File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

2012 Tax Amendment

Irs Form 1040ez Instructions1040ez BookletTurbotax Free Edition1040ez Instructions 2012State Income Tax Forms1040ez Form2012Free Federal And State Income Tax FilingTaxs 2012State Tax Forms 2013Free Tax Filing 20141040ez Instructions 2014Real Life Tax Filing Block Military NonmilitaryNeed Do 2011 Taxes2012 TaxesFile 2011 State TaxesIrs Gov Amended ReturnsMyfreetaxes.comNeed 2010 TaxesHow To Fill 1040nr1040 Es Tax FormsStudent Tax Information1040ez Tax ReturnPenalties For Late Tax ReturnsAmended Tax Form 1040xFile My 2011 Taxes For FreeFree Federal Tax FilingWww Ir GovIrs Amendment Form InstructionsFree 1040ez Tax FilingFree FileFile Back Tax OnlineAmmended Tax FormSelf Employed TaxesTaxact.com 2012Free 1040ez Online1040ez Tax TableAmending A Tax Return With TurbotaxIrs 1040ez 2011 FormHow To Fill Out A 1040x Amendment1040 Ez Tax Table

2012 Tax Amendment

2012 tax amendment 4. 2012 tax amendment   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. 2012 tax amendment Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. 2012 tax amendment Net unrelated income. 2012 tax amendment Net unrelated loss. 2012 tax amendment Control. 2012 tax amendment Income from property financed with qualified 501(c)(3) bonds. 2012 tax amendment Disposition of property received from taxable subsidiary and used in unrelated business. 2012 tax amendment Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. 2012 tax amendment If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. 2012 tax amendment In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. 2012 tax amendment Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. 2012 tax amendment For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. 2012 tax amendment Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. 2012 tax amendment Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. 2012 tax amendment Dividends, interest, annuities and other investment income. 2012 tax amendment   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. 2012 tax amendment Exception for insurance activity income of a controlled foreign corporation. 2012 tax amendment   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. 2012 tax amendment The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. 2012 tax amendment Certain exceptions to this rule apply. 2012 tax amendment For more information, see section 512(b)(17). 2012 tax amendment Other exceptions. 2012 tax amendment   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). 2012 tax amendment Income from lending securities. 2012 tax amendment   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. 2012 tax amendment   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. 2012 tax amendment The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. 2012 tax amendment Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. 2012 tax amendment Royalties. 2012 tax amendment   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. 2012 tax amendment   To be considered a royalty, a payment must relate to the use of a valuable right. 2012 tax amendment Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. 2012 tax amendment Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. 2012 tax amendment However, royalties do not include payments for personal services. 2012 tax amendment Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. 2012 tax amendment   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. 2012 tax amendment   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. 2012 tax amendment However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. 2012 tax amendment To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. 2012 tax amendment To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. 2012 tax amendment Exceptions. 2012 tax amendment   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). 2012 tax amendment Rents. 2012 tax amendment   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. 2012 tax amendment Rents from personal property are not excluded. 2012 tax amendment However, special rules apply to “mixed leases” of both real and personal property. 2012 tax amendment Mixed leases. 2012 tax amendment   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. 2012 tax amendment If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. 2012 tax amendment If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. 2012 tax amendment   Property is placed in service when the lessee first may use it under the terms of a lease. 2012 tax amendment For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. 2012 tax amendment   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. 2012 tax amendment   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). 2012 tax amendment Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. 2012 tax amendment Exception for rents based on net profit. 2012 tax amendment   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. 2012 tax amendment Exception for income from personal services. 2012 tax amendment   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. 2012 tax amendment Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. 2012 tax amendment Other exceptions. 2012 tax amendment   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. 2012 tax amendment ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). 2012 tax amendment See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. 2012 tax amendment Income from research. 2012 tax amendment   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. 2012 tax amendment However, the extent of the exclusion depends on the nature of the organization and the type of research. 2012 tax amendment   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. 2012 tax amendment   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. 2012 tax amendment   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. 2012 tax amendment   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. 2012 tax amendment In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. 2012 tax amendment Gains and losses from disposition of property. 2012 tax amendment   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. 2012 tax amendment   It should be noted that the last exception relates only to cut timber. 2012 tax amendment The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. 2012 tax amendment Lapse or termination of options. 2012 tax amendment   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. 2012 tax amendment The exclusion applies only if the option is written in connection with the exempt organization's investment activities. 2012 tax amendment Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. 2012 tax amendment Exception. 2012 tax amendment   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. 2012 tax amendment Gain or loss on disposition of certain brownfield property. 2012 tax amendment   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. 2012 tax amendment See sections 512(b)(19) and 514(b)(1)(E). 2012 tax amendment Income from services provided under federal license. 2012 tax amendment   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. 2012 tax amendment   This exclusion applies only if the following requirements are met. 2012 tax amendment The trade or business must have been operated by the order or by the institution before May 27, 1959. 2012 tax amendment The trade or business must provide services under a license issued by a federal regulatory agency. 2012 tax amendment More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. 2012 tax amendment The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. 2012 tax amendment Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. 2012 tax amendment Exception. 2012 tax amendment    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). 2012 tax amendment Member income of mutual or cooperative electric companies. 2012 tax amendment   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. 2012 tax amendment Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. 2012 tax amendment For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. 2012 tax amendment Exception. 2012 tax amendment   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. 2012 tax amendment The limit on dues paid by an associate member is $148 for 2011. 2012 tax amendment   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. 2012 tax amendment Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. 2012 tax amendment They cannot be directly connected with excluded income. 2012 tax amendment For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. 2012 tax amendment Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. 2012 tax amendment For an exception, see Expenses attributable to exploitation of exempt activities, later. 2012 tax amendment Expenses attributable solely to unrelated business. 2012 tax amendment   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. 2012 tax amendment   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. 2012 tax amendment Expenses attributable to dual use of facilities or personnel. 2012 tax amendment   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. 2012 tax amendment The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. 2012 tax amendment Example 1. 2012 tax amendment A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. 2012 tax amendment The school provides the tennis courts, housing, and dining facilities. 2012 tax amendment The contracted individual hires the instructors, recruits campers, and provides supervision. 2012 tax amendment The income the school receives from this activity is from a dual use of the facilities and personnel. 2012 tax amendment The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. 2012 tax amendment Example 2. 2012 tax amendment An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. 2012 tax amendment The president devotes approximately 10% of his time to the unrelated business. 2012 tax amendment To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. 2012 tax amendment Expenses attributable to exploitation of exempt activities. 2012 tax amendment   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. 2012 tax amendment (See Exploitation of exempt functions under Not substantially related in chapter 3. 2012 tax amendment ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. 2012 tax amendment Exception. 2012 tax amendment   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. 2012 tax amendment The unrelated business exploits the exempt activity. 2012 tax amendment The unrelated business is a type normally conducted for profit by taxable organizations. 2012 tax amendment The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. 2012 tax amendment The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. 2012 tax amendment   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. 2012 tax amendment Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. 2012 tax amendment Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. 2012 tax amendment (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. 2012 tax amendment ) Figuring unrelated business taxable income (UBTI). 2012 tax amendment   The UBTI of an advertising activity is the amount shown in the following chart. 2012 tax amendment IF gross advertising income is . