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Irs 1040ez FormFree 2007 Tax Software DownloadFederal Tax Amendment Form1040ez 2010 Tax FormBack Tax HelpFreefilefillableforms ComFiling Past Year Tax Returns1040 Ez 2011File Prior Year TaxesI Didn T File My 2012 TaxesHow Do I File 2009 Taxes OnlineFile An Extension For 2011 Taxes OnlineEfile Tax ReturnsFree FileH And R Block Online1040 Es2012 Turbo Tax ReturnHelp With 1040xAmend 2012 Tax Return FreeFree Tax FileCan I File My 2012 TaxesIrs 2012 Tax Forms 1040ezSelf Employment Tax FormH&r Block Free Efile 2011Taxact 2012 Return User2011 Tax ActWhere Can I Get A 2012 Tax FormFree Tax 2007Tax Forms 2012 FederalIncome Tax Preparation2012 Tax Forms 1040ezLate TaxFiling 2012 Tax Returns1040ez Tax FormState Income Tax Forms 2012Can I Still File My 2010 Taxes OnlineH&r Block TaxcutHow Do I File An Amended Tax ReturnTax Form 1040 Ez1040nr Ez Software

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Fill out 1040ez 2. Fill out 1040ez   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. Fill out 1040ez Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. Fill out 1040ez Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). Fill out 1040ez You must do this to figure your net capital gain or loss. Fill out 1040ez For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. Fill out 1040ez See Capital Gains Tax Rates in chapter 4. Fill out 1040ez Your deduction for a net capital loss may be limited. Fill out 1040ez See Treatment of Capital Losses in chapter 4. Fill out 1040ez Capital gain or loss. Fill out 1040ez   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. Fill out 1040ez You also may have a capital gain if your section 1231 transactions result in a net gain. Fill out 1040ez Section 1231 transactions. Fill out 1040ez   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. Fill out 1040ez They also include certain involuntary conversions of business or investment property, including capital assets. Fill out 1040ez See Section 1231 Gains and Losses in chapter 3 for more information. Fill out 1040ez Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Fill out 1040ez Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. Fill out 1040ez For exceptions, see Noncapital Assets, later. Fill out 1040ez The following items are examples of capital assets. Fill out 1040ez Stocks and bonds. Fill out 1040ez A home owned and occupied by you and your family. Fill out 1040ez Timber grown on your home property or investment property, even if you make casual sales of the timber. Fill out 1040ez Household furnishings. Fill out 1040ez A car used for pleasure or commuting. Fill out 1040ez Coin or stamp collections. Fill out 1040ez Gems and jewelry. Fill out 1040ez Gold, silver, and other metals. Fill out 1040ez Personal-use property. Fill out 1040ez   Generally, property held for personal use is a capital asset. Fill out 1040ez Gain from a sale or exchange of that property is a capital gain. Fill out 1040ez Loss from the sale or exchange of that property is not deductible. Fill out 1040ez You can deduct a loss relating to personal-use property only if it results from a casualty or theft. Fill out 1040ez Investment property. Fill out 1040ez   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. Fill out 1040ez This treatment does not apply to property used to produce rental income. Fill out 1040ez See Business assets, later, under Noncapital Assets. Fill out 1040ez Release of restriction on land. Fill out 1040ez   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. Fill out 1040ez Noncapital Assets A noncapital asset is property that is not a capital asset. Fill out 1040ez The following kinds of property are not capital assets. Fill out 1040ez Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. Fill out 1040ez Inventories are discussed in Publication 538, Accounting Periods and Methods. Fill out 1040ez But, see the Tip below. Fill out 1040ez Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. Fill out 1040ez Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). Fill out 1040ez Sales of this type of property are discussed in chapter 3. Fill out 1040ez Real property used in your trade or business or as rental property, even if the property is fully depreciated. Fill out 1040ez A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. Fill out 1040ez But, see the Tip below. Fill out 1040ez U. Fill out 1040ez S. Fill out 1040ez Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. Fill out 1040ez Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. Fill out 1040ez It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. Fill out 1040ez The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. Fill out 1040ez Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. Fill out 1040ez Supplies of a type you regularly use or consume in the ordinary course of your trade or business. Fill out 1040ez You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. Fill out 1040ez See chapter 4 of Publication 550 for details. Fill out 1040ez Property held mainly for sale to customers. Fill out 1040ez   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. Fill out 1040ez Inventories are discussed in Publication 538. Fill out 1040ez Business assets. Fill out 1040ez   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. Fill out 1040ez The sale or disposition of business property is discussed in chapter 3. Fill out 1040ez Letters and memoranda. Fill out 1040ez   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. Fill out 1040ez Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. Fill out 1040ez For this purpose, letters and memoranda addressed to you are considered prepared for you. Fill out 1040ez If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. Fill out 1040ez Commodities derivative financial instrument. Fill out 1040ez   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). Fill out 1040ez Commodities derivative dealer. Fill out 1040ez   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. Fill out 1040ez Hedging transaction. Fill out 1040ez   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. Fill out 1040ez Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. Fill out 1040ez Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. Fill out 1040ez Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. Fill out 1040ez If these rules apply, gains may be treated as ordinary income and losses may not be deductible. Fill out 1040ez See Transfers to Spouse in chapter 1 for rules that apply to spouses. Fill out 1040ez Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. Fill out 1040ez It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. Fill out 1040ez Depreciable property transaction. Fill out 1040ez   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. Fill out 1040ez A person and the person's controlled entity or entities. Fill out 1040ez A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. Fill out 1040ez An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). Fill out 1040ez An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). Fill out 1040ez Controlled entity. Fill out 1040ez   A person's controlled entity is either of the following. Fill out 1040ez A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. Fill out 1040ez An entity whose relationship with that person is one of the following. Fill out 1040ez A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Fill out 1040ez Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. Fill out 1040ez Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. Fill out 1040ez Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Fill out 1040ez Controlled partnership transaction. Fill out 1040ez   A gain recognized in a controlled partnership transaction may be ordinary income. Fill out 1040ez The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. Fill out 1040ez   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. Fill out 1040ez A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Fill out 1040ez Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Fill