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Maximum depreciation deduction for cars table, Maximum Depreciation Deduction for Cars Modified Accelerated Cost Recovery System (MACRS) 2011 chart (Table 4-1), Table 4-1. Aarp tax help 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Aarp tax help ) Proving expenses (Table 5-1), Table 5-1. Aarp tax help How To Prove Certain Business Expenses Reporting reimbursements (Table 6-1), Table 6-1. Aarp tax help Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements Transportation expenses, determination of deductibility (Figure B), Gift or entertainment. Aarp tax help , Illustration of transportation expenses. Aarp tax help Travel expenses, determination of deductibility (Table 1-1), Table 1-1. Aarp tax help Travel Expenses You Can Deduct Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Tax help, How To Get Tax Help Tax home, determination of, Tax Home Temporary job assignments, Temporary Assignment or Job Temporary work location, Temporary work location. Aarp tax help Tickets, Entertainment tickets. Aarp tax help , Gift or entertainment. Aarp tax help Season or series tickets, Season or series tickets. Aarp tax help Traffic violations, Fines and collateral. Aarp tax help Tools Hauling tools, Hauling tools or instruments. Aarp tax help Trade association meetings, Trade association meetings. Aarp tax help Trade-in of car, Car trade-in. Aarp tax help , Trade-in. Aarp tax help Traffic tickets, Fines and collateral. Aarp tax help Transients, Tax Home Transition rules, Transition Rules Example High-low method, High-low method. Aarp tax help High-low method, High-low method. Aarp tax help Regular federal method, Federal per diem rate method. Aarp tax help Transportation expenses, Transportation, Depreciation deduction for the year of disposition. Aarp tax help Car expenses, Car Expenses, Reporting inclusion amounts. Aarp tax help Deductible (Figure B), Gift or entertainment. Aarp tax help , Illustration of transportation expenses. Aarp tax help five or more cars, Five or more cars. Aarp tax help Form 2106, Transportation expenses. Aarp tax help Transportation workers, Special rate for transportation workers. Aarp tax help , Individuals subject to hours of service limits. Aarp tax help Travel advance, Reimbursement, allowance, or advance. Aarp tax help , Travel advance. Aarp tax help (see also Reimbursements) Travel expenses, Travel, Cruise Ships Another individual accompanying taxpayer, Travel expenses for another individual. Aarp tax help Away from home, Traveling Away From Home, Tax Home Deductible, What Travel Expenses Are Deductible?, Cruise Ships Summary of (Table 1-1), Table 1-1. Aarp tax help Travel Expenses You Can Deduct Defined, Travel expenses defined. Aarp tax help Going home on days off, Going home on days off. Aarp tax help In U. Aarp tax help S. Aarp tax help , Travel in the United States Lodging, Standard Meal Allowance Luxury water travel, Luxury Water Travel Outside U. Aarp tax help S. Aarp tax help , Travel Outside the United States Travel to family home, Tax Home Different From Family Home Trucks and vans Depreciation, Trucks and vans. Aarp tax help Transportation workers, Individuals subject to hours of service limits. Aarp tax help Transportation workers' expenses, Special rate for transportation workers. Aarp tax help Two places of work, Two places of work. Aarp tax help U Unclaimed reimbursements, Where To Report Unions Trips from union hall to place of work, Union members' trips from a union hall. Aarp tax help Unrecovered basis of car, How to treat unrecovered basis. Aarp tax help V Volunteers, Volunteers. Aarp tax help W Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Prev  Up     Home   More Online Publications
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Frequently Asked Questions: Do I Need a PTIN?

a. General Guidance

b. PTIN Scenarios

c. Supervised, Non-Signing, and Non-1040 Preparers

d. SSN Requirements for Obtaining a PTIN


a. General Guidance


1. Who needs a Preparer Tax Identification Number (PTIN)? (revised 2/22/12)

A PTIN must be obtained by all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS except the following:

Form SS-4, Application for Employer Identification Number;
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding;
Form SS-16, Certificate of Election of Coverage under FICA;
Form W-2 series of returns;
Form W-7, Application for IRS Individual Taxpayer Identification Number;
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding;
Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment;
Form 872, Consent to Extend the Time to Assess Tax;
Form 906, Closing Agreement On Final Determination Covering Specific Matters;
Form 1098 series;
Form 1099 series;
Form 2848, Power of Attorney and Declaration of Representative;
Form 3115, Application for Change in Accounting Method;
Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits;
Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners;
Form 4419, Application for Filing Information Returns Electronically;
Form 5300, Application for Determination for Employee Benefit Plan;
Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans;
Form 5310, Application for Determination for Terminating Plan;
Form 5500 series;
Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;
Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests;
Form 8508, Request for Waiver From Filing Information Returns Electronically;
Form 8717, User Fee for Employee Plan Determination, Opinion, and Advisory Letter Request;
Form 8809, Application for Extension of Time to File Information Return;
Form 8821, Tax Information Authorization;
Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program

Refer to the scenarios for additional guidance.

2. Are individuals who are active attorneys and certified public accountants required to obtain a PTIN if they do not prepare all or substantially all of any tax return? (revised 2/22/12)

Attorneys and certified public accountants do not need to obtain a PTIN unless they prepare for compensation all or substantially all of a federal tax return or claim for refund.

3. Are enrolled retirement plan agents required to obtain a PTIN? (posted 11/4/11)

Enrolled Retirement Plan Agents are only required to obtain a PTIN if they prepare or assist in the preparation of all or substantially all of any tax return or claim for refund that is not on the list of forms exempt from the PTIN requirement. ERPAs that prepare only Form 5300 or 5500 series returns are not required to obtain a PTIN. See Notice 2011-91 for more information.

4. Can multiple individuals or one office share one PTIN? (revised 6/9/11)

No, every individual who, for compensation, prepares or assists in the preparation of a tax return or claim for refund must have his or her own PTIN and each tax return preparer may only obtain one PTIN.

5. If I don't have a PTIN, can I still prepare tax returns for compensation? (revised 10/10/13)

No. You must have a PTIN to prepare tax returns for compensation. 

6. Is there an age requirement for obtaining a PTIN? (posted 9/30/10)

Yes, applicants must be at least 18 years of age.

7. What penalties can be imposed against tax return preparers who don't have a current PTIN? (revised 2/22/12)

Failure to have a current PTIN could result in the imposition of Internal Revenue Code section 6695 penalties, injunction, and/or disciplinary action by the IRS Office of Professional Responsibility.

8. What is the difference between a PTIN and an EFIN? Does a preparer need both? (revised 2/22/12)

A Preparer Tax Identification Number (PTIN) is a number issued by the IRS to paid tax return preparers. It is used as the tax return preparer’s identification number and, when applicable, must be placed in the Paid Preparer section of a tax return that the tax return preparer prepared for compensation. There is an initial fee of $64.25 and an annual renewal fee of $63.00.

An Electronic Filing Identification Number (EFIN) is a number issued by the IRS to individuals or firms that have been approved as authorized IRS e-file providers.  It is included with all electronic return data transmitted to the IRS.  There is no fee for an EFIN.

Preparer Tax Identification Numbers are issued to individuals.  Electronic Filing Identification Numbers are issued to individuals or firms.  Most preparers need both.

9. If an employee of a business prepares the business’ tax returns as part of their job responsibilities, do they need to obtain a PTIN? (revised 9/28/10)

No. An employee who prepares his employer’s federal tax returns is not required to sign as a paid preparer. Accordingly, unless the employee prepares other federal tax returns for compensation, he or she is not required to register and obtain a PTIN.