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment THEN UBTI is . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. 2012 tax amendment Equal to or less than direct advertising costs Zero. 2012 tax amendment   • Circulation income and readership costs are not taken into account. 2012 tax amendment   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. 2012 tax amendment   The terms used in the chart are explained in the following discussions. 2012 tax amendment Periodical Income Gross advertising income. 2012 tax amendment   This is all the income from the unrelated advertising activities of an exempt organization periodical. 2012 tax amendment Circulation income. 2012 tax amendment   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). 2012 tax amendment It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. 2012 tax amendment It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. 2012 tax amendment Allocable membership receipts. 2012 tax amendment   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. 2012 tax amendment   The amount used to allocate membership receipts is the amount shown in the following chart. 2012 tax amendment   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. 2012 tax amendment The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. 2012 tax amendment IF . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment THEN the amount used to allocate membership receipts is . 2012 tax amendment . 2012 tax amendment . 2012 tax amendment 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. 2012 tax amendment The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. 2012 tax amendment Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. 2012 tax amendment U is an exempt scientific organization with 10,000 members who pay annual dues of $15. 2012 tax amendment One of U's activities is publishing a monthly periodical distributed to all of its members. 2012 tax amendment U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. 2012 tax amendment Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. 2012 tax amendment Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). 2012 tax amendment Example 2. 2012 tax amendment Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. 2012 tax amendment Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. 2012 tax amendment U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. 2012 tax amendment Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. 2012 tax amendment Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. 2012 tax amendment Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). 2012 tax amendment U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). 2012 tax amendment Periodical Costs Direct advertising costs. 2012 tax amendment   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. 2012 tax amendment   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. 2012 tax amendment Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. 2012 tax amendment   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. 2012 tax amendment For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. 2012 tax amendment Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. 2012 tax amendment   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. 2012 tax amendment Readership costs. 2012 tax amendment   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. 2012 tax amendment Costs partly attributable to other activities. 2012 tax amendment   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. 2012 tax amendment When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. 2012 tax amendment The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. 2012 tax amendment Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. 2012 tax amendment Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. 2012 tax amendment It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. 2012 tax amendment Consolidated treatment, once adopted, must be followed consistently and is binding. 2012 tax amendment This treatment can be changed only with the consent of the Internal Revenue Service. 2012 tax amendment An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. 2012 tax amendment Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. 2012 tax amendment The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. 2012 tax amendment For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. 2012 tax amendment The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. 2012 tax amendment Example. 2012 tax amendment Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. 2012 tax amendment Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. 2012 tax amendment Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. 2012 tax amendment The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. 2012 tax amendment The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. 2012 tax amendment It is not engaged in for profit. 2012 tax amendment Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. 2012 tax amendment It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. 2012 tax amendment Modifications Net operating loss deduction. 2012 tax amendment   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. 2012 tax amendment However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. 2012 tax amendment For example, a loss from an unrelated trade or business is not diminished because dividend income was received. 2012 tax amendment   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. 2012 tax amendment This would reduce the loss that could be applied against unrelated business income of prior or future tax years. 2012 tax amendment Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. 2012 tax amendment   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. 2012 tax amendment   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. 2012 tax amendment   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. 2012 tax amendment For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. 2012 tax amendment   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2012 tax amendment Charitable contributions deduction. 2012 tax amendment   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. 2012 tax amendment   To be deductible, the contribution must be paid to another qualified organization. 2012 tax amendment For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. 2012 tax amendment   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. 2012 tax amendment Deduction limits. 2012 tax amendment   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. 2012 tax amendment See the Instructions for Form 990-T for more information. 2012 tax amendment    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. 2012 tax amendment However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. 2012 tax amendment   Contributions in excess of the limits just described may be carried over to the next 5 tax years. 2012 tax amendment A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. 2012 tax amendment Suspension of deduction limits for farmers and ranchers. 2012 tax amendment   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. 2012 tax amendment See the Instructions for Form 990-T for details. 2012 tax amendment Specific deduction. 2012 tax amendment   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. 2012 tax amendment However, the specific deduction is not allowed in computing an NOL or the NOL deduction. 2012 tax amendment   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. 2012 tax amendment Exception. 2012 tax amendment   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. 2012 tax amendment In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. 2012 tax amendment   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. 2012 tax amendment The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. 2012 tax amendment The local units cannot file separate returns. 2012 tax amendment However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. 2012 tax amendment See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. 2012 tax amendment Example. 2012 tax amendment X is an association of churches and is divided into local units A, B, C, and D. 2012 tax amendment Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. 2012 tax amendment X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. 2012 tax amendment Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. 2012 tax amendment If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. 2012 tax amendment No distinction is made between limited and general partners. 2012 tax amendment The organization is required to notify the partnership of its tax-exempt status. 2012 tax amendment Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. 2012 tax amendment The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. 2012 tax amendment The partnership is required to provide the organization this information on Schedule K-1. 2012 tax amendment Example. 2012 tax amendment An exempt educational organization is a partner in a partnership that operates a factory. 2012 tax amendment The partnership also holds stock in a corporation. 2012 tax amendment The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. 2012 tax amendment Different tax years. 2012 tax amendment   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. 2012 tax amendment S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. 2012 tax amendment For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. 2012 tax amendment The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. 2012 tax amendment Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. 2012 tax amendment To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. 2012 tax amendment Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). 2012 tax amendment These organizations must figure unrelated business taxable income under special rules. 2012 tax amendment Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. 2012 tax amendment ). 2012 tax amendment (See Exclusions under Income, earlier. 2012 tax amendment ) Therefore, they are generally subject to unrelated business income tax on this income. 2012 tax amendment The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. 2012 tax amendment The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. 2012 tax amendment Losses from nonexempt activities. 2012 tax amendment   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. 2012 tax amendment Example. 2012 tax amendment A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. 2012 tax amendment The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. 2012 tax amendment Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. 2012 tax amendment Modifications. 2012 tax amendment   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). 2012 tax amendment Exempt function income. 2012 tax amendment   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. 2012 tax amendment Exempt function income also includes income set aside for qualified purposes. 2012 tax amendment Income that is set aside. 2012 tax amendment   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 2012 tax amendment In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. 2012 tax amendment   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. 