out 1040ez Determining ownership. Fill out 1040ez   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. Fill out 1040ez Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Fill out 1040ez (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Fill out 1040ez ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Fill out 1040ez Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Fill out 1040ez For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Fill out 1040ez But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. Fill out 1040ez Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. Fill out 1040ez This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. Fill out 1040ez For the list of related persons, see Related persons next. Fill out 1040ez If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. Fill out 1040ez The gain on each item is taxable. Fill out 1040ez The loss on any item is nondeductible. Fill out 1040ez Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. Fill out 1040ez Related persons. Fill out 1040ez   The following is a list of related persons. Fill out 1040ez Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Fill out 1040ez ), and lineal descendants (children, grandchildren, etc. Fill out 1040ez ). Fill out 1040ez An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Fill out 1040ez Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. Fill out 1040ez A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. Fill out 1040ez A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Fill out 1040ez Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. Fill out 1040ez A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. Fill out 1040ez A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. Fill out 1040ez Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. Fill out 1040ez Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Fill out 1040ez An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. Fill out 1040ez Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. Fill out 1040ez A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. Fill out 1040ez Partnership interests. Fill out 1040ez   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. Fill out 1040ez Controlled groups. Fill out 1040ez   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. Fill out 1040ez   For more information, see section 267(f) of the Internal Revenue Code. Fill out 1040ez Ownership of stock or partnership interests. Fill out 1040ez   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. Fill out 1040ez Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Fill out 1040ez (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. Fill out 1040ez ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. Fill out 1040ez Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. Fill out 1040ez An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Fill out 1040ez For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. Fill out 1040ez But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. Fill out 1040ez Indirect transactions. Fill out 1040ez   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. Fill out 1040ez This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. Fill out 1040ez Property received from a related person. Fill out 1040ez   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. Fill out 1040ez This rule applies only to the original transferee. Fill out 1040ez Example 1. Fill out 1040ez Your brother sold stock to you for $7,600. Fill out 1040ez His cost basis was $10,000. Fill out 1040ez His loss of $2,400 was not deductible. Fill out 1040ez You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). Fill out 1040ez Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. Fill out 1040ez Example 2. Fill out 1040ez Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. Fill out 1040ez Your recognized loss is only $700 ($7,600 − $6,900). Fill out 1040ez You cannot deduct the loss not allowed to your brother. Fill out 1040ez Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. Fill out 1040ez Sale of a Business The sale of a business usually is not a sale of one asset. Fill out 1040ez Instead, all the assets of the business are sold. Fill out 1040ez Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. Fill out 1040ez A business usually has many assets. Fill out 1040ez When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. Fill out 1040ez The gain or loss on each asset is figured separately. Fill out 1040ez The sale of capital assets results in capital gain or loss. Fill out 1040ez The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). Fill out 1040ez The sale of inventory results in ordinary income or loss. Fill out 1040ez Partnership interests. Fill out 1040ez   An interest in a partnership or joint venture is treated as a capital asset when sold. Fill out 1040ez The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. Fill out 1040ez For more information, see Disposition of Partner's Interest in Publication 541. Fill out 1040ez Corporation interests. Fill out 1040ez   Your interest in a corporation is represented by stock certificates. Fill out 1040ez When you sell these certificates, you usually realize capital gain or loss. Fill out 1040ez For information on the sale of stock, see chapter 4 in Publication 550. Fill out 1040ez Corporate liquidations. Fill out 1040ez   Corporate liquidations of property generally are treated as a sale or exchange. Fill out 1040ez Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Fill out 1040ez Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. Fill out 1040ez   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. Fill out 1040ez For more information, see section 332 of the Internal Revenue Code and the related regulations. Fill out 1040ez Allocation of consideration paid for a business. Fill out 1040ez   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Fill out 1040ez Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. Fill out 1040ez This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. Fill out 1040ez It also determines the buyer's basis in the business assets. Fill out 1040ez Consideration. Fill out 1040ez   The buyer's consideration is the cost of the assets acquired. Fill out 1040ez The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. Fill out 1040ez Residual method. Fill out 1040ez   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. Fill out 1040ez This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Fill out 1040ez Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. Fill out 1040ez   A group of assets constitutes a trade or business if either of the following applies. Fill out 1040ez Goodwill or going concern value could, under any circumstances, attach to them. Fill out 1040ez The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. Fill out 1040ez   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). Fill out 1040ez The consideration remaining after this reduction must be allocated among the various business assets in a certain order. Fill out 1040ez See Classes of assets next for the complete order. Fill out 1040ez Classes of assets. Fill out 1040ez   The following definitions are the classifications for deemed or actual asset acquisitions. Fill out 1040ez Allocate the consideration among the assets in the following order. Fill out 1040ez The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. Fill out 1040ez The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. Fill out 1040ez Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). Fill out 1040ez Class II assets are certificates of deposit, U. Fill out 1040ez S. Fill out 1040ez Government securities, foreign currency, and actively traded personal property, including stock and securities. Fill out 1040ez Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. Fill out 1040ez However, see section 1. Fill out 1040ez 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. Fill out 1040ez Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. Fill out 