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1040ex Form

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1040ex Form

1040ex form Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. 1040ex form Proc. 1040ex form 2009-37 Table of Contents SECTION 1. 1040ex form PURPOSE SECTION 2. 1040ex form BACKGROUND SECTION 3. 1040ex form SCOPE SECTION 4. 1040ex form ELECTION PROCEDURES SECTION 5. 1040ex form REQUIRED INFORMATION STATEMENT SECTION 6. 1040ex form EFFECTIVE DATE SECTION 7. 1040ex form TRANSITION RULE SECTION 8. 1040ex form PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. 1040ex form PURPOSE . 1040ex form 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. 1040ex form . 1040ex form 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. 1040ex form This revenue procedure describes the time and manner of providing this additional information. 1040ex form . 1040ex form 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. 1040ex form Taxpayers should be aware that these regulations may be retroactive. 1040ex form See § 7805(b)(2). 1040ex form This revenue procedure may be modified to provide procedures consistent with additional guidance. 1040ex form SECTION 2. 1040ex form BACKGROUND . 1040ex form 01 Section 108(i), Generally. 1040ex form Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. 1040ex form L. 1040ex form No. 1040ex form 111-5, 123 Stat. 1040ex form 338. 1040ex form In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. 1040ex form Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). 1040ex form The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. 1040ex form 1273-1(d) of the Income Tax Regulations. 1040ex form The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. 1040ex form For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). 1040ex form A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). 1040ex form See § 108(i)(5)(D). 1040ex form The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. 1040ex form Section 108(i)(5)(D)(ii). 1040ex form For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. 1040ex form . 1040ex form 02 Applicable Debt Instrument. 1040ex form Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. 1040ex form The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). 1040ex form Section 108(i)(3)(B). 1040ex form For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. 1040ex form 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. 1040ex form 1502-13(g)(5). 1040ex form . 1040ex form 03 Reacquisition. 1040ex form Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). 1040ex form The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. 1040ex form See § 108(i)(4)(B). 1040ex form The term “acquisition” also includes an indirect acquisition within the meaning of § 1. 1040ex form 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). 1040ex form For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. 1040ex form . 1040ex form 04 General Requirements for the Section 108(i) Election. 1040ex form Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. 1040ex form (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. 1040ex form ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. 1040ex form Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. 1040ex form . 1040ex form 05 Section 108(i) Elections Made by Pass-through Entities. 1040ex form In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. 1040ex form Section 108(i)(5)(B)(iii). 1040ex form . 1040ex form 06 Additional Information on Subsequent Years’ Returns. 1040ex form Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. 1040ex form . 1040ex form 07 Exclusivity. 1040ex form Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). 1040ex form . 1040ex form 08 Allocation of Deferred COD Income on Partnership Indebtedness. 1040ex form Section 4. 1040ex form 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. 1040ex form If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. 1040ex form 704-1(b)(2)(iii). 1040ex form Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). 1040ex form The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). 1040ex form The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). 1040ex form . 1040ex form 09 Partner’s Deferred § 752 Amount. 1040ex form A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). 1040ex form A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). 1040ex form To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. 1040ex form 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). 1040ex form See Rev. 1040ex form Rul. 1040ex form 92-97, 1992-2 C. 1040ex form B. 1040ex form 124, and Rev. 1040ex form Rul. 1040ex form 94-4, 1994-1 C. 1040ex form B. 1040ex form 195. 1040ex form A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). 1040ex form . 1040ex form 10 Allocation of Deferred COD Income on S Corporation Indebtedness. 1040ex form For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. 1040ex form . 1040ex form 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. 1040ex form (1) In general. 1040ex form The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). 1040ex form These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. 1040ex form OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). 1040ex form COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. 1040ex form See § 1. 1040ex form 56(g)-1(c)(1). 1040ex form (2) Exceptions for certain special status corporations. 1040ex form The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. 1040ex form OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. 1040ex form . 1040ex form 12 Extension of Time to Make Election. 1040ex form Under § 301. 1040ex form 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. 1040ex form An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. 1040ex form Section 301. 1040ex form 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. 1040ex form SECTION 3. 1040ex form SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). 1040ex form SECTION 4. 1040ex form ELECTION PROCEDURES . 1040ex form 01 In General. 1040ex form (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. 1040ex form 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. 1040ex form 07, 4. 1040ex form 08, 4. 1040ex form 09, or 4. 1040ex form 10 of this revenue procedure. 1040ex form (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. 1040ex form 01(1)(a) of this revenue procedure for making the § 108(i) election. 1040ex form The rules that apply to an automatic extension under § 301. 1040ex form 9100-2(a) apply to this automatic extension. 1040ex form . 1040ex form 02 Section 108(i) Elections Made by Members of Consolidated Groups. 1040ex form The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. 1040ex form See § 1. 1040ex form 1502-77(a). 1040ex form . 1040ex form 03 Aggregation Rule. 1040ex form A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. 1040ex form A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. 1040ex form 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. 1040ex form . 1040ex form 04 Partial Elections. 1040ex form (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. 1040ex form Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. 1040ex form The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. 1040ex form (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). 1040ex form Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. 1040ex form (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. 1040ex form Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). 1040ex form A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. 1040ex form The provisions of this section 4. 1040ex form 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. 1040ex form . 1040ex form 05 Contents of Election Statement. 1040ex form A statement meets the requirements of this section 4. 1040ex form 05 if the statement— (1) Label. 1040ex form States “Section 108(i) Election” across the top. 1040ex form (2) Required information. 1040ex form Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. 1040ex form 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. 1040ex form . 1040ex form 06 Supplemental information. 1040ex form The statement described in section 4. 1040ex form 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. 1040ex form 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. 1040ex form 05(2)(d) of this revenue procedure. 1040ex form This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. 1040ex form If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. 1040ex form If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. 1040ex form In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. 1040ex form 08, 2. 1040ex form 10 and, if applicable, 4. 1040ex form 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. 1040ex form . 1040ex form 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. 1040ex form The rules of this section 4. 1040ex form 07 apply to partnerships other than partnerships described in section 4. 1040ex form 10 of this revenue procedure. 1040ex form (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). 1040ex form For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. 1040ex form , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. 1040ex form Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). 1040ex form (2) Election information statement provided to partners. 1040ex form The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. 1040ex form 07(2). 1040ex form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. 1040ex form A statement meets the requirements of this section 4. 1040ex form 07(2) if the statement— (a) Label. 1040ex form States “Section 108(i) Election Information Statement for Partners” across the top. 1040ex form (b) Required information. 1040ex form Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. 1040ex form 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. 1040ex form 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. 1040ex form 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. 1040ex form (c) If a partner fails to provide the written statement required by section 4. 1040ex form 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. 1040ex form 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. 1040ex form (3) Partner reporting requirements. 1040ex form The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. 1040ex form 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. 1040ex form Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. 1040ex form A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. 1040ex form If a partner provides its written statement under this section 4. 1040ex form 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. 1040ex form 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. 1040ex form . 1040ex form 08 Additional Requirements for an S Corporation Making a § 108(i) Election. 1040ex form (1) Information filing on Schedule K-1 (Form 1120S). 1040ex form For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. 1040ex form , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. 1040ex form S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. 1040ex form (2) Election information statement provided to shareholders. 1040ex form The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. 1040ex form 08(2). 1040ex form The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. 1040ex form A statement meets the requirements of this section 4. 1040ex form 08(2) if the statement— (a) Label. 1040ex form States “Section 108(i) Election Information Statement for Shareholders” across the top. 1040ex form (b) Required information. 1040ex form Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. 1040ex form 06 of this revenue procedure. 1040ex form . 1040ex form 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. 1040ex form The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. 1040ex form 964-1(c)(3). 1040ex form Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. 1040ex form 05 of this revenue procedure and, if applicable, section 4. 1040ex form 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. 1040ex form . 1040ex form 10 Section 108(i) Elections Made By Certain Foreign Partnerships. 1040ex form The rules of this section 4. 1040ex form 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). 1040ex form See § 1. 1040ex form 6031(a)-1(b). 1040ex form (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. 1040ex form 05 of this revenue procedure and, if applicable, section 4. 1040ex form 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. 1040ex form 6031(a)-1(b)(5) it files with the Service. 1040ex form In addition, a nonfiling foreign partnership must include in the information required in section 4. 1040ex form 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. 1040ex form S. 1040ex form persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). 1040ex form (2) The nonfiling foreign partnership must make the election, in accordance with § 1. 1040ex form 6031(a)-1(b)(5), by the date provided in section 4. 1040ex form 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. 1040ex form (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. 1040ex form 07(1) of this revenue procedure. 1040ex form Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). 1040ex form The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. 1040ex form 07(2) of this revenue procedure by the date provided in section 4. 1040ex form 01(1)(a) of this revenue procedure. 1040ex form The partnership should not attach any statement described in section 4. 1040ex form 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. 1040ex form However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. 1040ex form (4) The partnership and each affected partner must satisfy the requirements of section 4. 1040ex form 07(3) of this revenue procedure. 1040ex form . 1040ex form 11 Protective § 108(i) Election. 1040ex form (1) In general. 1040ex form A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. 1040ex form If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). 1040ex form Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. 1040ex form A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. 1040ex form 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. 1040ex form 01(1)(a) of this revenue procedure. 1040ex form The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. 1040ex form A statement meets the requirements of this section 4. 1040ex form 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. 1040ex form 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. 1040ex form 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. 1040ex form 06 of this revenue procedure. 1040ex form (2) Statements provided to shareholders and partners. 1040ex form (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. 