 and 2001 is to be forgiven, the wife completes Worksheet B. 1040a form to print She also completes Worksheet C because the forgiven tax liabilities for 2000 and 2001 (line 15 of Worksheet B) total less than $10,000. 1040a form to print To claim tax relief for 2000, the wife files Form 1040X and attaches a copy of Worksheet B. 1040a form to print To claim tax relief for 2001, she files Form 1040 and attaches copies of Worksheets B and C. 1040a form to print   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728   2000 2001 Wages (wife) $35,000 $36,000 Net profit from Schedule C, Profit or Loss From Business (husband) 25,000 22,000 Interest income (joint account) 1,000 1,100 Deduction for ½ of self-employment tax (husband) (1,766) (1,555) Standard deduction (7,350) (7,600) Personal exemptions (2) (5,600) (5,800) Taxable income $46,284 $44,145 Joint income tax liability $7,257 $6,619 Plus: Self-employment tax (husband) 3,532 3,109 Total tax liability $10,789 $9,728 Worksheet C Illustrated. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum relief amount. 1040a form to print Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3 0     4 Add lines 2 and 3. 1040a form to print 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5 1,000     6 Add lines 4 and 5. 1040a form to print 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8 435     9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10 4,268     11 Add lines 9 and 10. 1040a form to print 11 $4,543 12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12 $5,457 Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print Worksheet C Illustrated. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum relief of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum relief amount. 1040a form to print Note: Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2 2,400     3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3 0     4 Add lines 2 and 3. 1040a form to print 4 2,400     5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5 1,000     6 Add lines 4 and 5. 1040a form to print 6 3,400     7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7 710     8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8 435     9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9 275     10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10 4,268     11 Add lines 9 and 10. 1040a form to print 11 $4,543 12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12 $5,457 Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print Additional Worksheets The following additional worksheets are provided for your convenience. 1040a form to print Worksheet A. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040a form to print 1       2 Enter the total tax from the decedent's income tax return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040a form to print (These taxes are not eligible for forgiveness. 1040a form to print )           a Self-employment tax. 1040a form to print 3a         b Social security and Medicare tax on tip income not reported to employer. 1040a form to print 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040a form to print 3c         d Tax on excess accumulation in qualified retirement plans. 1040a form to print 3d         e Household employment taxes. 1040a form to print 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040a form to print 3f         g Tax on golden parachute payments. 1040a form to print 3g       4 Add lines 3a through 3g. 1040a form to print 4       5 Tax to be forgiven. 1040a form to print Subtract line 4 from line 2. 1040a form to print 5       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet A. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040a form to print 1       2 Enter the total tax from the decedent's income tax return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040a form to print (These taxes are not eligible for forgiveness. 1040a form to print )           a Self-employment tax. 1040a form to print 3a         b Social security and Medicare tax on tip income not reported to employer. 1040a form to print 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040a form to print 3c         d Tax on excess accumulation in qualified retirement plans. 1040a form to print 3d         e Household employment taxes. 1040a form to print 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040a form to print 3f         g Tax on golden parachute payments. 1040a form to print 3g       4 Add lines 3a through 3g. 1040a form to print 4       5 Tax to be forgiven. 1040a form to print Subtract line 4 from line 2. 1040a form to print 5       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet B. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1       2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2       3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4       5 Subtract line 4 from line 3. 1040a form to print 5       6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 6       7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8       9 Subtract line 8 from line 7. 1040a form to print 9       10 Add lines 5 and 9. 1040a form to print 10       11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11       12 Add lines 4 and 8. 1040a form to print 12       13 Subtract line 12 from line 11. 1040a form to print 13       14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14       15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet B. 1040a form to print Figuring the Tax To Be Forgiven (For Decedents Who Filed a Joint Return)       (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for forgiveness. 1040a form to print 1       2 Enter the decedent's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 2       3 Enter the decedent's total tax. 1040a form to print See the instructions. 1040a form to print 3       4 Enter the total, if any, of the decedent's taxes not eligible for forgiveness. 1040a form to print See the instructions. 1040a form to print 4       5 Subtract line 4 from line 3. 1040a form to print 5       6 Enter the surviving spouse's taxable income. 1040a form to print Figure taxable income as if a separate return had been filed. 1040a form to print See the instructions. 1040a form to print 6       7 Enter the surviving spouse's total tax. 1040a form to print See the instructions. 1040a form to print 7       8 Enter the total, if any, of the surviving spouse's taxes listed in the instructions for line 4. 1040a form to print 8       9 Subtract line 8 from line 7. 1040a form to print 9       10 Add lines 5 and 9. 1040a form to print 10       11 Enter the total tax from the joint return. 1040a form to print See Table 1 on page 5 for the line number for years before 2002. 1040a form to print 11       12 Add lines 4 and 8. 1040a form to print 12       13 Subtract line 12 from line 11. 1040a form to print 13       14 Divide line 5 by line 10. 1040a form to print Enter the result as a decimal. 