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Free State Tax

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Free State Tax

Free state tax Publication 557 - Introductory Material Table of Contents What's New Reminders Introduction What's New Proposed regulations on “good faith determinations”. Free state tax  Proposed regulations modify standards for making a good faith determination that a foreign organization is a charitable organization, grants to which may be qualifying distributions and not taxable expenditures. Free state tax The proposed regulations identify a broader class of tax practitioners upon whose written advice a private foundation may base a “good faith determination. Free state tax ” See, Proposed Regulations: Reliance Standards for Making Good Faith Determinations, REG-134974-12, 2012-47 I. Free state tax R. Free state tax B. Free state tax 553. Free state tax Prop. Free state tax Regs. Free state tax on Good Faith Determinations. Free state tax New Requirements for section 501(c)(3) Hospitals Under the Affordable Care Act. Free state tax  The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting requirements and excise taxes. Free state tax On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to section 501(c)(3) hospital organizations. Free state tax See, Proposed Regulations: Additional Requirements for Charitable Hospitals, REG-13026-11, 77 Fed. Free state tax Reg. Free state tax 38148. Free state tax On April 3, 2013, the Service issued proposed regulations on the ACA's community health needs assessment (CHNA) requirements. Free state tax The proposed regulations also discuss the related reporting and excise tax requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. Free state tax See, Proposed Regulations: Community Health Needs Assessments for Charitable Hospitals, REG-106499-12, 78 Fed. Free state tax Reg. Free state tax 20,523. Free state tax Timing of when an Organization is exempt for Federal Tax Purposes. Free state tax  As noted in section 2. Free state tax 03(4) of Revenue Procedure 2013-9, 2013-2 I. Free state tax R. Free state tax B. Free state tax 267, the provisions in section 11. Free state tax 01 regarding the effect of determination letters or rulings recognizing exempt status of organizations described in section 501(c), other than sections 501(c)(3), (9), (17), and (29), have been revised. Free state tax Prior to this year, and back to 1962, when such organizations applied for recognition, the IRS would usually recognize the organizations as tax exempt from the date of formation, no matter how long the interval between the date of formation and the date of application. Free state tax In addition to the practical difficulties of ascertaining an organization's purposes and activities for this period, such recognition is now potentially inconsistent with the provisions of section 6033(j), which automatically revokes the exempt status of an organization that fails to file required Form 990 series returns or notices for three consecutive years. Free state tax The new procedure adopts a practice similar to the rule for section 501(c)(3) organizations for these organizations, generally permitting recognition from the date of formation if the organization has: always met the requirements for exemption, has applied within 27 months from the end of the month in which it was organized, and has not failed to file required Form 990 series returns or notices for three consecutive years. Free state tax Section 11. Free state tax 01(3) notes: an organization that otherwise meets the requirements for tax-exempt status and the issuance of a determination letter or ruling that does not meet the requirements for recognition from date of formation will generally be recognized from the postmark date of its application. Free state tax Exempt Organizations Select Check. Free state tax  The IRS has developed an on-line search tool, Exempt Organizations Select Check, that allows users to select an exempt organization and check certain information about its federal tax status and filings. Free state tax It consolidates three former search sites into one, providing expanded search capability and a more efficient way to search for organizations that: Are eligible to receive tax-deductible charitable contributions (Publication 78 data). Free state tax Users may rely on this list in determining deductibility of contributions, just as they did when Publication 78 was a separate electronic publication rather than part of Select Check. Free state tax Have had their tax-exempt status automatically revoked under the law because they have not filed Form 990 series returns or notices annually as required for three consecutive years (Auto-Revocation List). Free state tax Have filed a Form 990-N (e-Postcard) annual electronic notice. Free state tax  In addition to searching for a particular organization, users may download a complete list of each of the three types of organizations through Exempt Organizations Select Check. Free state tax See also Revenue Procedure 2011-33, 2011-25 I. Free state tax R. Free state tax B. Free state tax 887. Free state tax Future developments. Free state tax . Free state tax  The IRS has created a page on IRS. Free state tax gov for information about Publication 557, at www. Free state tax irs. Free state tax gov/pub557. Free state tax Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page. Free state tax Reminders The Patient Protection and Affordable Care Act (ACA). Free state tax   The ACA added several new laws. Free state tax This includes a new excise tax on indoor tanning services, a small business health care tax credit, additional requirements for tax-exempt hospitals, and the section 501(c)(29) CO-OP program. Free state tax For more information, go to IRS. Free state tax gov and select Affordable Care Act Tax Provisions. Free state tax Electronic filing requirement for large organizations. Free state tax  For tax years ending on or after December 31, 2006, only organizations that file 250 returns during the calendar year and that have total assets of $10 million or more are required to file Form 990 electronically. Free state tax For more information, go to e-file for Charities and Non-Profits. Free state tax Section 501(c)(15) gross receipts. Free state tax   The definition of gross receipts for purposes of determining whether small insurance companies qualify as tax-exempt under section 501(c)(15) has changed. Free state tax See Notice 2006-42, 2006-19 I. Free state tax R. Free state tax B. Free state tax 878, Notice 2006-42. Free state tax Prohibited tax shelter transactions. Free state tax  New excise taxes