1040ez Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. Fill out 1040ez    Note. Fill out 1040ez Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. Fill out 1040ez Class VI assets are section 197 intangibles (other than goodwill and going concern value). Fill out 1040ez Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). Fill out 1040ez   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. Fill out 1040ez For example, if an asset is described in both Class II and Class IV, choose Class II. Fill out 1040ez Example. Fill out 1040ez The total paid in the sale of the assets of Company SKB is $21,000. Fill out 1040ez No cash or deposit accounts or similar accounts were sold. Fill out 1040ez The company's U. Fill out 1040ez S. Fill out 1040ez Government securities sold had a fair market value of $3,200. Fill out 1040ez The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. Fill out 1040ez Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. Fill out 1040ez S. Fill out 1040ez Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. Fill out 1040ez Agreement. Fill out 1040ez   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. Fill out 1040ez This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. Fill out 1040ez Reporting requirement. Fill out 1040ez   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Fill out 1040ez Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. Fill out 1040ez Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. Fill out 1040ez See the Instructions for Form 8594. Fill out 1040ez Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. Fill out 1040ez It includes such items as patents, copyrights, and the goodwill value of a business. Fill out 1040ez Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. Fill out 1040ez The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. Fill out 1040ez See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. Fill out 1040ez Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. Fill out 1040ez The following discussions explain special rules that apply to certain dispositions of intangible property. Fill out 1040ez Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. Fill out 1040ez They include the following assets. Fill out 1040ez Goodwill. Fill out 1040ez Going concern value. Fill out 1040ez Workforce in place. Fill out 1040ez Business books and records, operating systems, and other information bases. Fill out 1040ez Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. Fill out 1040ez Customer-based intangibles. Fill out 1040ez Supplier-based intangibles. Fill out 1040ez Licenses, permits, and other rights granted by a governmental unit. Fill out 1040ez Covenants not to compete entered into in connection with the acquisition of a business. Fill out 1040ez Franchises, trademarks, and trade names. Fill out 1040ez See chapter 8 of Publication 535 for a description of each intangible. Fill out 1040ez Dispositions. Fill out 1040ez   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. Fill out 1040ez Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. Fill out 1040ez If you retain more than one section 197 intangible, increase each intangible's adjusted basis. Fill out 1040ez Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. Fill out 1040ez   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. Fill out 1040ez For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. Fill out 1040ez Covenant not to compete. Fill out 1040ez   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. Fill out 1040ez Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. Fill out 1040ez Anti-churning rules. Fill out 1040ez   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. Fill out 1040ez However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. Fill out 1040ez Recognize gain on the transfer of the property. Fill out 1040ez Pay income tax on the gain at the highest tax rate. Fill out 1040ez   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. Fill out 1040ez But each partner or shareholder must pay the tax on his or her share of gain. Fill out 1040ez   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. Fill out 1040ez You must file the tax return by the due date (including extensions). Fill out 1040ez You must also notify the transferee of the election in writing by the due date of the return. Fill out 1040ez   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Fill out 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Fill out 1040ez 9100-2” at the top of the statement. Fill out 1040ez File the amended return at the same address the original return was filed. Fill out 1040ez For more information about making the election, see Regulations section 1. Fill out 1040ez 197-2(h)(9). Fill out 1040ez For information about reporting the tax on your income tax return, see the Instructions for Form 4797. Fill out 1040ez Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. Fill out 1040ez This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. Fill out 1040ez For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. Fill out 1040ez This treatment applies to your transfer of a patent if you meet all the following conditions. Fill out 1040ez You are the holder of the patent. Fill out 1040ez You transfer the patent other than by gift, inheritance, or devise. Fill out 1040ez You transfer all substantial rights to the patent or an undivided interest in all such rights. Fill out 1040ez You do not transfer the patent to a related person. Fill out 1040ez Holder. Fill out 1040ez   You are the holder of a patent if you are either of the following. Fill out 1040ez The individual whose effort created the patent property and who qualifies as the original and first inventor. Fill out 1040ez The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. Fill out 1040ez All substantial rights. Fill out 1040ez   All substantial rights to patent property are all rights that have value when they are transferred. Fill out 1040ez A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. Fill out 1040ez   All substantial rights to a patent are not transferred if any of the following apply to the transfer. Fill out 1040ez The rights are limited geographically within a country. Fill out 1040ez The rights are limited to a period less than the remaining life of the patent. Fill out 1040ez The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. Fill out 1040ez The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. Fill out 1040ez Related persons. Fill out 1040ez   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. Fill out 1040ez Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. Fill out 1040ez Substitute “25% or more” ownership for “more than 50%. Fill out 1040ez ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. Fill out 1040ez For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. Fill out 1040ez The brother-sister exception does not apply because the trust relationship is independent of family status. Fill out 1040ez Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. Fill out 1040ez A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. Fill out 1040ez Significant power, right, or continuing interest. Fill out 1040ez   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. Fill out 1040ez   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. Fill out 1040ez A right to disapprove any assignment of the interest, or any part of it. Fill out 1040ez A right to end the agreement at will. Fill out 1040ez A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. Fill out 1040ez A right to make the recipient sell or advertise only your products or services. Fill out 1040ez A right to make the recipient buy most supplies and equipment from you. Fill out 1040ez A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. Fill out 1040ez Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. Fill out 1040ez However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. Fill out 1040ez See section 1237 of the Internal Revenue Code. Fill out 1040ez Timber Standing timber held as investment property is a capital