1040ex form 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. 1040ex form 11(1)(d) of this revenue procedure. 1040ex form (b) The partnership or S corporation should not attach the statements described in this section 4. 1040ex form 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 1040ex form . 1040ex form 12 Election-Year Reporting by Tiered Pass-Through Entities. 1040ex form (1) A partnership required to file a U. 1040ex form S. 1040ex form partnership return other than under § 1. 1040ex form 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. 1040ex form 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. 1040ex form 07(1)(a) through (d) of this revenue procedure). 1040ex form (2) If a partnership described in section 4. 1040ex form 12(1) of this revenue procedure receives a statement described in sections 4. 1040ex form 07(2) or 4. 1040ex form 10(3) of this revenue procedure or this section 4. 1040ex form 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. 1040ex form 07(2)(b)(x) of this revenue procedure. 1040ex form If an S corporation receives a statement described in sections 4. 1040ex form 07(2) or 4. 1040ex form 10(3) of this revenue procedure or this section 4. 1040ex form 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. 1040ex form 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. 1040ex form The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. 1040ex form The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 1040ex form (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. 1040ex form 704-1(b)(2)(iii). 1040ex form The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. 1040ex form No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. 1040ex form The partnership allocates amounts described in section 4. 1040ex form 06 of this revenue procedure under this section 4. 1040ex form 12(3) as if the additional COD income was realized. 1040ex form (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. 1040ex form No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. 1040ex form (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. 1040ex form (6) This paragraph 4. 1040ex form 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. 1040ex form S. 1040ex form Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. 1040ex form 07(1) of this revenue procedure, or a statement described in sections 4. 1040ex form 07(2) or 4. 1040ex form 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). 1040ex form (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. 1040ex form 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. 1040ex form 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. 1040ex form (b) A Category 2 filer must include its share of the information described in section 4. 1040ex form 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. 1040ex form Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. 1040ex form (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. 1040ex form 12(6)(a)(ii) and 4. 1040ex form 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. 1040ex form However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. 1040ex form (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. 1040ex form 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. 1040ex form 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. 1040ex form 12(1) and (2) of this revenue procedure. 1040ex form Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. 1040ex form 12(6) of this revenue procedure. 1040ex form (8) The provisions of section 4. 1040ex form 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. 1040ex form 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. 1040ex form 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. 1040ex form 11(1)(d) of this revenue procedure. 1040ex form SECTION 5. 1040ex form REQUIRED INFORMATION STATEMENT . 1040ex form 01 Annual Information Statements. 1040ex form Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. 1040ex form 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. 1040ex form 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. 1040ex form . 1040ex form 02 Contents of Statement. 1040ex form A statement meets the requirements of this section 5. 1040ex form 02 if the statement— (1) Label. 1040ex form States “Section 108(i) Information Statement” across the top; (2) Required information. 1040ex form Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. 1040ex form (3) Election attached. 1040ex form Includes a copy of the election statement described in section 4. 1040ex form 05 of this revenue procedure. 1040ex form . 1040ex form 03 Additional Annual Reporting Requirements for Certain Partnerships. 1040ex form The rules of this section 5. 1040ex form 03 apply to partnerships other than partnerships described in section 5. 1040ex form 05 of this revenue procedure. 1040ex form (1) In general. 1040ex form A partnership that makes an election under § 108(i) (except for a protective election under section 4. 1040ex form 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. 1040ex form 01 of this revenue procedure. 1040ex form In addition, for each taxable year in which a statement is required under section 5. 1040ex form 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. 1040ex form 07(1) of this revenue procedure. 1040ex form (2) Annual information statements provided to partners. 1040ex form The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. 1040ex form 01 of this revenue procedure, a statement meeting the requirements of this section 5. 1040ex form 03(2). 1040ex form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. 1040ex form A statement meets the requirements of this section 5. 1040ex form 03(2) if the statement— (a) Label. 1040ex form States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. 1040ex form (b) Required information. 1040ex form Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. 1040ex form If a partner fails to provide the written statement required by section 4. 1040ex form 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. 1040ex form 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. 1040ex form . 1040ex form 04 Additional Annual Reporting Requirements for an S Corporation. 1040ex form (1) In general. 1040ex form An S corporation that makes an election under § 108(i) (except for a protective election under section 4. 1040ex form 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. 1040ex form 01 of this revenue procedure. 1040ex form In addition, for each taxable year in which a statement is required under section 5. 1040ex form 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. 1040ex form 08(1) of this revenue procedure. 1040ex form (2) Annual information statements provided to shareholders. 1040ex form The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. 1040ex form 01 of this revenue procedure a statement meeting the requirements of this section 5. 1040ex form 04(2). 1040ex form The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. 1040ex form A statement meets the requirements of this section 5. 1040ex form 04(2) if the statement— (a) Label. 1040ex form States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. 1040ex form Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. 1040ex form . 1040ex form 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. 1040ex form (1) The rules of this section 5. 1040ex form 05 apply to nonfiling foreign partnerships. 1040ex form (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. 1040ex form 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. 1040ex form 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. 1040ex form 01 of this revenue procedure. 1040ex form (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. 1040ex form 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. 1040ex form (4) For each taxable year in which a statement is required under section 5. 1040ex form 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. 1040ex form 07(1) of this revenue procedure. 1040ex form Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). 1040ex form The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. 1040ex form 6031(b)-1T(b). 1040ex form The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. 1040ex form 05(2) of this revenue procedure. 1040ex form (5) For each taxable year for which a statement is required under section 5. 1040ex form 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. 1040ex form 03(2) of this revenue procedure. 1040ex form The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. 1040ex form . 1040ex form 06 Information Statements Made on Behalf of Certain Foreign Corporations. 1040ex form Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. 1040ex form 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. 1040ex form 01 of this revenue procedure. 1040ex form . 1040ex form 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. 1040ex form (1) A partnership required to file a U. 1040ex form S. 1040ex form partnership return other than under § 1. 1040ex form 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. 1040ex form 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. 1040ex form 07(1)(a) through (d) of this revenue procedure). 1040ex form (2) If a partnership described in section 5. 1040ex form 07(1) of this revenue procedure receives a statement described in sections 5. 1040ex form 03(2) or 5. 1040ex form 05(5) of this revenue procedure or this section 5. 1040ex form 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. 1040ex form If an S corporation receives a statement described in sections 5. 1040ex form 03(2) or 5. 1040ex form 05(5) of this revenue procedure or this section 5. 1040ex form 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. 1040ex form 03(2)(b)(i) through (viii) of this revenue procedure. 1040ex form The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. 1040ex form The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. 1040ex form (3) This paragraph 5. 1040ex form 07(3) provides the rules for persons described in section 4. 1040ex form 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. 1040ex form 03(1) of this revenue procedure, or a statement described in sections 5. 1040ex form 03(2) or 5. 1040ex form 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). 1040ex form (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. 1040ex form 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. 1040ex form 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. 1040ex form (b) A Category 2 filer must include its share of the information described in section 4. 1040ex form 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. 1040ex form Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. 1040ex form (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. 1040ex form 07(3)(a)(ii) and 5. 1040ex form 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. 1040ex form However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. 1040ex form (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. 1040ex form 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. 1040ex form 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. 1040ex form 07(1) and (2) of this revenue procedure. 1040ex form Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. 1040ex form 12(6) of this revenue procedure. 1040ex form SECTION 6. 1040ex form EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. 1040ex form SECTION 7. 1040ex form TRANSITION RULE . 1040ex form 01 Noncomplying Election. 1040ex form Except as otherwise provided in this section 7. 1040ex form 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. 1040ex form However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. 1040ex form . 1040ex form 02 Modification of Election. 1040ex form A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). 1040ex form To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. 1040ex form . 1040ex form 03 Notations. 1040ex form A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. 1040ex form A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. 1040ex form See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. 1040ex form SECTION 8. 1040ex form PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. 1040ex form S. 1040ex form C. 1040ex form 3507) under control number 1545-2147. 1040ex form An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. 1040ex form The collection of information in this revenue procedure is in sections 4, 5 and 7. 1040ex form This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. 1040ex form This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. 1040ex form The collection of information is required to obtain a benefit. 1040ex form The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. 1040ex form The estimated total annual reporting burden is 300,000 hours. 1040ex form The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. 1040ex form The estimated number of respondents is 50,000. 1040ex form Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. 1040ex form Generally, tax returns and return information are confidential, as required by § 6103. 1040ex form DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. 1040ex form Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). 1040ex form For further information regarding this revenue procedure, contact Megan A. 1040ex form Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. 1040ex form Blanchard at (202) 622-3950 for questions involving OID, Ronald M. 1040ex form Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). 1040ex form Prev  Up  Next   Home 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Life Cycle of an Exempt Organization

Organizations that meet the requirements of Internal Revenue Code section 501(a) are exempt from federal income taxation. In addition, charitable contributions made to some section 501(a) organizations by individuals and corporations are deductible under Code section 170.

This website provides information about points of intersection between organizations and the IRS. The content includes explanatory information, and links to forms that an organization may need to file with the IRS. The materials cover five stages in an organization's life cycle:

  1. Starting Out: Creating an organization under state law, acquiring an employer identification number, and identifying the appropriate federal tax classification.
  2. Applying for Exemption:  Acquiring, completing, and submitting application forms; how the IRS processes applications; and getting help from the IRS during the application process.
  3. Required Filings:  Annual exempt organization returns, unrelated business income tax filings, and other returns and reports that an organization may have to file.
  4. Ongoing Compliance:  How an organization can avoid jeopardizing its tax-exempt status, disclosure requirements, employment taxes, and other ongoing compliance issues.