are imposed under section 4965 on certain tax-exempt organizations entering into prohibited tax shelter transactions. Free state tax See T. Free state tax D. Free state tax 9492, Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirements, 2010-33 I. Free state tax R. Free state tax B. Free state tax 242. Free state tax See IRS Issues Final Regulations Regarding Excise Taxes on Prohibited Tax Shelter Transactions and Related Disclosure Requirement. Free state tax Pension Protection Act of 2006 tax changes. Free state tax  The Pension Protection Act of 2006 made numerous changes to the tax law provisions affecting tax-exempt organizations. Free state tax Unless otherwise noted, most of the changes became effective on August 17, 2006. Free state tax For key provisions, go to The Pension Protection Act of 2006. Free state tax Section 501(c)(3) organizations must make their Form 990-T, Exempt Organization Business Tax Return (and proxy tax under section 6033(e)), open for public inspection for a period of 3 years from the date the Form 990-T is required to be filed (determined with regard to any extension of time for filing) or is actually filed, whichever is later. Free state tax There is an increase in excise taxes relating to public charities, social welfare organizations, and private foundations. Free state tax There are additional standards for credit counseling organizations. Free state tax The definition of convention or association of churches has been modified. Free state tax Entities that are not required to file Form 990 or 990-EZ must file new Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Free state tax The requirements of disclosure to state officials relating to exempt organizations has been modified. Free state tax There are excise taxes imposed on excess benefit transactions involving donor advised funds and sponsoring organizations. Free state tax There are new excise taxes on prohibited tax shelter transactions. Free state tax There is a modification of recordkeeping requirements for certain charitable contributions. Free state tax Introduction This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). Free state tax It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. Free state tax To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. Free state tax Organizations that are exempt under section 501(a) include those organizations described in section 501(c). Free state tax Section 501(c) organizations are covered in this publication. Free state tax Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status. Free state tax Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status. Free state tax Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status. Free state tax Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c). Free state tax Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed. Free state tax Organizations not discussed in this publication. Free state tax   Certain organizations that may qualify for exemption are not discussed in this publication, although they are included in the Organization Reference Chart. Free state tax These organizations (and the Code sections that apply to them) are as follows. Free state tax Corporations organized under Acts of Congress 501(c)(1) Teachers' retirement fund associations 501(c)(11) Mutual insurance companies 501(c)(15) Corporations organized to finance crop operations 501(c)(16) Employee funded pension trusts (created before June 25, 1959) 501(c)(18) Withdrawal liability payment fund 501(c)(22) Veterans' organizations (created before 1880) 501(c)(23) National Railroad Retirement Investment Trust 501(c)(28) Religious and apostolic associations 501(d) Cooperative hospital service organizations 501(e) Cooperative service organizations of operating educational organizations 501(f)   Section 501(c)(24) organizations (section 4049 ERISA trusts) are neither discussed in the text nor listed in the Organization Reference Chart. Free state tax   Similarly, farmers' cooperative associations that qualify for exemption under section 521, qualified state tuition programs described in section 529, and pension, profit-sharing, and stock bonus plans described in section 401(a) are not discussed in this publication. Free state tax If you think your organization falls within one of these categories, contact the IRS for any additional information you need. Free state tax For telephone assistance, call 1-877-829-5500. Free state tax   Check the Table of Contents at the beginning of this publication to determine whether your organization is described in this publication. Free state tax If it is, read the chapter (or section) that applies to your type of organization for the specific information you must give when applying for recognition of exemption. Free state tax Organization Reference Chart. Free state tax   The Organization Reference Chart enables you to locate at a glance the section of the Code under which your organization might qualify for exemption. Free state tax It also shows the required application form and, if your organization meets the exemption requirements, the annual return to be filed (if any), and whether or not a contribution to your organization will be deductible by a donor. Free state tax It also describes each type of qualifying organization and the general nature of its activities. Free state tax   You may use the Organization Reference Chart to determine the Code section that you think applies to your organization. Free state tax Any correspondence with the IRS (in requesting forms or otherwise) will be expedited if you indicate in your correspondence the appropriate Code section. Free state tax Check the IRS website, IRS. Free state tax gov, for the latest updates, Tax Information for Charities & Other Non-Profits, www. Free state tax irs. Free state tax gov/charities/index. Free state tax html. Free state tax Comments and suggestions. Free state tax   We welcome your comments about this publication and your suggestions for future editions. Free state tax   You can e-mail us while visiting our website at IRS. Free state tax gov. Free state tax   You can send your comments to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free state tax NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free state tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free state tax   If you wish telephone assistance, please call 1-877-829-5500. Free state tax This toll-free telephone service is available Monday through Friday. Free state tax Prev  Up  Next   Home   More Online Publications
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IRS Reminds Taxpayers about Direct Deposit and Split Refunds