asset. Fill out 1040ez Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. Fill out 1040ez If you held the timber primarily for sale to customers, it is not a capital asset. Fill out 1040ez Gain or loss on its sale is ordinary business income or loss. Fill out 1040ez It is reported in the gross receipts or sales and cost of goods sold items of your return. Fill out 1040ez Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. Fill out 1040ez These sales constitute a very minor part of their farm businesses. Fill out 1040ez In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. Fill out 1040ez , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. Fill out 1040ez Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. Fill out 1040ez Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. Fill out 1040ez This is true whether the timber is cut under contract or whether you cut it yourself. Fill out 1040ez Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. Fill out 1040ez See chapter 3. Fill out 1040ez Gain or loss is reported on Form 4797. Fill out 1040ez Christmas trees. Fill out 1040ez   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. Fill out 1040ez They qualify for both rules discussed below. Fill out 1040ez Election to treat cutting as a sale or exchange. Fill out 1040ez   Under the general rule, the cutting of timber results in no gain or loss. Fill out 1040ez It is not until a sale or exchange occurs that gain or loss is realized. Fill out 1040ez But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. Fill out 1040ez Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. Fill out 1040ez Any later sale results in ordinary business income or loss. Fill out 1040ez See Example, later. Fill out 1040ez   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. Fill out 1040ez Making the election. Fill out 1040ez   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. Fill out 1040ez You do not have to make the election in the first year you cut timber. Fill out 1040ez You can make it in any year to which the election would apply. Fill out 1040ez If the timber is partnership property, the election is made on the partnership return. Fill out 1040ez This election cannot be made on an amended return. Fill out 1040ez   Once you have made the election, it remains in effect for all later years unless you cancel it. Fill out 1040ez   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. Fill out 1040ez The prior election (and revocation) is disregarded for purposes of making a subsequent election. Fill out 1040ez See Form T (Timber), Forest Activities Schedule, for more information. Fill out 1040ez Gain or loss. Fill out 1040ez   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. Fill out 1040ez   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. Fill out 1040ez Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. Fill out 1040ez   Timber depletion is discussed in chapter 9 of Publication 535. Fill out 1040ez Example. Fill out 1040ez In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. Fill out 1040ez It had an adjusted basis for depletion of $40 per MBF. Fill out 1040ez You are a calendar year taxpayer. Fill out 1040ez On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. Fill out 1040ez It was cut in April for sale. Fill out 1040ez On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. Fill out 1040ez You report the difference between the fair market value and your adjusted basis for depletion as a gain. Fill out 1040ez This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. Fill out 1040ez You figure your gain as follows. Fill out 1040ez FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. Fill out 1040ez Outright sales of timber. Fill out 1040ez   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). Fill out 1040ez However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). Fill out 1040ez Cutting contract. Fill out 1040ez   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. Fill out 1040ez You are the owner of the timber. Fill out 1040ez You held the timber longer than 1 year before its disposal. Fill out 1040ez You kept an economic interest in the timber. Fill out 1040ez   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. Fill out 1040ez   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. Fill out 1040ez Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. Fill out 1040ez Date of disposal. Fill out 1040ez   The date of disposal is the date the timber is cut. Fill out 1040ez However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. Fill out 1040ez   This election applies only to figure the holding period of the timber. Fill out 1040ez It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). Fill out 1040ez   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. Fill out 1040ez The statement must identify the advance payments subject to the election and the contract under which they were made. Fill out 1040ez   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). Fill out 1040ez Attach the statement to the amended return and write “Filed pursuant to section 301. Fill out 1040ez 9100-2” at the top of the statement. Fill out 1040ez File the amended return at the same address the original return was filed. Fill out 1040ez Owner. Fill out 1040ez   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. Fill out 1040ez You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. Fill out 1040ez Tree stumps. Fill out 1040ez   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. Fill out 1040ez Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. Fill out 1040ez However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. Fill out 1040ez Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. Fill out 1040ez   See Form T (Timber) and its separate instructions for more information about dispositions of timber. Fill out 1040ez Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. Fill out 1040ez , are capital assets except when they are held for sale by a dealer. Fill out 1040ez Any gain or loss from their sale or exchange generally is a capital gain or loss. Fill out 1040ez If you are a dealer, the amount received from the sale is ordinary business income. Fill out 1040ez Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. Fill out 1040ez You owned the coal or iron ore longer than 1 year before its disposal. Fill out 1040ez You kept an economic interest in the coal or iron ore. Fill out 1040ez For this rule, the date the coal or iron ore is mined is considered the date of its disposal. Fill out 1040ez Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). Fill out 1040ez This amount is included on Form 4797 along with your other section 1231 gains and losses. Fill out 1040ez You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. Fill out 1040ez If you own only an option to buy the coal in place, you do not qualify as an owner. Fill out 1040ez In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. Fill out 1040ez The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. Fill out 1040ez Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. Fill out 1040ez If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. Fill out 1040ez Special rule. Fill out 1040ez   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. Fill out 1040ez A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). Fill out 1040ez An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. Fill out 1040ez Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. Fill out 1040ez This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. Fill out 1040ez An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). Fill out 1040ez A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. Fill out 1040ez Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. Fill out 1040ez For more information, see chapter 4 of Publication 550. Fill out 1040ez Prev  Up  Next   Home   More Online Publications
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HIRE Act: Questions and Answers for Employers

Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).