  5. Significant Events:  Audits, private letter rulings, and termination procedures.

Life Cycle pages are available for the following types of organizations:

 

Page Last Reviewed or Updated: 19-Nov-2013

The 1040ex Form

1040ex form Publication 547 - Main Content Table of Contents CasualtyFamily pet. 1040ex form Progressive deterioration. 1040ex form Special Procedure for Damage From Corrosive Drywall Theft Loss on Deposits Proof of Loss Figuring a LossGain from reimbursement. 1040ex form Business or income-producing property. 1040ex form Loss of inventory. 1040ex form Leased property. 1040ex form Exception for personal-use real property. 1040ex form Decrease in Fair Market Value Adjusted Basis Insurance and Other Reimbursements Deduction Limits2% Rule $100 Rule 10% Rule Figuring the Deduction Figuring a GainPostponement of Gain When To Report Gains and LossesLoss on deposits. 1040ex form Lessee's loss. 1040ex form Disaster Area LossesDisaster loss to inventory. 1040ex form Main home in disaster area. 1040ex form Unsafe home. 1040ex form Time limit for making choice. 1040ex form Revoking your choice. 1040ex form Figuring the loss deduction. 1040ex form How to report the loss on Form 1040X. 1040ex form Records. 1040ex form Need a copy of your tax return for the preceding year? Postponed Tax Deadlines Contacting the Federal Emergency Management Agency (FEMA) How To Report Gains and LossesProperty held 1 year or less. 1040ex form Property held more than 1 year. 1040ex form Depreciable property. 1040ex form Adjustments to Basis If Deductions Are More Than Income How To Get Tax HelpLow Income Taxpayer Clinics Casualty A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. 1040ex form A sudden event is one that is swift, not gradual or progressive. 1040ex form An unexpected event is one that is ordinarily unanticipated and unintended. 1040ex form An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. 1040ex form Generally, casualty losses are deductible during the taxable year that the loss occurred. 1040ex form See Table 3, later. 1040ex form Deductible losses. 1040ex form   Deductible casualty losses can result from a number of different causes, including the following. 1040ex form Car accidents (but see Nondeductible losses , next, for exceptions). 1040ex form Earthquakes. 1040ex form Fires (but see Nondeductible losses , next, for exceptions). 1040ex form Floods. 1040ex form Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses , later. 1040ex form Mine cave-ins. 1040ex form Shipwrecks. 1040ex form Sonic booms. 1040ex form Storms, including hurricanes and tornadoes. 1040ex form Terrorist attacks. 1040ex form Vandalism. 1040ex form Volcanic eruptions. 1040ex form Nondeductible losses. 1040ex form   A casualty loss is not deductible if the damage or destruction is caused by the following. 1040ex form Accidentally breaking articles such as glassware or china under normal conditions. 1040ex form A family pet (explained below). 1040ex form A fire if you willfully set it, or pay someone else to set it. 1040ex form A car accident if your willful negligence or willful act caused it. 1040ex form The same is true if the willful act or willful negligence of someone acting for you caused the accident. 1040ex form Progressive deterioration (explained below). 1040ex form However, see Special Procedure for Damage From Corrosive Drywall , later. 1040ex form Family pet. 1040ex form   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed earlier under Casualty are met. 1040ex form Example. 1040ex form Your antique oriental rug was damaged by your new puppy before it was housebroken. 1040ex form Because the damage was not unexpected and unusual, the loss is not deductible as a casualty loss. 1040ex form Progressive deterioration. 1040ex form   Loss of property due to progressive deterioration is not deductible as a casualty loss. 1040ex form This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. 1040ex form The following are examples of damage due to progressive deterioration. 1040ex form The steady weakening of a building due to normal wind and weather conditions. 1040ex form The deterioration and damage to a water heater that bursts. 1040ex form However, the rust and water damage to rugs and drapes caused by the bursting of a water heater does qualify as a casualty. 1040ex form Most losses of property caused by droughts. 1040ex form To be deductible, a drought-related loss generally must be incurred in a trade or business or in a transaction entered into for profit. 1040ex form Termite or moth damage. 1040ex form The damage or destruction of trees, shrubs, or other plants by a fungus, disease, insects, worms, or similar pests. 1040ex form However, a sudden destruction due to an unexpected or unusual infestation of beetles or other insects may result in a casualty loss. 1040ex form Special Procedure for Damage From Corrosive Drywall Under a special procedure, you can deduct the amounts you paid to repair damage to your home and household appliances due to corrosive drywall. 1040ex form Under this procedure, you treat the amounts paid for repairs as a casualty loss in the year of payment. 1040ex form For example, amounts you paid for repairs in 2013 are deductible on your 2013 tax return and amounts you paid for repairs in 2012 are deductible on your 2012 tax return. 1040ex form Note. 1040ex form If you paid for any repairs before 2013 and you choose to follow this special procedure, you can amend your return for the earlier year by filing Form 1040X, Amended U. 1040ex form S. 1040ex form Individual Income Tax Return, and attaching a completed Form 4684 for the appropriate year. 1040ex form Form 4684 for the appropriate year can be found at IRS. 1040ex form gov. 1040ex form Generally, Form 1040X must be filed within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. 1040ex form Corrosive drywall. 1040ex form   For purposes of this special procedure, “corrosive drywall” means drywall that is identified as problem drywall under the two-step identification method published by the Consumer Product Safety Commission (CPSC) and the Department of Housing and Urban Development (HUD) in their interim guidance dated January 28, 2010, as revised by the CPSC and HUD. 1040ex form The revised identification guidance and remediation guidelines are available at www. 1040ex form cpsc. 1040ex form gov/Safety-Education/Safety-Education-Centers/Drywall. 1040ex form Special instructions for completing Form 4684. 1040ex form   If you choose to follow this special procedure, complete Form 4684, Section A, according to the instructions below. 1040ex form The IRS will not challenge your treatment of damage resulting from corrosive drywall as a casualty loss if you determine and report the loss as explained below. 1040ex form Top margin of Form 4684. 1040ex form   Enter “Revenue Procedure 2010-36”. 1040ex form Line 1. 1040ex form   Enter the information required by the line 1 instructions. 1040ex form Line 2. 1040ex form   Skip this line. 1040ex form Line 3. 1040ex form   Enter the amount of insurance or other reimbursements you received (including through litigation). 1040ex form If none, enter -0-. 1040ex form Lines 4–7. 1040ex form   Skip these lines. 1040ex form Line 8. 1040ex form   Enter the amount you paid to repair the damage to your home and household appliances due to corrosive drywall. 1040ex form Enter only the amounts you paid to restore your home to the condition existing immediately before the damage. 1040ex form Do not enter any amounts you paid for improvements or additions that increased the value of your home above its pre-loss value. 1040ex form If you replaced a household appliance instead of repairing it, enter the lesser of: The current cost to replace the original appliance, or The basis of the original appliance (generally its cost). 1040ex form Line 9. 1040ex form   If line 8 is more than line 3, do one of the following. 1040ex form If you have a pending claim for reimbursement (or you intend to pursue reimbursement), enter 75% of the difference between lines 3 and 8. 1040ex form If item (1) does not apply to you, enter the full amount of the difference between lines 3 and 8. 1040ex form If line 8 is less than or equal to line 3, you cannot claim a casualty loss deduction using this special procedure. 1040ex form    If you have a pending claim for reimbursement (or you intend to pursue reimbursement), you may have income or an additional deduction in a later tax year depending on the actual amount of reimbursement received. 1040ex form See Reimbursement Received After Deducting Loss, later. 1040ex form Lines 10–18. 1040ex form   Complete these lines according to the Instructions for Form 4684. 1040ex form Choosing not to follow this special procedure. 1040ex form   If you choose not to follow this special procedure, you are subject to all of the provisions that apply to the deductibility of casualty losses, and you must complete lines 1–9 according to the Instructions for Form 4684. 1040ex form This means, for example, that you must establish that the damage, destruction, or loss of property resulted from an identifiable event as defined earlier under Casualty . 1040ex form Furthermore, you must have proof that shows the following. 1040ex form The loss is properly deductible in the tax year you claimed it and not in some other year. 1040ex form See When To Report Gains and Losses , later. 1040ex form The amount of the claimed loss. 1040ex form See Proof of Loss , later. 1040ex form No claim for reimbursement of any portion of the loss exists for which there is a reasonable prospect of recovery. 1040ex form See When To Report Gains and Losses , later. 1040ex form Theft A theft is the taking and removing of money or property with the intent to deprive the owner of it. 1040ex form The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. 1040ex form You do not need to show a conviction for theft. 1040ex form Theft includes the taking of money or property by the following means. 1040ex form Blackmail. 1040ex form Burglary. 1040ex form Embezzlement. 1040ex form Extortion. 1040ex form Kidnapping for ransom. 1040ex form Larceny. 1040ex form Robbery. 1040ex form The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. 1040ex form Decline in market value of stock. 1040ex form   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. 1040ex form However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. 1040ex form You report a capital loss on Schedule D (Form 1040). 1040ex form For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. 1040ex form Mislaid or lost property. 1040ex form    The simple disappearance of money or property is not a theft. 1040ex form However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. 1040ex form Sudden, unexpected, and unusual events were defined earlier under Casualty . 1040ex form Example. 1040ex form A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. 1040ex form The diamond falls from the ring and is never found. 1040ex form The loss of the diamond is a casualty. 1040ex form Losses from Ponzi-type investment schemes. 1040ex form   The IRS has issued the following guidance to assist taxpayers who are victims of losses from Ponzi-type investment schemes: Revenue Ruling 2009-9, 2009-14 I. 1040ex form R. 1040ex form B. 1040ex form 735 (available at www. 1040ex form irs. 1040ex form gov/irb/2009-14_IRB/ar07. 1040ex form html). 1040ex form Revenue Procedure 2009-20, 2009-14 I. 1040ex form R. 1040ex form B. 1040ex form 749 (available at www. 1040ex form irs. 1040ex form gov/irb/2009-14_IRB/ar11. 1040ex form html). 