10. Are e-file transmitters or intermediate service providers that do not prepare returns subject to the PTIN requirements? (revised 9/28/10)

No. E-file providers that assist in the formatting and transmission of tax returns electronically, but do not prepare all or substantially all of a federal tax return or claim for refund for compensation, are not required to obtain a PTIN.

11. Will the IRS share my PTIN application information with other people? (revised 4/19/12)

The law allows vendors and others to obtain the PTIN holder listing. PTIN holders are not allowed to opt out of the disclosure of their contact information because Freedom of Information Act (FOIA) laws make the information public. If you receive unwanted email solicitations due to this required disclosure, the Federal Trade Commission, Bureau of Consumer Protection can best advise you whether an email violates the CAN-SPAM Act of 2003 and how to report violations.

You should also review the PTIN application Privacy Policy.

In order to maintain privacy PTIN holders may want to review and/or update contact information


b. PTIN Scenarios


1. I am a tax return preparer, and I have a PTIN.  My firm employs a bookkeeper.  She gathers client receipts and invoices, and organizes and records all information for me.  Although I use the information that our bookkeeper has compiled, I prepare my clients’ tax returns and make all substantive determinations that go into computing the tax liability.  Does my bookkeeper need to have a PTIN? (posted 9/28/10)

No, she is not a tax return preparer, and is not required to have a PTIN.

2. I am a tax return preparer, and I have a PTIN.  Every tax filing season I hire two paid interns from the accounting program at a local college to help me during the busy season.  The interns perform data entry from the tax organizer that my clients fill out, and assemble the documentation that the clients have submitted.  Where clients have submitted incomplete information, or more information is needed, the interns may call clients to gather information missing from the tax organizer, but they are not allowed to provide advice or answer tax law questions.  I prepare and sign all my clients’ returns.  Do my interns need to have a PTIN?  (posted 9/28/10)

No, the interns are not tax return preparers, and are not required to have a PTIN.

3. Same facts as above, but in order to help my interns get exposure to the tax system, I allow them to work with clients who have very simple tax situations, and prepare the Form 1040-EZ.  I review the forms carefully, and sign them.  Are my interns required to have PTINs? (posted 9/28/10)

Yes, the interns are tax return preparers and are required to have a PTIN, whether or not they sign the returns.

4. I am a tax return preparer, and I have a PTIN.  I have an administrative assistant in the office who also performs data entry during tax filing season.  At times, clients call and provide him with information, which he records in the system.  Using the data he has entered, I meet with my clients and provide advice as needed.   I then prepare and sign their returns.  Is my administrative assistant required to have a PTIN? posted 9/28/10)

No, the administrative assistant is not a tax return preparer, and is not required to have a PTIN.

5. I am a retired tax professional, and I volunteer during the tax filing season.  I volunteer at a VITA site, where I prepare individual tax returns for lower-income individuals for no compensation.  Do I need to have a PTIN? (revised 10/10/13)

No, you are not required to have a PTIN.

6. I run a small tax return preparation business that is heavily software-based.  I employ four associates who sit with taxpayers and walk through a step-by-step software program that uses an “interview” process that results in a draft tax return.  I check and sign the returns, and I have a PTIN.  Do my four associates need to have a PTIN? (posted 9/28/10)

You will need to perform additional analysis to determine whether your four associates must have a PTIN.  The answer depends on the specific circumstances of your firm.  In general, if individuals prepare, or assist in preparing, all or substantially all of a tax return, including making determinations that affect tax liability, they must have a PTIN.

7. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  I do not exercise any discretion or independent judgment on my client's underlying tax positions and I do not render tax advice to any of my clients.  Do I need a PTIN?  (revised 1/3/11)

No.  The PTIN regulations incorporate the carve-out from the definition of tax return preparer in Treasury Regulation section 301.7701–15(f) for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund.  Example one under Treasury Regulation section 301.7701-15(f)(6) provides that reporting agents who do not exercise any discretion or independent judgment on the client's underlying tax positions and who do not render tax advice to any clients are carved-out under this exception and, therefore, are not tax return preparers.