The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

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Page Last Reviewed or Updated: 26-Dec-2013

The Fill Out 1040ez

Fill out 1040ez 3. Fill out 1040ez   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. Fill out 1040ez Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. Fill out 1040ez Certain contracts held by a charitable remainder trust. Fill out 1040ez Excise Taxes. Fill out 1040ez Indoor tanning services. Fill out 1040ez Application for Recognition of ExemptionPolitical activity. Fill out 1040ez Private delivery service. Fill out 1040ez Amendments to organizing documents required. Fill out 1040ez How to show reasonable action and good faith. Fill out 1040ez Not acting reasonably and in good faith. Fill out 1040ez Prejudicing the interest of the Government. Fill out 1040ez Procedure for requesting extension. Fill out 1040ez More information. Fill out 1040ez Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. Fill out 1040ez Grass roots expenditures. Fill out 1040ez Lobbying nontaxable amount. Fill out 1040ez Grass roots nontaxable amount. Fill out 1040ez Organization that no longer qualifies. Fill out 1040ez Tax on organization. Fill out 1040ez Tax on managers. Fill out 1040ez Taxes on organizations. Fill out 1040ez Taxes on managers. Fill out 1040ez Political expenditures. Fill out 1040ez Correction of expenditure. Fill out 1040ez Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. Fill out 1040ez Religious. Fill out 1040ez Charitable. Fill out 1040ez Scientific. Fill out 1040ez Testing for public safety. Fill out 1040ez Literary. Fill out 1040ez Educational. Fill out 1040ez Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). Fill out 1040ez The prevention of cruelty to children or animals. Fill out 1040ez To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. Fill out 1040ez A trust is a fund or foundation and will qualify. Fill out 1040ez However, an individual or a partnership will not qualify. Fill out 1040ez Examples. Fill out 1040ez   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. Fill out 1040ez Child care organizations. Fill out 1040ez   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. Fill out 1040ez Instrumentalities. Fill out 1040ez   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Fill out 1040ez Examples of a qualifying instrumentality might include state schools, universities, or hospitals. Fill out 1040ez However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. Fill out 1040ez A state or municipality itself does not qualify for exemption. Fill out 1040ez Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. Fill out 1040ez Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. Fill out 1040ez Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. Fill out 1040ez Fundraising events. Fill out 1040ez   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. Fill out 1040ez This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. Fill out 1040ez   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. Fill out 1040ez If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. Fill out 1040ez You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. Fill out 1040ez See Disclosure of Quid Pro Quo Contributions in chapter 2. Fill out 1040ez Exemption application not filed. Fill out 1040ez   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. Fill out 1040ez Separate fund—contributions that are deductible. Fill out 1040ez   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Fill out 1040ez   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. Fill out 1040ez A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. Fill out 1040ez Personal benefit contracts. Fill out 1040ez   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. Fill out 1040ez   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. Fill out 1040ez Certain annuity contracts. Fill out 1040ez   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). Fill out 1040ez Certain contracts held by a charitable remainder trust. Fill out 1040ez   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. Fill out 1040ez Excise tax. Fill out 1040ez   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. Fill out 1040ez The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. Fill out 1040ez Excise Taxes. Fill out 1040ez   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Fill out 1040ez Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. Fill out 1040ez Indoor tanning services. Fill out 1040ez   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. Fill out 1040ez For more information, go to IRS. Fill out 1040ez gov and select Affordable Care Act Tax Provisions. Fill out 1040ez Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. Fill out 1040ez For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. Fill out 1040ez See the organization headings that follow for specific information your organization may need to provide. Fill out 1040ez Form 1023. Fill out 1040ez   Your organization must file its application for recognition of exemption on Form 1023. Fill out 1040ez See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. Fill out 1040ez Some organizations are not required to file Form 1023. Fill out 1040ez See Organizations Not Required To File Form 1023, later. Fill out 1040ez    Additional information to help you complete your application can be found online. Fill out 1040ez Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. Fill out 1040ez See Exemption Requirements - Section 501(c)(3) Organizations. Fill out 1040ez   Form 1023 and accompanying statements must show that all of the following are true. Fill out 1040ez The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. Fill out 1040ez ) specified in the introduction to this chapter. Fill out 1040ez No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. Fill out 1040ez You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. Fill out 1040ez The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. Fill out 1040ez See Political activity, next, and Lobbying Expenditures , near the end of this chapter. Fill out 1040ez Political activity. Fill out 1040ez   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Fill out 1040ez Such participation or intervention includes the publishing or distributing of statements. Fill out 1040ez   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Fill out 1040ez Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. Fill out 1040ez Effective date of exemption. Fill out 1040ez   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. Fill out 1040ez These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. Fill out 1040ez If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. Fill out 1040ez Otherwise, exemption will be recognized only from the date of receipt. Fill out 1040ez The date of receipt is the date of the U. Fill out 1040ez S. Fill out 1040ez postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. Fill out 1040ez Private delivery service. Fill out 1040ez   If a private delivery service designated by the IRS, rather than the U. Fill out 1040ez S. Fill out 1040ez Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. Fill out 1040ez The following private delivery services have been designated by the IRS. Fill out 1040ez DHL Express (DHL): DHL “Same Day” Service. Fill out 1040ez Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Fill out 1040ez United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Fill out 1040ez M. Fill out 1040ez , UPS Worldwide Express Plus, and UPS Worldwide Express. Fill out 1040ez Amendments to organizing documents required. Fill out 1040ez   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. Fill out 1040ez If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. Fill out 1040ez Extensions of time for