1040ex form Revenue Procedure 2011-58, 2011-50 I. 1040ex form R. 1040ex form B. 1040ex form 847 (available at www. 1040ex form irs. 1040ex form gov/irb/2011-50_IRB/ar11. 1040ex form html). 1040ex form If you qualify to use Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, and you choose to follow the procedures in the guidance, first fill out Section C of Form 4684 to determine the amount to enter on Section B, line 28. 1040ex form Skip lines 19 to 27, but you must fill out Section B, lines 29 to 39, as appropriate. 1040ex form Section C of Form 4684 replaces Appendix A in Revenue Procedure 2009-20. 1040ex form You do not need to complete Appendix A. 1040ex form For more information, see the above revenue ruling and revenue procedures, and the Instructions for Form 4684. 1040ex form   If you choose not to use the procedures in Revenue Procedure 2009-20, as modified by Revenue Procedure 2011-58, you may claim your theft loss by filling out Section B, lines 19 to 39, as appropriate. 1040ex form Loss on Deposits A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. 1040ex form If you incurred this type of loss, you can choose one of the following ways to deduct the loss. 1040ex form As a casualty loss. 1040ex form As an ordinary loss. 1040ex form As a nonbusiness bad debt. 1040ex form Casualty loss or ordinary loss. 1040ex form   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. 1040ex form The choice generally is made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. 1040ex form If you treat the loss as a casualty or ordinary loss, you cannot treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. 1040ex form However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. 1040ex form Once you make the choice, you cannot change it without permission from the Internal Revenue Service. 1040ex form   If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. 1040ex form The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. 1040ex form Your loss is subject to the 2%-of-adjusted-gross-income limit. 1040ex form You cannot choose to claim an ordinary loss if any part of the deposit is federally insured. 1040ex form Nonbusiness bad debt. 1040ex form   If you do not choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year. 1040ex form How to report. 1040ex form   The kind of deduction you choose for your loss on deposits determines how you report your loss. 1040ex form See Table 1. 1040ex form More information. 1040ex form   For more information, see Special Treatment for Losses on Deposits in Insolvent or Bankrupt Financial Institutions in the Instructions for Form 4684. 1040ex form Deducted loss recovered. 1040ex form   If you recover an amount you deducted as a loss in an earlier year, you may have to include the amount recovered in your income for the year of recovery. 1040ex form If any part of the original deduction did not reduce your tax in the earlier year, you do not have to include that part of the recovery in your income. 1040ex form For more information, see Recoveries in Publication 525. 1040ex form Proof of Loss To deduct a casualty or theft loss, you must be able to show that there was a casualty or theft. 1040ex form You also must be able to support the amount you take as a deduction. 1040ex form Casualty loss proof. 1040ex form   For a casualty loss, you should be able to show all of the following. 1040ex form The type of casualty (car accident, fire, storm, etc. 1040ex form ) and when it occurred. 1040ex form That the loss was a direct result of the casualty. 1040ex form That you were the owner of the property, or if you leased the property from someone else, that you were contractually liable to the owner for the damage. 1040ex form Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040ex form Theft loss proof. 1040ex form   For a theft loss, you should be able to show all of the following. 1040ex form When you discovered that your property was missing. 1040ex form That your property was stolen. 1040ex form That you were the owner of the property. 1040ex form Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. 1040ex form    It is important that you have records that will prove your deduction. 1040ex form If you do not have the actual records to support your deduction, you can use other satisfactory evidence to support it. 1040ex form Figuring a Loss To determine your deduction for a casualty or theft loss, you must first figure your loss. 1040ex form Table 1. 1040ex form Reporting Loss on Deposits IF you choose to report the loss as a(n). 1040ex form . 1040ex form . 1040ex form   THEN report it on. 1040ex form . 1040ex form . 1040ex form casualty loss   Form 4684 and Schedule A  (Form 1040). 1040ex form ordinary loss   Schedule A (Form 1040). 1040ex form nonbusiness bad debt   Form 8949 and Schedule D (Form 1040). 1040ex form Amount of loss. 1040ex form   Figure the amount of your loss using the following steps. 1040ex form Determine your adjusted basis in the property before the casualty or theft. 1040ex form Determine the decrease in fair market value (FMV) of the property as a result of the casualty or theft. 1040ex form From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you received or expect to receive. 1040ex form For personal-use property and property used in performing services as an employee, apply the deduction limits, discussed later, to determine the amount of your deductible loss. 1040ex form Gain from reimbursement. 1040ex form   If your reimbursement is more than your adjusted basis in the property, you have a gain. 1040ex form This is true even if the decrease in the FMV of the property is smaller than your adjusted basis. 1040ex form If you have a gain, you may have to pay tax on it, or you may be able to postpone reporting the gain. 1040ex form See Figuring a Gain , later. 1040ex form Business or income-producing property. 1040ex form   If you have business or income-producing property, such as rental property, and it is stolen or completely destroyed, the decrease in FMV is not considered. 1040ex form Your loss is figured as follows:   Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive   Loss of inventory. 1040ex form   There are two ways you can deduct a casualty or theft loss of inventory, including items you hold for sale to customers. 1040ex form   One way is to deduct the loss through the increase in the cost of goods sold by properly reporting your opening and closing inventories. 1040ex form Do not claim this loss again as a casualty or theft loss. 1040ex form If you take the loss through the increase in the cost of goods sold, include any insurance or other reimbursement you receive for the loss in gross income. 1040ex form   The other way is to deduct the loss separately. 1040ex form If you deduct it separately, eliminate the affected inventory items from the cost of goods sold by making a downward adjustment to opening inventory or purchases. 1040ex form Reduce the loss by the reimbursement you received. 1040ex form Do not include the reimbursement in gross income. 1040ex form If you do not receive the reimbursement by the end of the year, you may not claim a loss to the extent you have a reasonable prospect of recovery. 1040ex form Leased property. 1040ex form   If you are liable for casualty damage to property you lease, your loss is the amount you must pay to repair the property minus any insurance or other reimbursement you receive or expect to receive. 1040ex form Separate computations. 1040ex form   Generally, if a single casualty or theft involves more than one item of property, you must figure the loss on each item separately. 1040ex form Then combine the losses to determine the total loss from that casualty or theft. 1040ex form Exception for personal-use real property. 1040ex form   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. 1040ex form Figure the loss using the smaller of the following. 1040ex form The decrease in FMV of the entire property. 1040ex form The adjusted basis of the entire property. 1040ex form   See Real property under Figuring the Deduction, later. 1040ex form Decrease in Fair Market Value Fair market value (FMV) is the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts. 1040ex form The decrease in FMV used to figure the amount of a casualty or theft loss is the difference between the property's fair market value immediately before and immediately after the casualty or theft. 1040ex form FMV of stolen property. 1040ex form   The FMV of property immediately after a theft is considered to be zero because you no longer have the property. 1040ex form Example. 1040ex form Several years ago, you purchased silver dollars at face value for $150. 1040ex form This is your adjusted basis in the property. 1040ex form Your silver dollars were stolen this year. 1040ex form The FMV of the coins was $1,000 just before they were stolen, and insurance did not cover them. 1040ex form Your theft loss is $150. 1040ex form Recovered stolen property. 1040ex form   Recovered stolen property is your property that was stolen and later returned to you. 1040ex form If you recovered property after you had already taken a theft loss deduction, you must refigure your loss using the smaller of the property's adjusted basis (explained later) or the decrease in FMV from the time just before it was stolen until the time it was recovered. 1040ex form Use this amount to refigure your total loss for the year in which the loss was deducted. 1040ex form   If your refigured loss is less than the loss you deducted, you generally have to report the difference as income in the recovery year. 1040ex form But report the difference only up to the amount of the loss that reduced your tax. 1040ex form For more information on the amount to report, see Recoveries in Publication 525. 1040ex form Figuring Decrease in FMV — Items To Consider To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. 1040ex form However, other measures also can be used to establish certain decreases. 1040ex form See Appraisal and Cost of cleaning up or making repairs , next. 1040ex form Appraisal. 1040ex form   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterwards should be made by a competent appraiser. 1040ex form The appraiser must recognize the effects of any general market decline that may occur along with the casualty. 1040ex form This information is needed to limit any deduction to the actual loss resulting from damage to the property. 1040ex form   Several factors are important in evaluating the accuracy of an appraisal, including the following. 1040ex form The appraiser's familiarity with your property before and after the casualty or theft. 1040ex form The appraiser's knowledge of sales of comparable property in the area. 1040ex form The appraiser's knowledge of conditions in the area of the casualty. 1040ex form The appraiser's method of appraisal. 1040ex form You may be able to use an appraisal that you used to get a federal loan (or a federal loan guarantee) as the result of a federally declared disaster to establish the amount of your disaster loss. 1040ex form For more information on disasters, see Disaster Area Losses, later. 1040ex form Cost of cleaning up or making repairs. 1040ex form   The cost of repairing damaged property is not part of a casualty loss. 1040ex form Neither is the cost of cleaning up after a casualty. 1040ex form But you can use the cost of cleaning up or of making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. 1040ex form The repairs are actually made. 1040ex form The repairs are necessary to bring the property back to its condition before the casualty. 