8. I am a reporting agent who prepares Forms 94X series returns for my clients for compensation.  On occasion, my clients ask me for assistance with issues such as determining whether their workers are employees or independent contractors for federal tax purposes.  Do I need a PTIN? (revised 1/3/11)

Yes.  The PTIN regulations require all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax to register and obtain a PTIN.  The carve-out from the definition of tax return preparer for individuals who provide only typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund does not apply to reporting agents who render tax advice to any client (example two under Treasury Regulation section 301.7701-15(f)(6)).

9. I am a retirement plan administrator who prepares Forms 5500 and the accompanying schedules for my clients. I also prepare Forms 8955-SSA and Form 5558 for my clients. While the Form 5500 series returns are included in the list of forms exempted from the PTIN requirements in Notice 2011-6, the Forms 8955-SSA and Forms 5558 are not included in that list. Am I required to obtain a PTIN? (posted 3/4/11)

No. The Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Participants, and Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, are, for purposes of Notice 2011-6, part of the "Form 5500 series" of tax returns inasmuch as these forms are prepared either in conjunction with the filing of a retirement plan's Form 5500 filing or to request an extension of time to file a Form 5500 series tax return.

10. Is an attorney or a certified public accountant required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund? (posted 3/4/11)

An attorney or certified public accountant is required to obtain a PTIN if the attorney or certified public accountant prepares, or assists in preparing, all or substantially all of a return or claim for refund. Under the authority of section 1.6109-2(h), however, an attorney or certified public accountant will not be required to obtain a PTIN if the attorney or certified public accountant only advises a client regarding an issue that is reflected on a claim for refund and neither the attorney or certified public accountant nor any person in the firm of the attorney or certified public accountant signs or is required to sign the claim for refund under Treasury Regulation sections 301.7701-15(b)(1) and 1.6695-1(b). The attorney or certified public accountant in question is still a nonsigning tax return preparer subject to penalty under section 6694 if the attorney or certified public accountant has prepared all or a substantial portion of the claim for refund within the meaning of Treasury Regulation section 301.7701-15(b)(3).

11. Our company prepares Forms 2290 for our clients.  It is the only federal tax form we prepare.  Are our employees subject to any of the new regulations? (revised 2/7/13)

Yes, any individual who receives compensation for preparing Forms 2290 is required to register with the IRS and obtain a PTIN.

12. If someone only prepares or assists with preparing Form 1023 for compensation, should they obtain a PTIN? (posted 3/7/12)
 
Generally yes.  More information about PTIN requirements for preparers of exempt organization forms is available here


c. Supervised, Non-Signing, and Non-1040 Preparers


1.  What is a supervised preparer?  Do supervised preparers need a PTIN? (revised 2/7/13)

A supervised preparer is a non-signing preparer who is employed by a law firm, CPA firm or other recognized firm (a firm that is at least 80 percent owned by attorneys, CPAs, or enrolled agents).  The returns they prepare are signed by a supervising attorney, CPA or enrolled agent at the firm. 

A supervised preparer does need a PTIN and must provide their supervisor’s PTIN on their PTIN application or renewal.

Additional guidance on supervised preparers is available in Notice 2011-6 (or view the Fact Sheet).

2. I own a tax preparation business and I review and sign all the returns my employees prepare.  Do they need PTINs?  (revised 2/7/13)

Yes.  Anyone you hire to prepare tax returns needs a PTIN regardless of whether you review and sign the returns.