2012 tax amendment Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. 2012 tax amendment These rules are explained in section 512(a)(3)(E)(ii). 2012 tax amendment   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. 2012 tax amendment In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. 2012 tax amendment   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. 2012 tax amendment However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. 2012 tax amendment The income set aside must have been includible in gross income for that earlier year. 2012 tax amendment Nonrecognition of gain. 2012 tax amendment   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. 2012 tax amendment The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. 2012 tax amendment   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. 2012 tax amendment Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. 2012 tax amendment The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. 2012 tax amendment For details, see section 512(a)(4) and the regulations under that section. 2012 tax amendment Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. 2012 tax amendment The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. 2012 tax amendment All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. 2012 tax amendment Excess qualifying specified payments. 2012 tax amendment   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. 2012 tax amendment Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. 2012 tax amendment   If a controlled participant is not required to file a U. 2012 tax amendment S. 2012 tax amendment income tax return, the participant must ensure that the copy or copies of the Regulations section 1. 2012 tax amendment 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. 2012 tax amendment S. 2012 tax amendment Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. 2012 tax amendment S. 2012 tax amendment Corporation or a Foreign Corporation Engaged in a U. 2012 tax amendment S. 2012 tax amendment Trade or Business, or any Form 8865, Return of U. 2012 tax amendment S. 2012 tax amendment Persons With Respect to Certain Foreign Partnerships, filed for that participant. 2012 tax amendment Addition to tax for valuation misstatements. 2012 tax amendment   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. 2012 tax amendment See section 512(b)(13)(E)(ii) for more information. 2012 tax amendment Net unrelated income. 2012 tax amendment   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. 2012 tax amendment Net unrelated loss. 2012 tax amendment   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. 2012 tax amendment Control. 2012 tax amendment   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. 2012 tax amendment For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. 2012 tax amendment   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). 2012 tax amendment Income from property financed with qualified 501(c)(3) bonds. 2012 tax amendment If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. 2012 tax amendment No deduction is allowed for interest on the private activity bond. 2012 tax amendment See sections 150(b)(3) and (c) for more information. 2012 tax amendment Disposition of property received from taxable subsidiary and used in unrelated business. 2012 tax amendment A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). 2012 tax amendment The assets are treated as if sold at fair market value. 2012 tax amendment Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. 2012 tax amendment S. 2012 tax amendment and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. 2012 tax amendment A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. 2012 tax amendment However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. 2012 tax amendment In such a case the built-in appreciation is preserved in the replacement property received in the transaction. 2012 tax amendment A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). 2012 tax amendment This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. 2012 tax amendment In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. 2012 tax amendment If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. 2012 tax amendment If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. 2012 tax amendment Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. 2012 tax amendment Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. 2012 tax amendment Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. 2012 tax amendment The amount of income included is proportionate to the debt on the property. 2012 tax amendment Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). 2012 tax amendment It includes rental real estate, tangible personal property, and corporate stock. 2012 tax amendment Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. 2012 tax amendment The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. 2012 tax amendment That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. 2012 tax amendment Example 1. 2012 tax amendment Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. 2012 tax amendment The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. 2012 tax amendment Example 2. 2012 tax amendment X, an exempt organization, forms a partnership with A and B. 2012 tax amendment The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. 2012 tax amendment X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. 2012 tax amendment The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. 2012 tax amendment The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. 2012 tax amendment The loan is secured by a mortgage on the entire office building. 2012 tax amendment By agreement with Y bank, X is not personally liable for payment of the mortgage. 2012 tax amendment X has acquisition indebtedness of $7 million. 2012 tax amendment This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). 2012 tax amendment Example 3. 2012 tax amendment A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. 2012 tax amendment The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. 2012 tax amendment Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. 2012 tax amendment The union has no outstanding debt on the property. 2012 tax amendment The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. 2012 tax amendment The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. 2012 tax amendment Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. 2012 tax amendment In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. 2012 tax amendment Accordingly, the debt is not acquisition indebtedness. 2012 tax amendment Change in use of property. 2012 tax amendment   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. 2012 tax amendment Example. 2012 tax amendment Four years ago a university borrowed funds to acquire an apartment building as housing for married students. 2012 tax amendment Last year, the university rented the apartment building to the public for nonexempt purposes. 2012 tax amendment The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. 2012 tax amendment Continued debt. 2012 tax amendment   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. 2012 tax amendment This is true even if the original property was not debt-financed property. 2012 tax amendment Example. 2012 tax amendment To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. 2012 tax amendment The office building was not debt-financed property. 2012 tax amendment The organization later sold the building for $1 million without repaying the $400,000 loan. 2012 tax amendment It used the sale proceeds to buy an apartment building it rents to the general public. 2012 tax amendment The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. 2012 tax amendment Property acquired subject to mortgage or lien. 2012 tax amendment   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. 2012 tax amendment Example. 2012 tax amendment An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. 2012 tax amendment The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. 2012 tax amendment Liens similar to a mortgage. 2012 tax amendment   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. 2012 tax amendment A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. 2012 tax amendment However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. 2012 tax amendment Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). 2012 tax amendment Exception for property acquired by gift, bequest, or devise. 2012 tax amendment   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. 2012 tax amendment However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. 2012 tax amendment   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). 2012 tax amendment   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. 2012 tax amendment Modifying existing debt. 2012 tax amendment   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. 2012 tax amendment When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. 2012 tax amendment Extension or renewal. 2012 tax amendment   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. 2012 tax amendment   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. 2012 tax amendment Debt increase. 2012 tax amendment   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. 2012 tax amendment Example. 2012 tax amendment An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. 2012 tax amendment The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. 2012 tax amendment A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. 2012 tax amendment Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. 2012 tax amendment These include the following. 2012 tax amendment Debts incurred in performing an exempt purpose. 2012 tax amendment Annuity obligations. 2012 tax amendment Securities loans. 2012 tax amendment Real property debts of qualified organizations. 2012 tax amendment Certain Federal financing. 2012 tax amendment Debt incurred in performing exempt purpose. 2012 tax amendment   A debt incurred in performing an exempt purpose is not acquisition indebtedness. 2012 tax amendment For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. 2012 tax amendment Annuity obligation. 2012 tax amendment   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. 2012 tax amendment It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. 2012 tax amendment Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. 2012 tax amendment It must be payable over the lives of either one or two individuals living when issued. 2012 tax amendment It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. 2012 tax amendment Example. 2012 tax amendment X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. 2012 tax amendment In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. 2012 tax amendment The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. 2012 tax amendment The present value of this annuity is $81,156, determined from IRS valuation tables. 2012 tax amendment Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. 2012 tax amendment Securities loans. 2012 tax amendment   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). 2012 tax amendment This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. 2012 tax amendment   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from
Español