1040ex form The amount spent for repairs is not excessive. 1040ex form The repairs take care of the damage only. 1040ex form The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. 1040ex form Landscaping. 1040ex form   The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV. 1040ex form You may be able to measure your loss by what you spend on the following. 1040ex form Removing destroyed or damaged trees and shrubs, minus any salvage you receive. 1040ex form Pruning and other measures taken to preserve damaged trees and shrubs. 1040ex form Replanting necessary to restore the property to its approximate value before the casualty. 1040ex form Car value. 1040ex form   Books issued by various automobile organizations that list your car may be useful in figuring the value of your car. 1040ex form You can use the books' retail values and modify them by factors such as the mileage and condition of your car to figure its value. 1040ex form The prices are not official, but they may be useful in determining value and suggesting relative prices for comparison with current sales and offerings in your area. 1040ex form If your car is not listed in the books, determine its value from other sources. 1040ex form A dealer's offer for your car as a trade-in on a new car is not usually a measure of its true value. 1040ex form Figuring Decrease in FMV — Items Not To Consider You generally should not consider the following items when attempting to establish the decrease in FMV of your property. 1040ex form Cost of protection. 1040ex form   The cost of protecting your property against a casualty or theft is not part of a casualty or theft loss. 1040ex form The amount you spend on insurance or to board up your house against a storm is not part of your loss. 1040ex form If the property is business property, these expenses are deductible as business expenses. 1040ex form   If you make permanent improvements to your property to protect it against a casualty or theft, add the cost of these improvements to your basis in the property. 1040ex form An example would be the cost of a dike to prevent flooding. 1040ex form Exception. 1040ex form   You cannot increase your basis in the property by, or deduct as a business expense, any expenditures you made with respect to qualified disaster mitigation payments (discussed later under Disaster Area Losses ). 1040ex form Related expenses. 1040ex form   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, for temporary housing, or for a rental car, are not part of your casualty or theft loss. 1040ex form However, they may be deductible as business expenses if the damaged or stolen property is business property. 1040ex form Replacement cost. 1040ex form   The cost of replacing stolen or destroyed property is not part of a casualty or theft loss. 1040ex form Example. 1040ex form You bought a new chair 4 years ago for $300. 1040ex form In April, a fire destroyed the chair. 1040ex form You estimate that it would cost $500 to replace it. 1040ex form If you had sold the chair before the fire, you estimate that you could have received only $100 for it because it was 4 years old. 1040ex form The chair was not insured. 1040ex form Your loss is $100, the FMV of the chair before the fire. 1040ex form It is not $500, the replacement cost. 1040ex form Sentimental value. 1040ex form   Do not consider sentimental value when determining your loss. 1040ex form If a family portrait, heirloom, or keepsake is damaged, destroyed, or stolen, you must base your loss on its FMV, as limited by your adjusted basis in the property. 1040ex form Decline in market value of property in or near casualty area. 1040ex form   A decrease in the value of your property because it is in or near an area that suffered a casualty, or that might again suffer a casualty, is not to be taken into consideration. 1040ex form You have a loss only for actual casualty damage to your property. 1040ex form However, if your home is in a federally declared disaster area, see Disaster Area Losses , later. 1040ex form Costs of photographs and appraisals. 1040ex form   Photographs taken after a casualty will be helpful in establishing the condition and value of the property after it was damaged. 1040ex form Photographs showing the condition of the property after it was repaired, restored, or replaced may also be helpful. 1040ex form   Appraisals are used to figure the decrease in FMV because of a casualty or theft. 1040ex form See Appraisal , earlier, under Figuring Decrease in FMV — Items To Consider, for information about appraisals. 1040ex form   The costs of photographs and appraisals used as evidence of the value and condition of property damaged as a result of a casualty are not a part of the loss. 1040ex form They are expenses in determining your tax liability. 1040ex form You can claim these costs as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross-income limit on Schedule A (Form 1040). 1040ex form Adjusted Basis The measure of your investment in the property you own is its basis. 1040ex form For property you buy, your basis is usually its cost to you. 1040ex form For property you acquire in some other way, such as inheriting it, receiving it as a gift, or getting it in a nontaxable exchange, you must figure your basis in another way, as explained in Publication 551. 1040ex form If you inherited the property from someone who died in 2010 and the executor of the decedent's estate made the election to file Form 8939, refer to the information provided by the executor or see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. 1040ex form Adjustments to basis. 1040ex form    While you own the property, various events may take place that change your basis. 1040ex form Some events, such as additions or permanent improvements to the property, increase basis. 1040ex form Others, such as earlier casualty losses and depreciation deductions, decrease basis. 1040ex form When you add the increases to the basis and subtract the decreases from the basis, the result is your adjusted basis. 1040ex form See Publication 551 for more information on figuring the basis of your property. 1040ex form Insurance and Other Reimbursements If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. 1040ex form You do not have a casualty or theft loss to the extent you are reimbursed. 1040ex form If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. 1040ex form You must reduce your loss even if you do not receive payment until a later tax year. 1040ex form See Reimbursement Received After Deducting Loss , later. 1040ex form Failure to file a claim for reimbursement. 1040ex form   If your property is covered by insurance, you must file a timely insurance claim for reimbursement of your loss. 1040ex form Otherwise, you cannot deduct this loss as a casualty or theft. 1040ex form The portion of the loss usually not covered by insurance (for example, a deductible) is not subject to this rule. 1040ex form Example. 1040ex form You have a car insurance policy with a $1,000 deductible. 1040ex form Because your insurance did not cover the first $1,000 of an auto collision, the $1,000 would be deductible (subject to the $100 and 10% rules, discussed later). 1040ex form This is true, even if you do not file an insurance claim, because your insurance policy would never have reimbursed you for the deductible. 1040ex form Types of Reimbursements The most common type of reimbursement is an insurance payment for your stolen or damaged property. 1040ex form Other types of reimbursements are discussed next. 1040ex form Also see the Instructions for Form 4684. 1040ex form Employer's emergency disaster fund. 1040ex form   If you receive money from your employer's emergency disaster fund and you must use that money to rehabilitate or replace property on which you are claiming a casualty loss deduction, you must take that money into consideration in computing the casualty loss deduction. 1040ex form Take into consideration only the amount you used to replace your destroyed or damaged property. 1040ex form Example. 1040ex form Your home was extensively damaged by a tornado. 1040ex form Your loss after reimbursement from your insurance company was $10,000. 1040ex form Your employer set up a disaster relief fund for its employees. 1040ex form Employees receiving money from the fund had to use it to rehabilitate or replace their damaged or destroyed property. 1040ex form You received $4,000 from the fund and spent the entire amount on repairs to your home. 1040ex form In figuring your casualty loss, you must reduce your unreimbursed loss ($10,000) by the $4,000 you received from your employer's fund. 1040ex form Your casualty loss before applying the deduction limits (discussed later) is $6,000. 1040ex form Cash gifts. 1040ex form   If you receive excludable cash gifts as a disaster victim and there are no limits on how you can use the money, you do not reduce your casualty loss by these excludable cash gifts. 1040ex form This applies even if you use the money to pay for repairs to property damaged in the disaster. 1040ex form Example. 1040ex form Your home was damaged by a hurricane. 1040ex form Relatives and neighbors made cash gifts to you that were excludable from your income. 1040ex form You used part of the cash gifts to pay for repairs to your home. 1040ex form There were no limits or restrictions on how you could use the cash gifts. 1040ex form It was an excludable gift, so the money you received and used to pay for repairs to your home does not reduce your casualty loss on the damaged home. 1040ex form Insurance payments for living expenses. 1040ex form   You do not reduce your casualty loss by insurance payments you receive to cover living expenses in either of the following situations. 1040ex form You lose the use of your main home because of a casualty. 1040ex form Government authorities do not allow you access to your main home because of a casualty or threat of one. 1040ex form Inclusion in income. 1040ex form   If these insurance payments are more than the temporary increase in your living expenses, you must include the excess in your income. 1040ex form Report this amount on Form 1040, line 21. 1040ex form However, if the casualty occurs in a federally declared disaster area, none of the insurance payments are taxable. 1040ex form See Qualified disaster relief payments , later, under Disaster Area Losses. 1040ex form   A temporary increase in your living expenses is the difference between the actual living expenses you and your family incurred during the period you could not use your home and your normal living expenses for that period. 1040ex form Actual living expenses are the reasonable and necessary expenses incurred because of the loss of your main home. 1040ex form Generally, these expenses include the amounts you pay for the following. 1040ex form Renting suitable housing. 1040ex form Transportation. 1040ex form Food. 1040ex form Utilities. 1040ex form Miscellaneous services. 1040ex form Normal living expenses consist of these same expenses that you would have incurred but did not because of the casualty or the threat of one. 1040ex form Example. 1040ex form As a result of a fire, you vacated your apartment for a month and moved to a motel. 1040ex form You normally pay $525 a month for rent. 1040ex form None was charged for the month the apartment was vacated. 1040ex form Your motel rent for this month was $1,200. 1040ex form You normally pay $200 a month for food. 1040ex form Your food expenses for the month you lived in the motel were $400. 