 

IR-2014-37, March 27, 2014

WASHINGTON — For 57 million Americans, the refund check is no longer in the mail; it’s already in the bank.

So far this year, the Internal Revenue Service has issued direct-deposit refunds valued at more than $170 billion, as a growing number of taxpayers are choosing the speed and convenience of direct deposit, rather than receiving a paper check. So far this year, almost 85 percent of all refunds have been directly deposited into taxpayers’ bank accounts.

Taxpayers can have their refunds directly deposited when they e-file or by including their account information on their paper tax return..

Banks, mutual funds, brokerage firms and credit unions are all eligible to receive direct deposits. Before making this choice, however, taxpayers should make sure the financial institution accepts direct deposits for the type of account chosen.

Taxpayers also have the option and flexibility of splitting refund deposits among two or three different accounts or financial institutions. For instance, a refund could be split between a savings account, a checking account or an Individual Retirement Arrangement (IRA). Taxpayers can split their refunds when they e-file or by filing Form 8888, Direct Deposit of Refund to More Than One Account.

A taxpayer's refund should only be deposited directly into accounts that are in the taxpayer's own name; the taxpayer's spouse's name or both if it's a joint account.

Those who choose direct deposit get their refunds at least a week sooner, and direct deposit eliminates the chance of a lost, stolen or undeliverable refund.

[The filing season statistics table follows.]