What Is RSS?

Everything you need to know to subscribe to government RSS feeds.


What Is RSS?

RSS stands for Really Simple Syndication. It's an easy way for you to keep up with news and information that's important to you, and helps you avoid the conventional methods of browsing or searching for information on websites. Now the content you want can be delivered directly to you without cluttering your inbox with e-mail messages. This content is called a "feed."

RSS is written in the Internet coding language known as XML (eXtensible Markup Language).


What Is an RSS Reader?

An RSS reader is a small software program that collects and displays RSS feeds. It allows you to scan headlines from a number of news sources in a central location.


Where Can I Get an RSS Reader?

Some browsers, such as the current versions of Firefox and Safari have built in RSS readers. If you're using a browser that doesn't currently support RSS, there are a variety of RSS readers available on the web; some are free to download and others are available for purchase.


How Do I Use RSS Feeds?

The first step is to choose an RSS reader. Each reader has a slightly different way of adding a new feed, also called a "channel." Follow the directions for your reader but, in most cases, here's how it works:

  • Click on the link or small XML button near the feed you want. For example, USA.gov Updates: News and Features. You'll see a page displaying XML code.
  • From your web browser's address bar, copy the URL (web address). For example, the URL you would copy for USA.gov Updates: News and Features is: http://www.usa.gov/rss/updates.xml.
  • Paste that URL into the "Add New Channel" section of the reader. The RSS feed will start to display and regularly update the headlines for you.