1040ex form You received $1,100 from your insurance company to cover your living expenses. 1040ex form You determine the payment you must include in income as follows. 1040ex form 1. 1040ex form Insurance payment for living expenses $1,100 2. 1040ex form Actual expenses during the month you are unable to use your home because of the fire $1,600   3. 1040ex form Normal living expenses 725   4. 1040ex form Temporary increase in living expenses: Subtract line 3  from line 2 875 5. 1040ex form Amount of payment includible in income: Subtract line 4 from line 1 $ 225 Tax year of inclusion. 1040ex form   You include the taxable part of the insurance payment in income for the year you regain the use of your main home or, if later, for the year you receive the taxable part of the insurance payment. 1040ex form Example. 1040ex form Your main home was destroyed by a tornado in August 2011. 1040ex form You regained use of your home in November 2012. 1040ex form The insurance payments you received in 2011 and 2012 were $1,500 more than the temporary increase in your living expenses during those years. 1040ex form You include this amount in income on your 2012 Form 1040. 1040ex form If, in 2013, you receive further payments to cover the living expenses you had in 2011 and 2012, you must include those payments in income on your 2013 Form 1040. 1040ex form Disaster relief. 1040ex form   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. 1040ex form Table 2. 1040ex form Deduction Limit Rules for Personal-Use and Employee Property       $100 Rule 10% Rule 2% Rule General Application You must reduce each casualty or theft loss by $100 when figuring your deduction. 1040ex form Apply this rule to personal-use property after you have figured the amount of your loss. 1040ex form You must reduce your total casualty or theft loss by 10% of your adjusted gross income. 1040ex form Apply this rule to personal-use property after you reduce each loss by $100 (the $100 rule). 1040ex form You must reduce your total casualty or theft loss by 2% of your adjusted gross income. 1040ex form Apply this rule to property you used in performing services as an employee after you have figured the amount of your loss and added it to your job expenses and most other miscellaneous itemized deductions. 1040ex form Single Event Apply this rule only once, even if many pieces of property are affected. 1040ex form Apply this rule only once, even if many pieces of property are affected. 1040ex form Apply this rule only once, even if many pieces of property are affected. 1040ex form More Than One Event Apply to the loss from each event. 1040ex form Apply to the total of all your losses from all events. 1040ex form Apply to the total of all your losses from all events. 1040ex form More Than One Person— With Loss From the   Same Event  (other than a married couple  filing jointly) Apply separately to each person. 1040ex form Apply separately to each person. 1040ex form Apply separately to each person. 1040ex form Married Couple—  With Loss From the  Same Event Filing Joint Return Apply as if you were one person. 1040ex form Apply as if you were one person. 1040ex form Apply as if you were one person. 1040ex form Filing Separate Return Apply separately to each spouse. 1040ex form Apply separately to each spouse. 1040ex form Apply separately to each spouse. 1040ex form More Than One Owner (other than a married couple filing jointly) Apply separately to each owner of jointly owned property. 1040ex form Apply separately to each owner of jointly owned property. 1040ex form Apply separately to each owner of jointly owned property. 1040ex form    Qualified disaster relief payments you receive for expenses you incurred as a result of a federally declared disaster, are not taxable income to you. 1040ex form For more information, see Qualified disaster relief payments under Disaster Area Losses, later. 1040ex form   Disaster unemployment assistance payments are unemployment benefits that are taxable. 1040ex form   Generally, disaster relief grants received under the Robert T. 1040ex form Stafford Disaster Relief and Emergency Assistance Act are not included in your income. 1040ex form See Federal disaster relief grants , later, under Disaster Area Losses. 1040ex form Loan proceeds. 1040ex form   Do not reduce your casualty loss by loan proceeds you use to rehabilitate or replace property on which you are claiming a casualty loss deduction. 1040ex form If you have a federal loan that is canceled (forgiven), see Federal loan canceled , later, under Disaster Area Losses. 1040ex form Reimbursement Received After Deducting Loss If you figured your casualty or theft loss using the amount of your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. 1040ex form This section explains the adjustment you may have to make. 1040ex form Actual reimbursement less than expected. 1040ex form   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. 1040ex form Example. 1040ex form Your personal car had a FMV of $2,000 when it was destroyed in a collision with another car in 2012. 1040ex form The accident was due to the negligence of the other driver. 1040ex form At the end of 2012, there was a reasonable prospect that the owner of the other car would reimburse you in full. 1040ex form You did not have a deductible loss in 2012. 1040ex form In January 2013, the court awards you a judgment of $2,000. 1040ex form However, in July it becomes apparent that you will be unable to collect any amount from the other driver. 1040ex form Since this is your only casualty or theft loss, you can deduct the loss in 2013 that is figured by applying the Deduction Limits (discussed later). 1040ex form Actual reimbursement more than expected. 1040ex form   If you later receive more reimbursement than you expected, after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. 1040ex form However, if any part of the original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. 1040ex form You do not refigure your tax for the year you claimed the deduction. 1040ex form See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. 1040ex form Example. 1040ex form In 2012, a hurricane destroyed your motorboat. 1040ex form Your loss was $3,000, and you estimated that your insurance would cover $2,500 of it. 1040ex form You did not itemize deductions on your 2012 return, so you could not deduct the loss. 1040ex form When the insurance company reimburses you for the loss, you do not report any of the reimbursement as income. 1040ex form This is true even if it is for the full $3,000 because you did not deduct the loss on your 2012 return. 1040ex form The loss did not reduce your tax. 1040ex form    If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. 1040ex form If you have already taken a deduction for a loss and you receive the reimbursement in a later year, you may have to include the gain in your income for the later year. 1040ex form Include the gain as ordinary income up to the amount of your deduction that reduced your tax for the earlier year. 1040ex form You may be able to postpone reporting any remaining gain as explained under Postponement of Gain, later. 1040ex form Actual reimbursement same as expected. 1040ex form   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. 1040ex form Example. 1040ex form In December 2013, you had a collision while driving your personal car. 1040ex form Repairs to the car cost $950. 1040ex form You had $100 deductible collision insurance. 1040ex form Your insurance company agreed to reimburse you for the rest of the damage. 1040ex form Because you expected a reimbursement from the insurance company, you did not have a casualty loss deduction in 2013. 1040ex form Due to the $100 rule, you cannot deduct the $100 you paid as the deductible. 1040ex form When you receive the $850 from the insurance company in 2014, do not report it as income. 1040ex form Deduction Limits After you have figured your casualty or theft loss, you must figure how much of the loss you can deduct. 1040ex form The deduction for casualty and theft losses of employee property and personal-use property is limited. 1040ex form A loss on employee property is subject to the 2% rule, discussed next. 1040ex form With certain exceptions, a loss on property you own for your personal use is subject to the $100 and 10% rules, discussed later. 1040ex form The 2%, $100, and 10% rules are also summarized in Table 2 . 1040ex form Losses on business property (other than employee property) and income-producing property are not subject to these rules. 1040ex form However, if your casualty or theft loss involved a home you used for business or rented out, your deductible loss may be limited. 1040ex form See the Instructions for Form 4684, Section B. 1040ex form If the casualty or theft loss involved property used in a passive activity, see Form 8582, Passive Activity Loss Limitations, and its instructions. 1040ex form 2% Rule The casualty and theft loss deduction for employee property, when added to your job expenses and most other miscellaneous itemized deductions on Schedule A (Form 1040) or Form 1040NR, Schedule A, must be reduced by 2% of your adjusted gross income. 1040ex form Employee property is property used in performing services as an employee. 1040ex form $100 Rule After you have figured your casualty or theft loss on personal-use property, as discussed earlier, you must reduce that loss by $100. 1040ex form This reduction applies to each total casualty or theft loss. 1040ex form It does not matter how many pieces of property are involved in an event. 1040ex form Only a single $100 reduction applies. 1040ex form Example. 1040ex form You have $750 deductible collision insurance on your car. 1040ex form The car is damaged in a collision. 1040ex form The insurance company pays you for the damage minus the $750 deductible. 1040ex form The amount of the casualty loss is based solely on the deductible. 1040ex form The casualty loss is $650 ($750 − $100) because the first $100 of a casualty loss on personal-use property is not deductible. 1040ex form Single event. 1040ex form   Generally, events closely related in origin cause a single casualty. 1040ex form It is a single casualty when the damage is from two or more closely related causes, such as wind and flood damage caused by the same storm. 1040ex form A single casualty may also damage two or more pieces of property, such as a hailstorm that damages both your home and your car parked in your driveway. 1040ex form Example 1. 1040ex form A thunderstorm destroyed your pleasure boat. 1040ex form You also lost some boating equipment in the storm. 1040ex form Your loss was $5,000 on the boat and $1,200 on the equipment. 1040ex form Your insurance company reimbursed you $4,500 for the damage to your boat. 1040ex form You had no insurance coverage on the equipment. 1040ex form Your casualty loss is from a single event and the $100 rule applies once. 1040ex form Figure your loss before applying the 10% rule (discussed later) as follows. 1040ex form     Boat Equipment 1. 1040ex form Loss $5,000 $1,200 2. 1040ex form Subtract insurance 4,500 -0- 3. 1040ex form Loss after reimbursement $ 500 $1,200 4. 1040ex form Total loss $1,700 5. 1040ex form Subtract $100 100 6. 1040ex form Loss before 10% rule $1,600 Example 2. 1040ex form Thieves broke into your home in January and stole a ring and a fur coat. 1040ex form You had a loss of $200 on the ring and $700 on the coat. 1040ex form This is a single theft. 1040ex form The $100 rule applies to the total $900 loss. 1040ex form Example 3. 