3. What are the requirements for people who prepare returns other than the Form 1040 series? (revised 2/7/13)

Non-1040 preparers generally need a PTIN.  For exemptions to the PTIN requirement, see FAQ 1 at the top of this page under General Guidance

4. When multiple paid preparers are involved in preparation and/or review of a return, who is required to sign the return?  (posted 8/11/10)

Existing Treasury regulations under sections 1.6695-1(b) and 301.7701-15(b)(1) provide that a signing tax return preparer is the individual tax return preparer who has the primary responsibility for the overall accuracy of the preparation of a return.  The PTIN requirements, which require all preparers to register and obtain a PTIN, do not change the existing rules regarding who is the signing tax return preparer.

5. Are non-signing preparers disclosed on each return prepared even if another preparer reviews and signs it? (revised 2/7/13)

No, the names of non-signing preparers are not disclosed on the return.  Although there is no plan to expand the paid preparer section of the return to include non-signing preparers, they still are required to have a PTIN.

6. If I don't prepare any Form 1040 returns but prepare returns that flow-through to Forms 1040 such as Schedules K-1 for Forms 1065 or 1120S, how do I answer the question, &quotDo you prepare Form 1040 series tax returns?&quot (posted 10/12/11)
 
You should answer &quotno&quot.


d. SSN Requirements for Obtaining a PTIN


1. Is a social security number required to obtain a PTIN? (revised 4/13/11)

Individuals generally are required to provide their social security numbers when they obtain a PTIN.  However, U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons and foreign persons who are not eligible to obtain a social security number and have a permanent non-U.S. address may obtain a PTIN without a social security number.  These individuals are required to provide supplemental documentation to verify their identity and substantiate their eligibility for a PTIN under these specific exceptions.  See questions 2 and 3 below or Revenue Procedure 2010-41 for additional guidance.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address, and can provide documentation to support that status.

2. How do U.S. citizens without a social security number due to a conscientious objection for religious reasons obtain a PTIN? (updated 3/21/14)

U.S. citizens who have a conscientious objection to obtaining a social security number for religious reasons must complete Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8945, PTIN Supplemental Application For U.S. Citizens Without a Social Security Number Due To Conscientious Religious Objection.

Documentation to substantiate identity, U.S. citizenship, and status as a member of a recognized religious group must accompany the Form 8945.  Documentation requirements and mailing information are included in the Form 8945 instructions. Allow 4-6 weeks to process your PTIN application.

3. How do foreign preparers without a social security number obtain a PTIN? (updated 3/21/14)

A foreign preparer who does not have and is not eligible to obtain a social security number and is neither a citizen of the U.S. nor a resident alien of the U.S. as defined in section 7701(b)(1)(A) will need to complete the Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, either online or on paper, and a paper Form 8946, PTIN Supplemental Application For Foreign Persons Without a Social Security Number. Only preparers that have a foreign (non-U.S.) address may file this form.

Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address.

Documentation to substantiate identity and eligibility must accompany the Form 8946. Documentation requirements and mailing information are included in the Form 8946 instructions.

Allow 4-6 weeks to process your PTIN application.  

4. I have a social security number, but have not filed an income tax return with the IRS. My individual income tax returns were filed with the Departamento de Hacienda (Puerto Rico). How do I obtain a PTIN? (updated 3/21/2014)

A Puerto Rican resident who has never filed a U.S. individual income tax return must submit a paper Form W-12 PTIN application. Ensure the address on Line 15 of the Form W-12 matches the information from your Hacienda tax return information. 

Include the following with your W-12 application:

  • Check or money order for $64.25 (make payable to IRS Tax Pro PTIN Fee)  
  • An original, certified, or notarized copy of your social security card along with one other government issued document that contains a current photo ID. Examples of acceptable supporting documents are listed below. All documents must be a current original, certified, or notarized and must verify your name. Refer to Form W-12 instructions for complete information regarding acceptable supporting documentation and application requirements.
    Examples of acceptable supporting documents:
    - Passport/Passport Card
    - Driver's License
    - U.S. State ID Card
    - Military ID Card
    - National ID card

Return to Return Preparer Program FAQs

Page Last Reviewed or Updated: 21-Mar-2014

The Aarp Tax Help

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