Subscribe to USA.gov RSS Feeds

The 2012 Tax Amendment

2012 tax amendment 11. 2012 tax amendment   Social Security and Equivalent Railroad Retirement Benefits Table of Contents Introduction Useful Items - You may want to see: Are Any of Your Benefits Taxable? How To Report Your BenefitsHow Much Is Taxable? Examples Deductions Related to Your BenefitsRepayments More Than Gross Benefits Introduction This chapter explains the federal income tax rules for social security benefits and equivalent tier 1 railroad retirement benefits. 2012 tax amendment It explains the following topics. 2012 tax amendment How to figure whether your benefits are taxable. 2012 tax amendment How to use the social security benefits worksheet (with examples). 2012 tax amendment How to report your taxable benefits. 2012 tax amendment How to treat repayments that are more than the benefits you received during the year. 2012 tax amendment Social security benefits include monthly retirement, survivor, and disability benefits. 2012 tax amendment They do not include supplemental security income (SSI) payments, which are not taxable. 2012 tax amendment Equivalent tier 1 railroad retirement benefits are the part of tier 1 benefits that a railroad employee or beneficiary would have been entitled to receive under the social security system. 2012 tax amendment They are commonly called the social security equivalent benefit (SSEB) portion of tier 1 benefits. 2012 tax amendment If you received these benefits during 2013, you should have received a Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Payments by the Railroad Retirement Board. 2012 tax amendment These forms show the amounts received and repaid, and taxes withheld for the year. 2012 tax amendment You may receive more than one of these forms for the same year. 2012 tax amendment You should add the amounts shown on all the Forms SSA-1099 and Forms RRB-1099 you receive for the year to determine the total amounts received and repaid, and taxes withheld for that year. 2012 tax amendment See the Appendix at the end of Publication 915 for more information. 2012 tax amendment Note. 2012 tax amendment When the term “benefits” is used in this chapter, it applies to both social security benefits and the SSEB portion of tier 1 railroad retirement benefits. 2012 tax amendment What is not covered in this chapter. 2012 tax amendment   This chapter does not cover the tax rules for the following railroad retirement benefits. 2012 tax amendment Non-social security equivalent benefit (NSSEB) portion of tier 1 benefits. 2012 tax amendment Tier 2 benefits. 2012 tax amendment Vested dual benefits. 2012 tax amendment Supplemental annuity benefits. 2012 tax amendment For information on these benefits, see Publication 575, Pension and Annuity Income. 2012 tax amendment   This chapter does not cover the tax rules for social security benefits reported on Form SSA-1042S, Social Security Benefit Statement, or Form RRB-1042S, Statement for Nonresident Alien Recipients of: Payments by the Railroad Retirement Board. 2012 tax amendment For information about these benefits, see Publication 519, U. 2012 tax amendment S. 2012 tax amendment Tax Guide for Aliens, and Publication 915, Social Security and Equivalent Railroad Retirement Benefits. 2012 tax amendment   This chapter also does not cover the tax rules for foreign social security benefits. 2012 tax amendment These benefits are taxable as annuities, unless they are exempt from U. 2012 tax amendment S. 2012 tax amendment tax or treated as a U. 2012 tax amendment S. 2012 tax amendment social security benefit under a tax treaty. 2012 tax amendment Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 915 Social Security and Equivalent Railroad Retirement Benefits Forms (and Instructions) 1040-ES Estimated Tax for Individuals SSA-1099 Social Security Benefit Statement RRB-1099 Payments by the Railroad Retirement Board W-4V Voluntary Withholding Request Are Any of Your Benefits Taxable? To find out whether any of your benefits may be taxable, compare the base amount for your filing status with the total of: One-half of your benefits, plus All your other income, including tax-exempt interest. 2012 tax amendment When making this comparison, do not reduce your other income by any exclusions for: Interest from qualified U. 2012 tax amendment S. 2012 tax amendment savings bonds, Employer-provided adoption benefits, Foreign earned income or foreign housing, or Income earned by bona fide residents of American Samoa or Puerto Rico. 2012 tax amendment Children's benefits. 2012 tax amendment   The rules in this chapter apply to benefits received by children. 2012 tax amendment See Who is taxed , later. 2012 tax amendment Figuring total income. 2012 tax amendment   To figure the total of one-half of your benefits plus your other income, use Worksheet 11-1 later in this discussion. 2012 tax amendment If the total is more than your base amount, part of your benefits may be taxable. 2012 tax amendment    If you are married and file a joint return for 2013, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. 2012 tax amendment Even if your spouse did not receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable. 2012 tax amendment    If the only income you received during 2013 was your social security or the SSEB portion of tier 1 railroad retirement benefits, your benefits generally are not taxable and you probably do not have to file a return. 2012 tax amendment If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. 2012 tax amendment Base amount. 2012 tax amendment   Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er), $25,000 if you are married filing separately and lived apart from your spouse for all of 2013, $32,000 if you are married filing jointly, or $-0- if you are married filing separately and lived with your spouse at any time during 2013. 2012 tax amendment Worksheet 11-1. 2012 tax amendment   You can use Worksheet 11-1 to figure the amount of income to compare with your base amount. 2012 tax amendment This is a quick way to check whether some of your benefits may be taxable. 2012 tax amendment Worksheet 11-1. 2012 tax amendment A Quick Way To Check if Your Benefits May Be Taxable A. 2012 tax amendment Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. 2012 tax amendment Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. 2012 tax amendment (If you received more than one form, combine the amounts from box 5 and enter the total. 2012 tax amendment ) A. 2012 tax amendment   Note. 2012 tax amendment If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. 2012 tax amendment B. 2012 tax amendment Enter one-half of the amount on line A B. 2012 tax amendment   C. 2012 tax amendment Enter your taxable pensions, wages, interest, dividends, and other taxable income C. 2012 tax amendment   D. 2012 tax amendment Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. 2012 tax amendment   E. 2012 tax amendment Add lines B, C, and D E. 2012 tax amendment   Note. 2012 tax amendment Compare the amount on line E to your base amount for your filing status. 2012 tax amendment If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. 2012 tax amendment If the amount on line E is more than your base amount, some of your benefits may be taxable. 2012 tax amendment You need to complete Worksheet 1 in Publication 915 (or the Social Security Benefits Worksheet in your tax form instructions). 2012 tax amendment If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits. 2012 tax amendment Example. 2012 tax amendment You and your spouse (both over 65) are filing a joint return for 2013 and you both received social security benefits during the year. 2012 tax amendment In January 2014, you received a Form SSA-1099 showing net benefits of $7,500 in box 5. 2012 tax amendment Your spouse received a Form SSA-1099 showing net benefits of $3,500 in box 5. 2012 tax amendment You also received a taxable pension of $22,800 and interest income of $500. 2012 tax amendment You did not have any tax-exempt interest income. 2012 tax amendment Your benefits are not taxable for 2013 because your income, as figured in Worksheet 11-1, is not more than your base amount ($32,000) for married filing jointly. 