filing. Fill out 1040ez   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. Fill out 1040ez Automatic 12-month extension. Fill out 1040ez Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. Fill out 1040ez To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. Fill out 1040ez 9100-2. Fill out 1040ez ” Discretionary extensions. Fill out 1040ez An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. Fill out 1040ez How to show reasonable action and good faith. Fill out 1040ez   An organization acted reasonably and showed good faith if at least one of the following is true. Fill out 1040ez The organization requests relief before its failure to file is discovered by the IRS. Fill out 1040ez The organization failed to file because of intervening events beyond its control. Fill out 1040ez The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. Fill out 1040ez The organization reasonably relied upon the written advice of the IRS. Fill out 1040ez The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. Fill out 1040ez An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. Fill out 1040ez Not acting reasonably and in good faith. Fill out 1040ez   An organization has not acted reasonably and in good faith under the following circumstances. Fill out 1040ez It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. Fill out 1040ez It was informed of the requirement to file and related tax consequences, but chose not to file. Fill out 1040ez It uses hindsight in requesting relief. Fill out 1040ez The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. Fill out 1040ez Prejudicing the interest of the Government. Fill out 1040ez   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. Fill out 1040ez Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. Fill out 1040ez The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. Fill out 1040ez The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. Fill out 1040ez Procedure for requesting extension. Fill out 1040ez   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. Fill out 1040ez A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. Fill out 1040ez Any documents relevant to the application. Fill out 1040ez An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. Fill out 1040ez If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. Fill out 1040ez This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Fill out 1040ez ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. Fill out 1040ez This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. Fill out 1040ez The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. Fill out 1040ez These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Fill out 1040ez ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. Fill out 1040ez The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. Fill out 1040ez The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. Fill out 1040ez   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. Fill out 1040ez Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. Fill out 1040ez More information. Fill out 1040ez   For more information about these procedures, see Regulations sections 301. Fill out 1040ez 9100-1, 301. Fill out 1040ez 9100-2, 301. Fill out 1040ez 9100-3, Revenue Procedure 2013-4, section 6. Fill out 1040ez 04, 2013-1 I. Fill out 1040ez R. Fill out 1040ez B. Fill out 1040ez 126, and Revenue Procedure 2013-8, 2013-1 I. Fill out 1040ez R. Fill out 1040ez B. Fill out 1040ez 237. Fill out 1040ez See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. Fill out 1040ez Notification from the IRS. Fill out 1040ez   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. Fill out 1040ez Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. Fill out 1040ez These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. Fill out 1040ez Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). Fill out 1040ez These organizations are exempt automatically if they meet the requirements of section 501(c)(3). Fill out 1040ez Filing Form 1023 to establish exemption. Fill out 1040ez   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. Fill out 1040ez By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. Fill out 1040ez A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. Fill out 1040ez Private foundations. Fill out 1040ez   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. Fill out 1040ez Gross receipts test. Fill out 1040ez   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. Fill out 1040ez   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. Fill out 1040ez For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. Fill out 1040ez The organization must file Form 1023 within 90 days after the end of its second tax year. Fill out 1040ez   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. Fill out 1040ez However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. Fill out 1040ez Example. Fill out 1040ez   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. Fill out 1040ez It was incorporated on January 1, 2009, and files returns on a calendar-year basis. Fill out 1040ez It did not file a Form 1023. Fill out 1040ez The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. Fill out 1040ez Therefore, it did not have to file Form 1023 and is exempt for those years. Fill out 1040ez However, for 2010, 2011, and 2012 the total gross receipts were $15,900. Fill out 1040ez Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. Fill out 1040ez If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. Fill out 1040ez The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. Fill out 1040ez   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. Fill out 1040ez See the procedures for this extension discussed earlier. Fill out 1040ez Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. Fill out 1040ez This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. Fill out 1040ez Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. Fill out 1040ez These conditions for exemption are referred to as the organizational test. Fill out 1040ez Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Fill out 1040ez Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). Fill out 1040ez The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Fill out 1040ez Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Fill out 1040ez Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. Fill out 1040ez In interpreting an organization's articles, the law of the state where the organization was created is controlling. Fill out 1040ez If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. Fill out 1040ez The following are examples illustrating the organizational test. Fill out 1040ez Example 1. Fill out 1040ez Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). Fill out 1040ez These articles appropriately limit the organization's purposes. Fill out 1040ez The organization meets the organizational test. Fill out 1040ez Example 2. Fill out 1040ez An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. Fill out 1040ez The organization will not be properly limited as to its purposes since all research is not scientific. Fill out 1040ez The organization does not meet the organizational test. Fill out 1040ez Example 3. Fill out 1040ez An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). Fill out 1040ez The organization meets the organizational test. Fill out 1040ez Example 4. Fill out 1040ez If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. Fill out 1040ez Example 5. Fill out 1040ez If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. Fill out 1040ez On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. Fill out 1040ez Example 6. Fill out 1040ez If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. Fill out 1040ez Such purposes are vague and may be accomplished other than in an