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2014 FILING SEASON STATISTICS

Cumulative statistics comparing 3/22/13 and 3/21/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

82,413,000

82,852,000

0.5

Total Processed

77,102,000

81,149,000

5.2

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

74,420,000

75,610,000

1.6

Tax Professionals

44,524,000

43,953,000

-1.3

Self-prepared

29,896,000

31,657,000

5.9

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

234,237,695

209,074,699

-10.7

 

 

 

 

Total Refunds:

 

 

 

Number

66,429,000

67,383,000

1.4

Amount

$187.788

Billion

$193.543

Billion

3.1

Average refund

$2,827

$2,872

1.6

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

56,985,000

57,101,000

0.2

Amount

$170.127

Billion

$170.187

Billion

0.04

Average refund

$2,985

$2,980

-0.2

 

Page Last Reviewed or Updated: 27-Mar-2014

The Free State Tax

Free state tax 2. Free state tax   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. Free state tax ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. Free state tax In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. Free state tax Those cases are called “abusive tax shelters. Free state tax ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. Free state tax Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . Free state tax Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Free state tax Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. Free state tax They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. Free state tax Despite appearances to the contrary, the taxpayer generally risks little. Free state tax Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. Free state tax Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. Free state tax (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. Free state tax ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. Free state tax This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. Free state tax Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. Free state tax However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. Free state tax Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. Free state tax These provisions include the following. Free state tax Disclosure of reportable transactions. Free state tax   You must disclose information for each reportable transaction in which you participate. Free state tax See Reportable Transaction Disclosure Statement , later. Free state tax   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. Free state tax To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. Free state tax   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. Free state tax They must provide this number to all persons to whom they acted as a material advisor. Free state tax They must provide the number at the time the transaction is entered into. Free state tax If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. Free state tax For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. Free state tax Requirement to maintain list. Free state tax   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. Free state tax The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. Free state tax See Regulations section 301. Free state tax 6112-1 for more information (including what information is required to be included on the list). Free state tax Confidentiality privilege. Free state tax   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. Free state tax Appraisal requirement for donated property. Free state tax   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. Free state tax If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. Free state tax If you file electronically, see Form 8453, U. Free state tax S. Free state tax Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. Free state tax For more information about appraisals, including exceptions, see Publication 561. Free state tax Passive activity loss and credit limits. Free state tax   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. Free state tax For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. Free state tax Interest on penalties. Free state tax   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. Free state tax Accounting method restriction. Free state tax   Tax shelters generally cannot use the cash method of accounting. Free state tax Uniform capitalization rules. Free state tax   The uniform capitalization rules generally apply to producing property or acquiring it for resale. Free state tax Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. Free state tax For more information, see Publication 538. Free state tax Denial of deduction for interest on an underpayment due to a reportable transaction. Free state tax   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. Free state tax This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. Free state tax Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. Free state tax The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. Free state tax Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. Free state tax So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. Free state tax In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. Free state tax The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. Free state tax Investor Reporting You may be required to file a reportable transaction disclosure statement. Free state tax Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. Free state tax Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. Free state tax Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). Free state tax In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. Free state tax  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. Free state tax If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. Free state tax If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. Free state tax See Penalty for failure to disclose a reportable transaction , later under Penalties. Free state tax The following discussion briefly describes reportable transactions. Free state tax For more details, see the Instructions for Form 8886. Free state tax Reportable transaction. Free state tax   A reportable transaction is any of the following. Free state tax A listed transaction. Free state tax A confidential transaction. Free state tax A transaction with contractual protection. Free state tax A loss transaction. Free state tax A transaction of interest entered into after November 1, 2006. Free state tax Note. Free state tax Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. Free state tax Listed transaction. Free state tax   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. Free state tax These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. Free state tax For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. Free state tax irs. Free state tax gov/irb/2009-31_IRB/ar07. Free state tax html. Free state tax Confidential transaction. Free state tax   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. Free state tax A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. Free state tax The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. Free state tax Transaction with contractual protection. Free state tax   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. Free state tax For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. Free state tax irs. Free state tax gov/irb/2007-07_IRB/ar15. Free state tax html. Free state tax Loss transaction. Free state tax   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. Free state tax A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. Free state tax   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. Free state tax For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. Free