2012 tax amendment Even though none of your benefits are taxable, you must file a return for 2013 because your taxable gross income ($23,300) exceeds the minimum filing requirement amount for your filing status. 2012 tax amendment Filled-in Worksheet 11-1. 2012 tax amendment A Quick Way To Check if Your Benefits May Be Taxable A. 2012 tax amendment Enter the amount from box 5 of all your Forms SSA-1099 and RRB-1099. 2012 tax amendment Include the full amount of any lump-sum benefit payments received in 2013, for 2013 and earlier years. 2012 tax amendment (If you received more than one form, combine the amounts from box 5 and enter the total. 2012 tax amendment ) A. 2012 tax amendment $11,000 Note. 2012 tax amendment If the amount on line A is zero or less, stop here; none of your benefits are taxable this year. 2012 tax amendment B. 2012 tax amendment Enter one-half of the amount on line A B. 2012 tax amendment 5,500 C. 2012 tax amendment Enter your taxable pensions, wages, interest, dividends, and other taxable income C. 2012 tax amendment 23,300 D. 2012 tax amendment Enter any tax-exempt interest income (such as interest on municipal bonds) plus any exclusions from income (listed earlier) D. 2012 tax amendment -0- E. 2012 tax amendment Add lines B, C, and D E. 2012 tax amendment $28,800 Note. 2012 tax amendment Compare the amount on line E to your base amount for your filing status. 2012 tax amendment If the amount on line E equals or is less than the base amount for your filing status, none of your benefits are taxable this year. 2012 tax amendment If the amount on line E is more than your base amount, some of your benefits may be taxable. 2012 tax amendment You need to complete Worksheet 1 in Publication 915 (or the Social Security Benefits Worksheet in your tax form instructions). 2012 tax amendment If none of your benefits are taxable, but you otherwise must file a tax return, see Benefits not taxable , later, under How To Report Your Benefits. 2012 tax amendment Who is taxed. 2012 tax amendment   Benefits are included in the taxable income (to the extent they are taxable) of the person who has the legal right to receive the benefits. 2012 tax amendment For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. 2012 tax amendment One-half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to your child. 2012 tax amendment Repayment of benefits. 2012 tax amendment   Any repayment of benefits you made during 2013 must be subtracted from the gross benefits you received in 2013. 2012 tax amendment It does not matter whether the repayment was for a benefit you received in 2013 or in an earlier year. 2012 tax amendment If you repaid more than the gross benefits you received in 2013, see Repayments More Than Gross Benefits , later. 2012 tax amendment   Your gross benefits are shown in box 3 of Form SSA-1099 or RRB-1099. 2012 tax amendment Your repayments are shown in box 4. 2012 tax amendment The amount in box 5 shows your net benefits for 2013 (box 3 minus box 4). 2012 tax amendment Use the amount in box 5 to figure whether any of your benefits are taxable. 2012 tax amendment Tax withholding and estimated tax. 2012 tax amendment   You can choose to have federal income tax withheld from your social security benefits and/or the SSEB portion of your tier 1 railroad retirement benefits. 2012 tax amendment If you choose to do this, you must complete a Form W-4V. 2012 tax amendment   If you do not choose to have income tax withheld, you may have to request additional withholding from other income or pay estimated tax during the year. 2012 tax amendment For details, see Publication 505 or the instructions for Form 1040-ES. 2012 tax amendment How To Report Your Benefits If part of your benefits are taxable, you must use Form 1040 or Form 1040A. 2012 tax amendment You cannot use Form 1040EZ. 2012 tax amendment Reporting on Form 1040. 2012 tax amendment   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 20a and the taxable part on line 20b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 20a. 2012 tax amendment Reporting on Form 1040A. 2012 tax amendment   Report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on line 14a and the taxable part on line 14b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on line 14a. 2012 tax amendment Benefits not taxable. 2012 tax amendment   If you are filing Form 1040EZ, do not report any benefits on your tax return. 2012 tax amendment If you are filing Form 1040 or Form 1040A, report your net benefits (the total amount from box 5 of all your Forms SSA-1099 and Forms RRB-1099) on Form 1040, line 20a, or Form 1040A, line 14a. 2012 tax amendment Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, also enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. 2012 tax amendment How Much Is Taxable? If part of your benefits are taxable, how much is taxable depends on the total amount of your benefits and other income. 2012 tax amendment Generally, the higher that total amount, the greater the taxable part of your benefits. 2012 tax amendment Maximum taxable part. 2012 tax amendment   Generally, up to 50% of your benefits will be taxable. 2012 tax amendment However, up to 85% of your benefits can be taxable if either of the following situations applies to you. 2012 tax amendment The total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly). 2012 tax amendment You are married filing separately and lived with your spouse at any time during 2013. 2012 tax amendment Which worksheet to use. 2012 tax amendment   A worksheet you can use to figure your taxable benefits is in the instructions for your Form 1040 or Form 1040A. 2012 tax amendment You can use either that worksheet or Worksheet 1 in Publication 915, unless any of the following situations applies to you. 2012 tax amendment You contributed to a traditional individual retirement arrangement (IRA) and you or your spouse is covered by a retirement plan at work. 2012 tax amendment In this situation, you must use the special worksheets in Appendix B of Publication 590 to figure both your IRA deduction and your taxable benefits. 2012 tax amendment Situation (1) does not apply and you take an exclusion for interest from qualified U. 2012 tax amendment S. 2012 tax amendment savings bonds (Form 8815), for adoption benefits (Form 8839), for foreign earned income or housing (Form 2555 or Form 2555-EZ), or for income earned in American Samoa (Form 4563) or Puerto Rico by bona fide residents. 2012 tax amendment In this situation, you must use Worksheet 1 in Publication 915 to figure your taxable benefits. 2012 tax amendment You received a lump-sum payment for an earlier year. 2012 tax amendment In this situation, also complete Worksheet 2 or 3 and Worksheet 4 in Publication 915. 2012 tax amendment See Lump-sum election next. 2012 tax amendment Lump-sum election. 2012 tax amendment   You must include the taxable part of a lump-sum (retroactive) payment of benefits received in 2013 in your 2013 income, even if the payment includes benefits for an earlier year. 2012 tax amendment    This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. 2012 tax amendment No part of the lump-sum death benefit is subject to tax. 2012 tax amendment   Generally, you use your 2013 income to figure the taxable part of the total benefits received in 2013. 2012 tax amendment However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. 2012 tax amendment You can elect this method if it lowers your taxable benefits. 2012 tax amendment Making the election. 2012 tax amendment   If you received a lump-sum benefit payment in 2013 that includes benefits for one or more earlier years, follow the instructions in Publication 915 under Lump-Sum Election to see whether making the election will lower your taxable benefits. 2012 tax amendment That discussion also explains how to make the election. 2012 tax amendment    Because the earlier year's taxable benefits are included in your 2013 income, no adjustment is made to the earlier year's return. 2012 tax amendment Do not file an amended return for the earlier year. 2012 tax amendment Examples The following are a few examples you can use as a guide to figure the taxable part of your benefits. 2012 tax amendment Example 1. 2012 tax amendment George White is single and files Form 1040 for 2013. 