exempt manner. Fill out 1040ez Example 7. Fill out 1040ez A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. Fill out 1040ez A hospital may or may not be exempt depending on the manner in which it is operated. Fill out 1040ez Example 8. Fill out 1040ez An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. Fill out 1040ez Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. Fill out 1040ez This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. Fill out 1040ez If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. Fill out 1040ez Dedication. Fill out 1040ez   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. Fill out 1040ez Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. Fill out 1040ez Distribution. Fill out 1040ez   Revenue Procedure 82-2, 1982-1 C. Fill out 1040ez B. Fill out 1040ez 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. Fill out 1040ez The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. Fill out 1040ez   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. Fill out 1040ez Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. Fill out 1040ez Sample articles of organization. Fill out 1040ez   See sample articles of organization in the Appendix in the back of this publication. Fill out 1040ez Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. Fill out 1040ez In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. Fill out 1040ez You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. Fill out 1040ez If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. Fill out 1040ez See also Private Schools , discussed later. Fill out 1040ez Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. Fill out 1040ez Advocacy of a position. Fill out 1040ez   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. Fill out 1040ez The mere presentation of unsupported opinion is not educational. Fill out 1040ez Method not educational. Fill out 1040ez   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). Fill out 1040ez The following factors may indicate that the method is not educational. Fill out 1040ez The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. Fill out 1040ez The facts that purport to support the viewpoint are distorted. Fill out 1040ez The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. Fill out 1040ez The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. Fill out 1040ez   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. Fill out 1040ez Qualifying organizations. Fill out 1040ez   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. Fill out 1040ez College book stores, cafeterias, restaurants, etc. Fill out 1040ez   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. Fill out 1040ez Alumni association. Fill out 1040ez   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. Fill out 1040ez If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . Fill out 1040ez Athletic organization. Fill out 1040ez   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. Fill out 1040ez If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Fill out 1040ez Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. Fill out 1040ez If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. Fill out 1040ez Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. Fill out 1040ez The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. Fill out 1040ez (This information also must be projected, so far as may be feasible, for the next academic year. Fill out 1040ez ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. Fill out 1040ez A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. Fill out 1040ez A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. Fill out 1040ez The public school district and county in which the school is located. Fill out 1040ez How to determine racial composition. Fill out 1040ez   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. Fill out 1040ez Nevertheless, a statement of the method by which the racial composition was determined must be supplied. Fill out 1040ez The identity of individual students or members of the faculty and administrative staff should not be included with this information. Fill out 1040ez   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. Fill out 1040ez Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Fill out 1040ez Also, the school must circulate information that clearly states the school's admission policies. Fill out 1040ez A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. Fill out 1040ez The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. Fill out 1040ez The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Fill out 1040ez Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. Fill out 1040ez A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. Fill out 1040ez A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. Fill out 1040ez Policy statement. Fill out 1040ez   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Fill out 1040ez Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. Fill out 1040ez Publicity requirement. Fill out 1040ez   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Fill out 1040ez Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. Fill out 1040ez To satisfy this requirement, the school must use one of the following two methods. Fill out 1040ez Method one. Fill out 1040ez   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. Fill out 1040ez Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Fill out 1040ez When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. Fill out 1040ez If this method is used, the notice must meet the following printing requirements. Fill out 1040ez It must appear in a section of the newspaper likely to be read by prospective students and their families. Fill out 1040ez It must occupy at least 3 column inches. Fill out 1040ez It must have its title printed in at least 12 point bold face type. Fill out 1040ez It must have the remaining text printed in at least 8 point type. Fill out 1040ez The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. Fill out 1040ez It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. Fill out 1040ez   Method two. Fill out 1040ez   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. Fill out 1040ez If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. Fill out 1040ez In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. Fill out 1040ez The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. Fill out 1040ez Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Fill out 1040ez Exceptions. Fill out 1040ez   The publicity requirements will not apply in the following situations. Fill out 1040ez First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. Fill out 1040ez These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. Fill out 1040ez If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. Fill out 1040ez Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . Fill out 1040ez   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. Fill out 1040ez The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. Fill out 1040ez   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. Fill out 1040ez Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. Fill out 1040ez   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. Fill out 1040ez The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. Fill out 1040ez In this regard, it is each school's responsibility to determine whether either of the exceptions applies. Fill out 1040ez Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. Fill out 1040ez Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. Fill out 1040ez Facilities and programs. Fill out 1040ez   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. Fill out 1040ez Scholarship and loan programs. Fill out 1040ez   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. Fill