state tax irs. Free state tax gov/irb/2004-50_IRB/ar11. Free state tax html. Free state tax Transaction of interest. Free state tax   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. Free state tax The IRS has identified the following transactions of interest. Free state tax “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. Free state tax R. Free state tax B. Free state tax 545, available at www. Free state tax irs. Free state tax gov/irb/2007-36_IRB/ar20. Free state tax html. Free state tax Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. Free state tax R. Free state tax B. Free state tax 544, available at www. Free state tax irs. Free state tax gov/irb/2007-36_IRB/ar19. Free state tax html. Free state tax Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. Free state tax R. Free state tax B. Free state tax 1194, available at www. Free state tax irs. Free state tax gov/irb/2008-47_IRB/ar11. Free state tax html. Free state tax Certain transactions involving a U. Free state tax S. Free state tax taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. Free state tax R. Free state tax B. Free state tax 312, available at www. Free state tax irs. Free state tax gov/irb/2009-03_IRB/ar10. Free state tax html. Free state tax   For updates to this list, go to www. Free state tax irs. Free state tax gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. Free state tax Penalties Investing in an abusive tax shelter may lead to substantial expenses. Free state tax First, the promoter generally charges a substantial fee. Free state tax If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. Free state tax You may also be subject to the penalty for failure to pay tax. Free state tax These penalties are explained in the following paragraphs. Free state tax Accuracy-related penalties. Free state tax   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). Free state tax Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. Free state tax Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. Free state tax   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. Free state tax   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). Free state tax Negligence or disregard of rules or regulations. Free state tax   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. Free state tax The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. Free state tax    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. Free state tax It also includes any failure to keep adequate books and records. Free state tax A return position that has a reasonable basis is not negligence. Free state tax   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. Free state tax   The penalty for disregard of rules and regulations can be avoided if all the following are true. Free state tax You keep adequate books and records. Free state tax You have a reasonable basis for your position on the tax issue. Free state tax You make an adequate disclosure of your position. Free state tax Use Form 8275 to make your disclosure and attach it to your return. Free state tax To disclose a position contrary to a regulation, use Form 8275-R. Free state tax Use Form 8886 to disclose a reportable transaction (discussed earlier). Free state tax Substantial understatement of tax. Free state tax   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. Free state tax An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. Free state tax The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. Free state tax   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. Free state tax In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. Free state tax Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. Free state tax   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. Free state tax An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. Free state tax Substantial valuation misstatement. Free state tax   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. Free state tax The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. Free state tax You underpaid your tax by more than $5,000 because of the misstatement. Free state tax You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. Free state tax   You may be assessed a penalty of 40% for a gross valuation misstatement. Free state tax If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. Free state tax The penalty rate is also 40% if the property's correct value or adjusted basis is zero. Free state tax Transaction lacking economic substance. Free state tax   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. Free state tax For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. Free state tax   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. Free state tax   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. Free state tax   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. Free state tax Relevant facts include any facts affecting the tax treatment of the transaction. Free state tax    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. Free state tax Undisclosed foreign financial asset understatement. Free state tax   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. Free state tax An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. Free state tax The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. Free state tax Any foreign business you control, reportable on Form 5471, Information Return of U. Free state tax S. Free state tax Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. Free state tax S. Free state tax Persons With Respect to Certain Foreign Partnerships. Free state tax Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. Free state tax S. Free state tax Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. Free state tax Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. Free state tax    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. Free state tax See the Instructions for Form 8938 for details. Free state tax    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. Free state tax Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Free state tax Penalty for incorrect appraisals. Free state tax   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. Free state tax For details on the penalty amount and exceptions, see Publication 561. Free state tax Penalty for failure to disclose a reportable transaction. Free state tax   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). Free state tax For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). Free state tax This penalty is in addition to any other penalty that may be imposed. Free state tax   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. Free state tax For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. Free state tax irs. Free state tax gov/irb/2007-09_IRB/ar12. Free state tax html. Free state tax Accuracy-related penalty for a reportable transaction understatement. Free state tax   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. Free state tax This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. Free state tax The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. Free state tax You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. Free state tax The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. Free state tax   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. Free state tax Civil fraud penalty. Free state tax   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. Free state tax Joint return. Free state tax   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. Free state tax Failure to pay tax. Free state tax   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. Free state tax Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. Free state tax Prev  Up  Next   Home   More Online Publications