1040ex form In September, hurricane winds blew the roof off your home. 1040ex form Flood waters caused by the hurricane further damaged your home and destroyed your furniture and personal car. 1040ex form This is considered a single casualty. 1040ex form The $100 rule is applied to your total loss from the flood waters and the wind. 1040ex form More than one loss. 1040ex form   If you have more than one casualty or theft loss during your tax year, you must reduce each loss by $100. 1040ex form Example. 1040ex form Your family car was damaged in an accident in January. 1040ex form Your loss after the insurance reimbursement was $75. 1040ex form In February, your car was damaged in another accident. 1040ex form This time your loss after the insurance reimbursement was $90. 1040ex form Apply the $100 rule to each separate casualty loss. 1040ex form Since neither accident resulted in a loss of over $100, you are not entitled to any deduction for these accidents. 1040ex form More than one person. 1040ex form   If two or more individuals (other than a husband and wife filing a joint return) have losses from the same casualty or theft, the $100 rule applies separately to each individual. 1040ex form Example. 1040ex form A fire damaged your house and also damaged the personal property of your house guest. 1040ex form You must reduce your loss by $100. 1040ex form Your house guest must reduce his or her loss by $100. 1040ex form Married taxpayers. 1040ex form   If you and your spouse file a joint return, you are treated as one individual in applying the $100 rule. 1040ex form It does not matter whether you own the property jointly or separately. 1040ex form   If you and your spouse have a casualty or theft loss and you file separate returns, each of you must reduce your loss by $100. 1040ex form This is true even if you own the property jointly. 1040ex form If one spouse owns the property, only that spouse can figure a loss deduction on a separate return. 1040ex form   If the casualty or theft loss is on property you own as tenants by the entirety, each of you can figure your deduction on only one-half of the loss on separate returns. 1040ex form Neither of you can figure your deduction on the entire loss on a separate return. 1040ex form Each of you must reduce the loss by $100. 1040ex form More than one owner. 1040ex form   If two or more individuals (other than a husband and wife filing a joint return) have a loss on property jointly owned, the $100 rule applies separately to each. 1040ex form For example, if two sisters live together in a home they own jointly and they have a casualty loss on the home, the $100 rule applies separately to each sister. 1040ex form 10% Rule You must reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. 1040ex form Apply this rule after you reduce each loss by $100. 1040ex form For more information, see the Form 4684 instructions. 1040ex form If you have both gains and losses from casualties or thefts, see Gains and losses , later in this discussion. 1040ex form Example. 1040ex form In June, you discovered that your house had been burglarized. 1040ex form Your loss after insurance reimbursement was $2,000. 1040ex form Your adjusted gross income for the year you discovered the theft is $29,500. 1040ex form Figure your theft loss as follows. 1040ex form 1. 1040ex form Loss after insurance $2,000 2. 1040ex form Subtract $100 100 3. 1040ex form Loss after $100 rule $1,900 4. 1040ex form Subtract 10% of $29,500 AGI $2,950 5. 1040ex form Theft loss deduction $-0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($2,950). 1040ex form More than one loss. 1040ex form   If you have more than one casualty or theft loss during your tax year, reduce each loss by any reimbursement and by $100. 1040ex form Then you must reduce the total of all your losses by 10% of your adjusted gross income. 1040ex form Example. 1040ex form In March, you had a car accident that totally destroyed your car. 1040ex form You did not have collision insurance on your car, so you did not receive any insurance reimbursement. 1040ex form Your loss on the car was $1,800. 1040ex form In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items you had stored there. 1040ex form Your loss on the basement items after reimbursement was $2,100. 1040ex form Your adjusted gross income for the year that the accident and fire occurred is $25,000. 1040ex form You figure your casualty loss deduction as follows. 1040ex form     Car Basement 1. 1040ex form Loss $1,800 $2,100 2. 1040ex form Subtract $100 per incident 100 100 3. 1040ex form Loss after $100 rule $1,700 $2,000 4. 1040ex form Total loss $3,700 5. 1040ex form Subtract 10% of $25,000 AGI 2,500 6. 1040ex form Casualty loss deduction $1,200 Married taxpayers. 1040ex form   If you and your spouse file a joint return, you are treated as one individual in applying the 10% rule. 1040ex form It does not matter if you own the property jointly or separately. 1040ex form   If you file separate returns, the 10% rule applies to each return on which a loss is claimed. 1040ex form More than one owner. 1040ex form   If two or more individuals (other than husband and wife filing a joint return) have a loss on property that is owned jointly, the 10% rule applies separately to each. 1040ex form Gains and losses. 1040ex form   If you have casualty or theft gains as well as losses to personal-use property, you must compare your total gains to your total losses. 1040ex form Do this after you have reduced each loss by any reimbursements and by $100 but before you have reduced the losses by 10% of your adjusted gross income. 1040ex form Casualty or theft gains do not include gains you choose to postpone. 1040ex form See Postponement of Gain, later. 1040ex form Losses more than gains. 1040ex form   If your losses are more than your recognized gains, subtract your gains from your losses and reduce the result by 10% of your adjusted gross income. 1040ex form The rest, if any, is your deductible loss from personal-use property. 1040ex form Example. 1040ex form Your theft loss after reducing it by reimbursements and by $100 is $2,700. 1040ex form Your casualty gain is $700. 1040ex form Your loss is more than your gain, so you must reduce your $2,000 net loss ($2,700 − $700) by 10% of your adjusted gross income. 1040ex form Gains more than losses. 1040ex form   If your recognized gains are more than your losses, subtract your losses from your gains. 1040ex form The difference is treated as a capital gain and must be reported on Schedule D (Form 1040). 1040ex form The 10% rule does not apply to your gains. 1040ex form Example. 1040ex form Your theft loss is $600 after reducing it by reimbursements and by $100. 1040ex form Your casualty gain is $1,600. 1040ex form Because your gain is more than your loss, you must report the $1,000 net gain ($1,600 − $600) on Schedule D (Form 1040). 1040ex form More information. 1040ex form   For information on how to figure recognized gains, see Figuring a Gain , later. 1040ex form Figuring the Deduction Generally, you must figure your loss separately for each item stolen, damaged, or destroyed. 1040ex form However, a special rule applies to real property you own for personal use. 1040ex form Real property. 1040ex form   In figuring a loss to real estate you own for personal use, all improvements (such as buildings and ornamental trees and the land containing the improvements) are considered together. 1040ex form Example 1. 1040ex form In June, a fire destroyed your lakeside cottage, which cost $144,800 (including $14,500 for the land) several years ago. 1040ex form (Your land was not damaged. 1040ex form ) This was your only casualty or theft loss for the year. 1040ex form The FMV of the property immediately before the fire was $180,000 ($145,000 for the cottage and $35,000 for the land). 1040ex form The FMV immediately after the fire was $35,000 (value of the land). 1040ex form You collected $130,000 from the insurance company. 1040ex form Your adjusted gross income for the year the fire occurred is $80,000. 1040ex form Your deduction for the casualty loss is $6,700, figured in the following manner. 1040ex form 1. 1040ex form Adjusted basis of the entire property (cost in this example) $144,800 2. 1040ex form FMV of entire property  before fire $180,000 3. 1040ex form FMV of entire property after fire 35,000 4. 1040ex form Decrease in FMV of entire property (line 2 − line 3) $145,000 5. 1040ex form Loss (smaller of line 1 or line 4) $144,800 6. 1040ex form Subtract insurance 130,000 7. 1040ex form Loss after reimbursement $14,800 8. 1040ex form Subtract $100 100 9. 1040ex form Loss after $100 rule $14,700 10. 1040ex form Subtract 10% of $80,000 AGI 8,000 11. 1040ex form Casualty loss deduction $ 6,700 Example 2. 1040ex form You bought your home a few years ago. 1040ex form You paid $150,000 ($10,000 for the land and $140,000 for the house). 1040ex form You also spent an additional $2,000 for landscaping. 1040ex form This year a fire destroyed your home. 1040ex form The fire also damaged the shrubbery and trees in your yard. 1040ex form The fire was your only casualty or theft loss this year. 1040ex form Competent appraisers valued the property as a whole at $175,000 before the fire, but only $50,000 after the fire. 1040ex form Shortly after the fire, the insurance company paid you $95,000 for the loss. 1040ex form Your adjusted gross income for this year is $70,000. 1040ex form You figure your casualty loss deduction as follows. 1040ex form 1. 1040ex form Adjusted basis of the entire property (cost of land, building, and landscaping) $152,000 2. 1040ex form FMV of entire property  before fire $175,000 3. 1040ex form FMV of entire property after fire 50,000 4. 1040ex form Decrease in FMV of entire property (line 2 − line 3) $125,000 5. 1040ex form Loss (smaller of line 1 or line 4) $125,000 6. 1040ex form Subtract insurance 95,000 7. 1040ex form Loss after reimbursement $30,000 8. 1040ex form Subtract $100 100 9. 1040ex form Loss after $100 rule $29,900 10. 1040ex form Subtract 10% of $70,000 AGI 7,000 11. 1040ex form Casualty loss deduction $ 22,900 Personal property. 1040ex form   Personal property is any property that is not real property. 1040ex form If your personal property is stolen or is damaged or destroyed by a casualty, you must figure your loss separately for each item of property. 1040ex form Then combine these separate losses to figure the total loss. 1040ex form Reduce the total loss by $100 and 10% of your adjusted gross income to figure the loss deduction. 1040ex form Example 1. 1040ex form In August, a storm destroyed your pleasure boat, which cost $18,500. 1040ex form This was your only casualty or theft loss for the year. 1040ex form Its FMV immediately before the storm was $17,000. 1040ex form You had no insurance, but were able to salvage the motor of the boat and sell it for $200. 1040ex form Your adjusted gross income for the year the casualty occurred is $70,000. 1040ex form Although the motor was sold separately, it is part of the boat and not a separate item of property. 1040ex form You figure your casualty loss deduction as follows. 1040ex form 1. 1040ex form Adjusted basis (cost in this example) $18,500 2. 1040ex form FMV before storm $17,000 3. 1040ex form FMV after storm 200 4. 1040ex form Decrease in FMV  (line 2 − line 3) $16,800 5. 1040ex form Loss (smaller of line 1 or line 4) $16,800 6. 1040ex form Subtract insurance -0- 7. 1040ex form Loss after reimbursement $16,800 8. 1040ex form Subtract $100 100 9. 1040ex form Loss after $100 rule $16,700 10. 1040ex form Subtract 10% of $70,000 AGI 7,000 11. 