out 1040ez This must be known throughout the general community being served by the school and should be referred to in its publicity. Fill out 1040ez Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. Fill out 1040ez Certification. Fill out 1040ez   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. Fill out 1040ez   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. Fill out 1040ez Recordkeeping requirements. Fill out 1040ez With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. Fill out 1040ez Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. Fill out 1040ez Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. Fill out 1040ez Copies of all materials used by or on behalf of the school to solicit contributions. Fill out 1040ez Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. Fill out 1040ez (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. Fill out 1040ez ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. Fill out 1040ez However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. Fill out 1040ez The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Fill out 1040ez Similarly, the IRS does not require a school to keep records prohibited under state or federal law. Fill out 1040ez Exceptions. Fill out 1040ez   The school does not have to independently maintain these records for IRS use if both of the following are true. Fill out 1040ez Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. Fill out 1040ez The school maintains copies of these reports from which this information is readily obtainable. Fill out 1040ez If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. Fill out 1040ez Failure to maintain records. Fill out 1040ez   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. Fill out 1040ez Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. Fill out 1040ez However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. Fill out 1040ez Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). Fill out 1040ez Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. Fill out 1040ez Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Fill out 1040ez Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Fill out 1040ez The rest of this section contains a description of the information to be provided by certain specific organizations. Fill out 1040ez This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Fill out 1040ez Each of the following organizations must submit the information described. Fill out 1040ez Charitable organization supporting education. Fill out 1040ez   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. Fill out 1040ez Scholarships. Fill out 1040ez   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. Fill out 1040ez Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. Fill out 1040ez How and by whom the recipients are or will be selected. Fill out 1040ez If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. Fill out 1040ez If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. Fill out 1040ez A copy of the scholarship application form and any brochures or literature describing the scholarship program. Fill out 1040ez Hospital. Fill out 1040ez   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. Fill out 1040ez   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. Fill out 1040ez You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. Fill out 1040ez Submit also an appraisal showing the fair rental value of the rented space. Fill out 1040ez Clinic. Fill out 1040ez   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. Fill out 1040ez Home for the aged. Fill out 1040ez   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. Fill out 1040ez Community nursing bureau. Fill out 1040ez   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. Fill out 1040ez Organization providing loans. Fill out 1040ez   If you make, or will make, loans for charitable and educational purposes, submit the following information. Fill out 1040ez An explanation of the circumstances under which such loans are, or will be, made. Fill out 1040ez Criteria for selection, including the rules of eligibility. Fill out 1040ez How and by whom the recipients are or will be selected. Fill out 1040ez Manner of repayment of the loan. Fill out 1040ez Security required, if any. Fill out 1040ez Interest charged, if any, and when payable. Fill out 1040ez Copies in duplicate of the loan application and any brochures or literature describing the loan program. Fill out 1040ez Public-interest law firms. Fill out 1040ez   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. Fill out 1040ez How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. Fill out 1040ez Whether the organization will accept fees for its services. Fill out 1040ez A description of the cases litigated or to be litigated and how they benefit the public generally. Fill out 1040ez Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. Fill out 1040ez Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. Fill out 1040ez Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. Fill out 1040ez Acceptance of attorneys' fees. Fill out 1040ez   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Fill out 1040ez Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. Fill out 1040ez   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. Fill out 1040ez All fee awards must be paid to the organization and not to its individual staff attorneys. Fill out 1040ez Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Fill out 1040ez Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. Fill out 1040ez   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. Fill out 1040ez   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. Fill out 1040ez Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. Fill out 1040ez That the particular religious beliefs of the organization are truly and sincerely held. Fill out 1040ez That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. Fill out 1040ez Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. Fill out 1040ez If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. Fill out 1040ez Churches. Fill out 1040ez   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. Fill out 1040ez In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. Fill out 1040ez   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. Fill out 1040ez Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. Fill out 1040ez The IRS considers the facts and circumstances of each organization applying for church status. Fill out 1040ez Convention or association of churches. Fill out 1040ez   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. Fill out 1040ez Integrated auxiliaries. Fill out 1040ez   An organization is an integrated auxiliary of a church if all the following are true. Fill out 1040ez The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). Fill out 1040ez It is affiliated with a church or a convention or association of churches. Fill out 1040ez It is internally supported. Fill out 1040ez An organization is internally supported unless both of the following are true. Fill out 1040ez It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). Fill out 1040ez It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. Fill out 1040ez Special rule. Fill out 1040ez   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. Fill out 1040ez   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. Fill out 1040ez   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. Fill out 1040ez Scientific Organizations You must show that your organization's research will be carried on in the public interest. Fill out 1040ez Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. Fill out 1040ez Aiding in the scientific education of college or university students. Fill out 1040ez Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th