2012 tax amendment He received the following income in 2013: Fully taxable pension $18,600 Wages from part-time job 9,400 Taxable interest income 990 Total $28,990 George also received social security benefits during 2013. 2012 tax amendment The Form SSA-1099 he received in January 2014 shows $5,980 in box 5. 2012 tax amendment To figure his taxable benefits, George completes the worksheet shown here. 2012 tax amendment Filled-in Worksheet 1. 2012 tax amendment Figuring Your Taxable Benefits 1. 2012 tax amendment Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. 2012 tax amendment Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $5,980 2. 2012 tax amendment Enter one-half of line 1 2,990 3. 2012 tax amendment Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. 2012 tax amendment     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 28,990 4. 2012 tax amendment Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. 2012 tax amendment Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. 2012 tax amendment Combine lines 2, 3, 4, and 5 31,980 7. 2012 tax amendment Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. 2012 tax amendment     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 -0- 8. 2012 tax amendment Is the amount on line 7 less than the amount on line 6?     No. 2012 tax amendment None of your social security benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 tax amendment   Yes. 2012 tax amendment Subtract line 7 from line 6 31,980 9. 2012 tax amendment If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 25,000   Note. 2012 tax amendment If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. 2012 tax amendment 85) and enter the result on line 17. 2012 tax amendment Then go to line 18. 2012 tax amendment   10. 2012 tax amendment Is the amount on line 9 less than the amount on line 8?     No. 2012 tax amendment None of your benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. 2012 tax amendment     Yes. 2012 tax amendment Subtract line 9 from line 8 6,980 11. 2012 tax amendment Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 9,000 12. 2012 tax amendment Subtract line 11 from line 10. 2012 tax amendment If zero or less, enter -0- -0- 13. 2012 tax amendment Enter the smaller of line 10 or line 11 6,980 14. 2012 tax amendment Enter one-half of line 13 3,490 15. 2012 tax amendment Enter the smaller of line 2 or line 14 2,990 16. 2012 tax amendment Multiply line 12 by 85% (. 2012 tax amendment 85). 2012 tax amendment If line 12 is zero, enter -0- -0- 17. 2012 tax amendment Add lines 15 and 16 2,990 18. 2012 tax amendment Multiply line 1 by 85% (. 2012 tax amendment 85) 5,083 19. 2012 tax amendment Taxable benefits. 2012 tax amendment Enter the smaller of line 17 or line 18. 2012 tax amendment Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b $2,990 The amount on line 19 of George's worksheet shows that $2,990 of his social security benefits is taxable. 2012 tax amendment On line 20a of his Form 1040, George enters his net benefits of $5,980. 2012 tax amendment On line 20b, he enters his taxable benefits of $2,990. 2012 tax amendment Example 2. 2012 tax amendment Ray and Alice Hopkins file a joint return on Form 1040A for 2013. 2012 tax amendment Ray is retired and received a fully taxable pension of $15,500. 2012 tax amendment He also received social security benefits, and his Form SSA-1099 for 2013 shows net benefits of $5,600 in box 5. 2012 tax amendment Alice worked during the year and had wages of $14,000. 2012 tax amendment She made a deductible payment to her IRA account of $1,000. 2012 tax amendment Ray and Alice have two savings accounts with a total of $250 in taxable interest income. 2012 tax amendment They complete Worksheet 1, entering $29,750 ($15,500 + $14,000 + $250) on line 3. 2012 tax amendment They find none of Ray's social security benefits are taxable. 2012 tax amendment On Form 1040A, they enter $5,600 on line 14a and -0- on line 14b. 2012 tax amendment Filled-in Worksheet 1. 2012 tax amendment Figuring Your Taxable Benefits 1. 2012 tax amendment Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. 2012 tax amendment Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $5,600 2. 2012 tax amendment Enter one-half of line 1 2,800 3. 2012 tax amendment Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. 2012 tax amendment     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 29,750 4. 2012 tax amendment Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. 2012 tax amendment Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. 2012 tax amendment Combine lines 2, 3, 4, and 5 32,550 7. 2012 tax amendment Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. 2012 tax amendment     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 1,000 8. 2012 tax amendment Is the amount on line 7 less than the amount on line 6?     No. 2012 tax amendment None of your social security benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 tax amendment   Yes. 2012 tax amendment Subtract line 7 from line 6 31,550 9. 2012 tax amendment If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 32,000   Note. 2012 tax amendment If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. 2012 tax amendment 85) and enter the result on line 17. 2012 tax amendment Then go to line 18. 2012 tax amendment   10. 2012 tax amendment Is the amount on line 9 less than the amount on line 8?     No. 2012 tax amendment None of your benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. 2012 tax amendment     Yes. 2012 tax amendment Subtract line 9 from line 8   11. 2012 tax amendment Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013   12. 2012 tax amendment Subtract line 11 from line 10. 2012 tax amendment If zero or less, enter -0-   13. 2012 tax amendment Enter the smaller of line 10 or line 11   14. 2012 tax amendment Enter one-half of line 13   15. 2012 tax amendment Enter the smaller of line 2 or line 14   16. 2012 tax amendment Multiply line 12 by 85% (. 2012 tax amendment 85). 2012 tax amendment If line 12 is zero, enter -0-   17. 2012 tax amendment Add lines 15 and 16   18. 2012 tax amendment Multiply line 1 by 85% (. 2012 tax amendment 85)   19. 2012 tax amendment Taxable benefits. 2012 tax amendment Enter the smaller of line 17 or line 18. 2012 tax amendment Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b   Example 3. 2012 tax amendment Joe and Betty Johnson file a joint return on Form 1040 for 2013. 2012 tax amendment Joe is a retired railroad worker and in 2013 received the social security equivalent benefit (SSEB) portion of tier 1 railroad retirement benefits. 2012 tax amendment Joe's Form RRB-1099 shows $10,000 in box 5. 2012 tax amendment Betty is a retired government worker and receives a fully taxable pension of $38,000. 2012 tax amendment They had $2,300 in taxable interest income plus interest of $200 on a qualified U. 2012 tax amendment S. 2012 tax amendment savings bond. 2012 tax amendment The savings bond interest qualified for the exclusion. 2012 tax amendment They figure their taxable benefits by completing Worksheet 1. 2012 tax amendment Because they have qualified U. 2012 tax amendment S. 2012 tax amendment savings bond interest, they follow the note at the beginning of the worksheet and use the amount from line 2 of their Schedule B (Form 1040A or 1040) on line 3 of the worksheet instead of the amount from line 8a of their Form 1040. 2012 tax amendment On line 3 of the worksheet, they enter $40,500 ($38,000 + $2,500). 2012 tax amendment Filled-in Worksheet 1. 2012 tax amendment Figuring Your Taxable Benefits Before you begin: • If you are married filing separately and you lived apart from your spouse for all of 2013, enter “D” to the right of the word “benefits” on Form 1040, line 20a, or Form 1040A, line 14a. 2012 tax amendment • Do not use this worksheet if you repaid benefits in 2013 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2013 (box 3 of Forms SSA-1099 and RRB-1099). 2012 tax amendment None of your benefits are taxable for 2013. 2012 tax amendment For more information, see Repayments More Than Gross Benefits. 2012 tax amendment • If you are filing Form 8815, Exclusion of Interest From Series EE and I U. 2012 tax amendment S. 2012 tax amendment Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. 