1040a form to print 14       15 Tax to be forgiven. 1040a form to print Multiply line 13 by line 14 and enter the result. 1040a form to print 15       Note. 1040a form to print If the total of columns (A), (B), and (C) of line 15 (including any amounts shown on line 5 of Worksheet A) is less than $10,000, also complete Worksheet C. 1040a form to print Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040a form to print If filing Form 1040X for an eligible year, enter the amount from line 15 above on Form 1040X in column B of line 10 as a decrease in tax. 1040a form to print The IRS will determine the amount to be refunded. 1040a form to print Worksheet C. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum tax forgiveness. 1040a form to print Note. 1040a form to print Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3       4 Add lines 2 and 3. 1040a form to print 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5       6 Add lines 4 and 5. 1040a form to print 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8       9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10       11 Add lines 9 and 10. 1040a form to print 11   12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12   Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print Worksheet C. 1040a form to print Amount Treated as Tax Payment for Decedent's Last Tax Year Caution: The decedent is entitled to minimum tax forgiveness of $10,000. 1040a form to print Complete this worksheet only if the total tax forgiven for all eligible years is less than $10,000. 1040a form to print 1 Minimum tax forgiveness. 1040a form to print Note. 1040a form to print Before completing lines 2–9, see Instructions for lines 2–9 of Worksheet C. 1040a form to print 1 $10,000 2 Enter the taxable income from line 22 (Form 1041) 2       3 Enter the distribution deduction from line 18 (Form 1041) . 1040a form to print 3       4 Add lines 2 and 3. 1040a form to print 4       5 Enter exempt income received after death minus expenses allocable to exempt income. 1040a form to print (See Income received after date of death on page 5. 1040a form to print ) 5       6 Add lines 4 and 5. 1040a form to print 6       7 Figure the tax on line 6 using Schedule G (Form 1041). 1040a form to print 7       8 Figure the tax on line 4 using Schedule G (Form 1041). 1040a form to print 8       9 Tax on exempt income. 1040a form to print Subtract line 8 from line 7. 1040a form to print 9       10 Enter the total of columns (A)–(C) from line 5 of Worksheet A or line 15 of Worksheet B. 1040a form to print If the decedent was not required to file tax returns for the eligible tax years, enter -0-. 1040a form to print 10       11 Add lines 9 and 10. 1040a form to print 11   12 Additional payment allowed. 1040a form to print If line 11 is $10,000 or more, enter -0- and stop here. 1040a form to print No additional amount is allowed as a tax payment. 1040a form to print Otherwise, subtract line 11 from line 1 and enter the result. 1040a form to print 12   Note. 1040a form to print The amount on line 12 is allowed as a tax payment for the decedent's last tax year (usually 1995 or 2001). 1040a form to print Attach the computation of the additional payment allowed or a copy of this worksheet to the original or amended income tax return for the decedent's last tax year. 1040a form to print If filing Form 1040, include the amount from line 12 above on the “Other payments” line of the form. 1040a form to print Write "Sec. 1040a form to print 692(d)(2) Payment" and the amount to the right of the entry space. 1040a form to print Also indicate whether a Form 1041 is being filed for the decedent's estate. 1040a form to print If filing Form 1040X, include the amount from line 12 above on Form 1040X on line 15, columns (B) and (C). 1040a form to print Write “Sec. 1040a form to print 692(d)(2) Payment” on the dotted line to the left of the entry space. 1040a form to print How To Get Tax Help Special IRS assistance. 1040a form to print   The IRS is providing special help for those affected by the terrorist attacks, as well as survivors and personal representatives of the victims. 1040a form to print We have set up a special toll-free number for people who may have trouble filing or paying their taxes because they were affected by the terrorist attacks, or who have other tax issues related to the attacks. 1040a form to print Call 1–866–562–5227 Monday through Friday In English–7 a. 1040a form to print m. 1040a form to print to 10 p. 1040a form to print m. 1040a form to print local time In Spanish–8 a. 1040a form to print m. 1040a form to print to 9:30 p. 1040a form to print m. 1040a form to print local time   The IRS web site at www. 1040a form to print irs. 1040a form to print gov has notices and other tax relief information. 1040a form to print Check it periodically for any new guidance or to see if Congress has enacted new legislation. 1040a form to print   Business taxpayers affected by the attacks can e-mail their questions to corp. 1040a form to print disaster. 1040a form to print relief@irs. 1040a form to print gov. 1040a form to print   For current information on Presidentially declared disaster areas, check the Federal Emergency Management Agency Web site at www. 1040a form to print fema. 1040a form to print gov. 1040a form to print Other help from the IRS. 1040a form to print   You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. 1040a form to print By selecting the method that is best for you, you will have quick and easy access to tax help. 1040a form to print Contacting your Taxpayer Advocate. 1040a form to print   If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. 1040a form to print   The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. 1040a form to print While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. 1040a form to print   To contact your Taxpayer Advocate: Call the Taxpayer Advocate at 1–877–777–4778. 1040a form to print Call the IRS at 1–800–829–1040. 1040a form to print Call, write, or fax the Taxpayer Advocate office in your area. 1040a form to print Call 1–800–829–4059 if you are a TTY/TDD user. 1040a form to print   For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS. 1040a form to print Free tax services. 1040a form to print   To find out what services are available, get Publication 910, Guide to Free Tax Services. 1040a form to print It contains a list of free tax publications and an index of tax topics. 1040a form to print It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. 1040a form to print Personal computer. 1040a form to print With your personal computer and modem, you can access the IRS on the Internet at www. 1040a form to print irs. 1040a form to print gov. 1040a form to print While visiting our web site, you can: Find answers to questions you may have. 1040a form to print Download forms and publications or search for forms and pub