1040ex form Casualty loss deduction $ 9,700 Example 2. 1040ex form In June, you were involved in an auto accident that totally destroyed your personal car and your antique pocket watch. 1040ex form You had bought the car for $30,000. 1040ex form The FMV of the car just before the accident was $17,500. 1040ex form Its FMV just after the accident was $180 (scrap value). 1040ex form Your insurance company reimbursed you $16,000. 1040ex form Your watch was not insured. 1040ex form You had purchased it for $250. 1040ex form Its FMV just before the accident was $500. 1040ex form Your adjusted gross income for the year the accident occurred is $97,000. 1040ex form Your casualty loss deduction is zero, figured as follows. 1040ex form     Car Watch 1. 1040ex form Adjusted basis (cost) $30,000 $250 2. 1040ex form FMV before accident $17,500 $500 3. 1040ex form FMV after accident 180 -0- 4. 1040ex form Decrease in FMV (line 2 − line 3) $17,320 $500 5. 1040ex form Loss (smaller of line 1 or line 4) $17,320 $250 6. 1040ex form Subtract insurance 16,000 -0- 7. 1040ex form Loss after reimbursement $1,320 $250 8. 1040ex form Total loss $1,570 9. 1040ex form Subtract $100 100 10. 1040ex form Loss after $100 rule $1,470 11. 1040ex form Subtract 10% of $97,000 AGI 9,700 12. 1040ex form Casualty loss deduction $ -0- Both real and personal properties. 1040ex form   When a casualty involves both real and personal properties, you must figure the loss separately for each type of property. 1040ex form However, you apply a single $100 reduction to the total loss. 1040ex form Then, you apply the 10% rule to figure the casualty loss deduction. 1040ex form Example. 1040ex form In July, a hurricane damaged your home, which cost you $164,000 including land. 1040ex form The FMV of the property (both building and land) immediately before the storm was $170,000 and its FMV immediately after the storm was $100,000. 1040ex form Your household furnishings were also damaged. 1040ex form You separately figured the loss on each damaged household item and arrived at a total loss of $600. 1040ex form You collected $50,000 from the insurance company for the damage to your home, but your household furnishings were not insured. 1040ex form Your adjusted gross income for the year the hurricane occurred is $65,000. 1040ex form You figure your casualty loss deduction from the hurricane in the following manner. 1040ex form 1. 1040ex form Adjusted basis of real property (cost in this example) $164,000 2. 1040ex form FMV of real property before hurricane $170,000 3. 1040ex form FMV of real property after hurricane 100,000 4. 1040ex form Decrease in FMV of real property (line 2 − line 3) $70,000 5. 1040ex form Loss on real property (smaller of line 1 or line 4) $70,000 6. 1040ex form Subtract insurance 50,000 7. 1040ex form Loss on real property after reimbursement $20,000 8. 1040ex form Loss on furnishings $600 9. 1040ex form Subtract insurance -0- 10. 1040ex form Loss on furnishings after reimbursement $600 11. 1040ex form Total loss (line 7 plus line 10) $20,600 12. 1040ex form Subtract $100 100 13. 1040ex form Loss after $100 rule $20,500 14. 1040ex form Subtract 10% of $65,000 AGI 6,500 15. 1040ex form Casualty loss deduction $14,000 Property used partly for business and partly for personal purposes. 1040ex form   When property is used partly for personal purposes and partly for business or income-producing purposes, the casualty or theft loss deduction must be figured separately for the personal-use portion and for the business or income-producing portion. 1040ex form You must figure each loss separately because the losses attributed to these two uses are figured in two different ways. 1040ex form When figuring each loss, allocate the total cost or basis, the FMV before and after the casualty or theft loss, and the insurance or other reimbursement between the business and personal use of the property. 1040ex form The $100 rule and the 10% rule apply only to the casualty or theft loss on the personal-use portion of the property. 1040ex form Example. 1040ex form You own a building that you constructed on leased land. 1040ex form You use half of the building for your business and you live in the other half. 1040ex form The cost of the building was $400,000. 1040ex form You made no further improvements or additions to it. 1040ex form A flood in March damaged the entire building. 1040ex form The FMV of the building was $380,000 immediately before the flood and $320,000 afterwards. 1040ex form Your insurance company reimbursed you $40,000 for the flood damage. 1040ex form Depreciation on the business part of the building before the flood totaled $24,000. 1040ex form Your adjusted gross income for the year the flood occurred is $125,000. 1040ex form You have a deductible business casualty loss of $10,000. 1040ex form You do not have a deductible personal casualty loss because of the 10% rule. 1040ex form You figure your loss as follows. 1040ex form     Business   Personal     Part   Part 1. 1040ex form Cost (total $400,000) $200,000   $200,000 2. 1040ex form Subtract depreciation 24,000   -0- 3. 1040ex form Adjusted basis $176,000   $200,000 4. 1040ex form FMV before flood (total $380,000) $190,000   $190,000 5. 1040ex form FMV after flood (total $320,000) 160,000   160,000 6. 1040ex form Decrease in FMV  (line 4 − line 5) $30,000   $30,000 7. 1040ex form Loss (smaller of line 3 or line 6) $30,000   $30,000 8. 1040ex form Subtract insurance 20,000   20,000 9. 1040ex form Loss after reimbursement $10,000   $10,000 10. 1040ex form Subtract $100 on personal-use property -0-   100 11. 1040ex form Loss after $100 rule $10,000   $9,900 12. 1040ex form Subtract 10% of $125,000 AGI on personal-use property -0-   12,500 13. 1040ex form Deductible business loss $10,000     14. 1040ex form Deductible personal loss $-0- Figuring a Gain If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. 1040ex form Your gain is figured as follows. 1040ex form The amount you receive (discussed next), minus Your adjusted basis in the property at the time of the casualty or theft. 1040ex form See Adjusted Basis , earlier, for information on adjusted basis. 1040ex form Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. 1040ex form Amount you receive. 1040ex form   The amount you receive includes any money plus the value of any property you receive minus any expenses you have in obtaining reimbursement. 1040ex form It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. 1040ex form Example. 1040ex form A hurricane destroyed your personal residence and the insurance company awarded you $145,000. 1040ex form You received $140,000 in cash. 1040ex form The remaining $5,000 was paid directly to the holder of a mortgage on the property. 1040ex form The amount you received includes the $5,000 reimbursement paid on the mortgage. 1040ex form Main home destroyed. 1040ex form   If you have a gain because your main home was destroyed, you generally can exclude the gain from your income as if you had sold or exchanged your home. 1040ex form You may be able to exclude up to $250,000 of the gain (up to $500,000 if married filing jointly). 1040ex form To exclude a gain, you generally must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date it was destroyed. 1040ex form For information on this exclusion, see Publication 523. 1040ex form If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. 1040ex form See Postponement of Gain , later. 1040ex form Reporting a gain. 1040ex form   You generally must report your gain as income in the year you receive the reimbursement. 1040ex form However, you do not have to report your gain if you meet certain requirements and choose to postpone reporting the gain according to the rules explained under Postponement of Gain, next. 1040ex form   For information on how to report a gain, see How To Report Gains and Losses , later. 1040ex form    If you have a casualty or theft gain on personal-use property that you choose to postpone reporting (as explained next) and you also have another casualty or theft loss on personal-use property, do not consider the gain you are postponing when figuring your casualty or theft loss deduction. 1040ex form See 10% Rule under Deduction Limits, earlier. 1040ex form Postponement of Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed or stolen property. 1040ex form Your basis in the new property is generally the same as your adjusted basis in the property it replaces. 1040ex form You must ordinarily report the gain on your stolen or destroyed property if you receive money or unlike property as reimbursement. 1040ex form However, you can choose to postpone reporting the gain if you purchase property that is similar or related in service or use to the stolen or destroyed property within a specified replacement period, discussed later. 1040ex form You also can choose to postpone reporting the gain if you purchase a controlling interest (at least 80%) in a corporation owning property that is similar or related in service or use to the property. 1040ex form See Controlling interest in a corporation , later. 1040ex form If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. 1040ex form To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. 1040ex form If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. 1040ex form Example. 1040ex form In 1970, you bought an oceanfront cottage for your personal use at a cost of $18,000. 1040ex form You made no further improvements or additions to it. 1040ex form When a storm destroyed the cottage this January, the cottage was worth $250,000. 1040ex form You received $146,000 from the insurance company in March. 1040ex form You had a gain of $128,000 ($146,000 − $18,000). 1040ex form You spent $144,000 to rebuild the cottage. 1040ex form Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. 1040ex form Buying replacement property from a related person. 1040ex form   You cannot postpone reporting a gain from a casualty or theft if you buy the replacement property from a related person (discussed later). 1040ex form This rule applies to the following taxpayers. 1040ex form C corporations. 1040ex form Partnerships in which more than 50% of the capital or profits interests is owned by C corporations. 1040ex form All others (including individuals, partnerships — other than those in (2) — and S corporations) if the total realized gain for the tax year on all destroyed or stolen properties on which there are realized gains is more than $100,000. 1040ex form For casualties and thefts described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. 1040ex form If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. 1040ex form If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. 1040ex form Exception. 1040ex form   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the destroyed or stolen property. 1040ex form Related persons. 1040ex form   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. 1040ex form For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 1040ex form Death of a taxpayer. 1040ex form   If a taxpayer dies after having a gain but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. 1040ex form The executor of the estate or the person succeeding to the funds from the casualty or theft cannot postpone reporting the gain by buying replacement property. 1040ex form Replacement Property You must buy replacement property for the specific purpose of replacing your destroyed or stolen property. 1040ex form Property you acquire as a gift or inheritance does not qualify. 1040ex form You do not have to use the same funds you receive as