2012 tax amendment Instead, include the amount from Schedule B (Form 1040A or 1040), line 2. 2012 tax amendment 1. 2012 tax amendment Enter the total amount from box 5 of ALL your Forms SSA-1099 and RRB-1099. 2012 tax amendment Also enter this amount on Form 1040, line 20a, or Form 1040A, line 14a $10,000 2. 2012 tax amendment Enter one-half of line 1 5,000 3. 2012 tax amendment Combine the amounts from:     Form 1040: Lines 7, 8a, 9a, 10 through 14, 15b, 16b, 17 through 19, and 21. 2012 tax amendment     Form 1040A: Lines 7, 8a, 9a, 10, 11b, 12b, and 13 40,500 4. 2012 tax amendment Enter the amount, if any, from Form 1040 or 1040A, line 8b -0-       5. 2012 tax amendment Enter the total of any exclusions/adjustments for: Adoption benefits (Form 8839, line 28), Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico -0-       6. 2012 tax amendment Combine lines 2, 3, 4, and 5 45,500 7. 2012 tax amendment Form 1040 filers: Enter the amount from Form 1040, lines 23 through 32, and any write-in adjustments you entered on the dotted line next to line 36. 2012 tax amendment     Form 1040A filers: Enter the amount from Form 1040A, lines 16 and 17 -0- 8. 2012 tax amendment Is the amount on line 7 less than the amount on line 6?     No. 2012 tax amendment None of your social security benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or Form 1040A, line 14b. 2012 tax amendment   Yes. 2012 tax amendment Subtract line 7 from line 6 45,500 9. 2012 tax amendment If you are: Married filing jointly, enter $32,000 Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013, enter $25,000 32,000   Note. 2012 tax amendment If you are married filing separately and you lived with your spouse at any time in 2013, skip lines 9 through 16; multiply line 8 by 85% (. 2012 tax amendment 85) and enter the result on line 17. 2012 tax amendment Then go to line 18. 2012 tax amendment   10. 2012 tax amendment Is the amount on line 9 less than the amount on line 8?     No. 2012 tax amendment None of your benefits are taxable. 2012 tax amendment Enter -0- on Form 1040, line 20b, or on Form 1040A, line 14b. 2012 tax amendment If you are married filing separately and you lived apart from your spouse for all of 2013, be sure you entered “D” to the right of the word “benefits” on Form 1040, line 20a, or on Form 1040A, line 14a. 2012 tax amendment     Yes. 2012 tax amendment Subtract line 9 from line 8 13,500 11. 2012 tax amendment Enter $12,000 if married filing jointly; $9,000 if single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2013 12,000 12. 2012 tax amendment Subtract line 11 from line 10. 2012 tax amendment If zero or less, enter -0- 1,500 13. 2012 tax amendment Enter the smaller of line 10 or line 11 12,000 14. 2012 tax amendment Enter one-half of line 13 6,000 15. 2012 tax amendment Enter the smaller of line 2 or line 14 5,000 16. 2012 tax amendment Multiply line 12 by 85% (. 2012 tax amendment 85). 2012 tax amendment If line 12 is zero, enter -0- 1,275 17. 2012 tax amendment Add lines 15 and 16 6,275 18. 2012 tax amendment Multiply line 1 by 85% (. 2012 tax amendment 85) 8,500 19. 2012 tax amendment Taxable benefits. 2012 tax amendment Enter the smaller of line 17 or line 18. 2012 tax amendment Also enter this amount on Form 1040, line 20b, or Form 1040A, line 14b $6,275 More than 50% of Joe's net benefits are taxable because the income on line 8 of the worksheet ($45,500) is more than $44,000. 2012 tax amendment Joe and Betty enter $10,000 on Form 1040, line 20a, and $6,275 on Form 1040, line 20b. 2012 tax amendment Deductions Related to Your Benefits You may be entitled to deduct certain amounts related to the benefits you receive. 2012 tax amendment Disability payments. 2012 tax amendment   You may have received disability payments from your employer or an insurance company that you included as income on your tax return in an earlier year. 2012 tax amendment If you received a lump-sum payment from SSA or RRB, and you had to repay the employer or insurance company for the disability payments, you can take an itemized deduction for the part of the payments you included in gross income in the earlier year. 2012 tax amendment If the amount you repay is more than $3,000, you may be able to claim a tax credit instead. 2012 tax amendment Claim the deduction or credit in the same way explained under Repayments More Than Gross Benefits , later. 2012 tax amendment Legal expenses. 2012 tax amendment   You can usually deduct legal expenses that you pay or incur to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. 2012 tax amendment   Legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. 2012 tax amendment Repayments More Than Gross Benefits In some situations, your Form SSA-1099 or Form RRB-1099 will show that the total benefits you repaid (box 4) are more than the gross benefits (box 3) you received. 2012 tax amendment If this occurred, your net benefits in box 5 will be a negative figure (a figure in parentheses) and none of your benefits will be taxable. 2012 tax amendment Do not use a worksheet in this case. 2012 tax amendment If you receive more than one form, a negative figure in box 5 of one form is used to offset a positive figure in box 5 of another form for that same year. 2012 tax amendment If you have any questions about this negative figure, contact your local SSA office or your local RRB field office. 2012 tax amendment Joint return. 2012 tax amendment   If you and your spouse file a joint return, and your Form SSA-1099 or RRB-1099 has a negative figure in box 5, but your spouse's does not, subtract the amount in box 5 of your form from the amount in box 5 of your spouse's form. 2012 tax amendment You do this to get your net benefits when figuring if your combined benefits are taxable. 2012 tax amendment Example. 2012 tax amendment John and Mary file a joint return for 2013. 2012 tax amendment John received Form SSA-1099 showing $3,000 in box 5. 2012 tax amendment Mary also received Form SSA-1099 and the amount in box 5 was ($500). 2012 tax amendment John and Mary will use $2,500 ($3,000 minus $500) as the amount of their net benefits when figuring if any of their combined benefits are taxable. 2012 tax amendment Repayment of benefits received in an earlier year. 2012 tax amendment   If the total amount shown in box 5 of all of your Forms SSA-1099 and RRB-1099 is a negative figure, you can take an itemized deduction for the part of this negative figure that represents benefits you included in gross income in an earlier year. 2012 tax amendment Deduction $3,000 or less. 2012 tax amendment   If this deduction is $3,000 or less, it is subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions. 2012 tax amendment Claim it on Schedule A (Form 1040), line 23. 2012 tax amendment Deduction more than $3,000. 2012 tax amendment    If this deduction is more than $3,000, you should figure your tax two ways: Figure your tax for 2013 with the itemized deduction included on Schedule A, line 28. 2012 tax amendment Figure your tax for 2013 in the following steps. 2012 tax amendment Figure the tax without the itemized deduction included on Schedule A, line 28. 2012 tax amendment For each year after 1983 for which part of the negative figure represents a repayment of benefits, refigure your taxable benefits as if your total benefits for the year were reduced by that part of the negative figure. 2012 tax amendment Then refigure the tax for that year. 2012 tax amendment Subtract the total of the refigured tax amounts in (b) from the total of your actual tax amounts. 2012 tax amendment Subtract the result in (c) from the result in (a). 2012 tax amendment Compare the tax figured in methods (1) and (2). 2012 tax amendment Your tax for 2013 is the smaller of the two amounts. 2012 tax amendment If method (1) results in less tax, take the itemized deduction on Schedule A (Form 1040), line 28. 2012 tax amendment If method (2) results in less tax, claim a credit for the amount from step 2(c) above on Form 1040, line 71. 2012 tax amendment Check box d and enter “I. 2012 tax amendment R. 2012 tax amendment C. 2012 tax amendment 1341” in the space next to that box. 2012 tax amendment If both methods produce the same tax, deduct the repayment on Schedule A (Form 1040), line 28. 2012 tax amendment Prev  Up  Next   Home   More Online Publications