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Free tax extension 4. Free tax extension   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Free tax extension Line of business. Free tax extension Examples. Free tax extension Improvement of business conditions. Free tax extension Exception for local legislation. Free tax extension De minimis exception. Free tax extension Grass roots lobbying. Free tax extension 501(c)(7) - Social and Recreation ClubsLimited membership. Free tax extension Support. Free tax extension Facilities open to public. Free tax extension Gross receipts from nonmembership sources. Free tax extension Gross receipts. Free tax extension Nontraditional activities. Free tax extension 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Free tax extension Losses and expenses. Free tax extension Distributions of proceeds. Free tax extension The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Free tax extension Perpetual care organization. Free tax extension Care of individual plots. Free tax extension 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Free tax extension 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Free tax extension Waiver of payment of income. Free tax extension 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Free tax extension Section 501(c)(3) organizations are covered in chapter 3 of this publication. Free tax extension The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Free tax extension 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Free tax extension The discussion that follows describes the information you must provide when applying. Free tax extension For application procedures, see chapter 1. Free tax extension To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Free tax extension In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Free tax extension If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Free tax extension See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Free tax extension Examples. Free tax extension   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Free tax extension Nonprofit operation. Free tax extension   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Free tax extension However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Free tax extension Social welfare. Free tax extension   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Free tax extension   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Free tax extension It therefore does not qualify as a section 501(c)(4) organization. Free tax extension Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Free tax extension However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Free tax extension Political activity. Free tax extension   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Free tax extension However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Free tax extension See the discussion in chapter 2 under Political Organization Income Tax Return . Free tax extension Social or recreational activity. Free tax extension   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Free tax extension Retirement benefit program. Free tax extension   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Free tax extension It may qualify under another paragraph of section 501(c) depending on all the facts. Free tax extension   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Free tax extension Tax treatment of donations. Free tax extension   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Free tax extension Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Free tax extension They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Free tax extension However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Free tax extension for more information. Free tax extension For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Free tax extension gov. Free tax extension Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Free tax extension Volunteer fire companies. Free tax extension   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Free tax extension   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Free tax extension In this event, your organization should file Form 1023. Free tax extension Homeowners' associations. Free tax extension   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Free tax extension The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Free tax extension Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Free tax extension Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Free tax extension   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Free tax extension It also must show that it does not engage in exterior maintenance of private homes. Free tax extension   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Free tax extension Other organizations. Free tax extension   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Free tax extension 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Free tax extension You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Free tax extension In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Free tax extension Submit any additional information that may be required, as described in this section. Free tax extension Tax treatment of donations. Free tax extension   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Free tax extension However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Free tax extension For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Free tax extension Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Free tax extension To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Free tax extension In addition, no net earnings of the organization can inure to the benefit of any member. Free tax extension Composition of membership. Free tax extension   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Free tax extension You must show in your application that your organization has the purposes described in the preceding paragraph. Free tax extension These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Free tax extension Benefits to members. Free tax extension   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Free tax extension However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Free tax extension   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Free tax extension gov. Free tax extension Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Free tax extension For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Free tax extension The term harvesting, in this case, includes fishing and related pursuits. Free tax extension Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Free tax extension When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Free tax extension The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Free tax extension The following list contains some examples of activities that show an agricultural or horticultural purpose. Free tax extension Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Free tax extension Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Free tax extension Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Free tax extension Guarding the purity of a specific breed of livestock. Free tax extension Encouraging improvements in the production of fish on privately owned fish farms. Free tax extension Negotiating with processors for the price to be paid to members for their crops. Free tax extension For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Free tax extension gov. Free tax extension 501(c)(6) - Business Leagues, etc. Free tax extension If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Free tax extension For a discussion of the procedure to follow, see chapter 1. Free tax extension Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Free tax extension In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Free tax extension It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Free tax extension A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Free tax extension Trade associations and professional associations are considered business leagues. Free tax extension Chamber of commerce. Free tax extension   A chamber of commerce usually is composed of the merchants and traders of a city. Free tax extension Board of trade. Free tax extension   A board of trade often consists of persons engaged in similar lines of business. Free tax extension For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Free tax extension   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Free tax extension Real estate board. Free tax extension   A real estate board consists of members interested in improving the business conditions in the real estate field. Free tax extension It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Free tax extension Professional football leagues. Free tax extension   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Free tax extension They are exempt whether or not they administer a pension fund for football players. Free tax extension General purpose. Free tax extension   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Free tax extension It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Free tax extension Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Free tax extension Line of business. Free tax extension   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Free tax extension It does not include a group composed of businesses that market a particular brand within an industry. Free tax extension Common business interest. Free tax extension   A common business interest of all members of the organization must be established by the application documents. Free tax extension Examples. Free tax extension   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Free tax extension Improvement of business conditions. Free tax extension   Generally, this must be shown to be the purpose of the organization. Free tax extension This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Free tax extension Stock or commodity exchange. Free tax extension   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Free tax extension Legislative activity. Free tax extension   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Free tax extension Deduction not allowed for dues used for political or legislative activities. Free tax extension   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Free tax extension Influencing legislation. Free tax extension Participating or intervening in a political campaign for, or against, any candidate for public office. Free tax extension Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Free tax extension Communicating directly with certain executive branch officials to try to influence their official actions or positions. Free tax extension See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Free tax extension Exception for local legislation. Free tax extension   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Free tax extension Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Free tax extension De minimis exception. Free tax extension   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Free tax extension Grass roots lobbying. Free tax extension   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Free tax extension Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Free tax extension Tax treatment of donations. Free tax extension   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Free tax extension They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Free tax extension   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Free tax extension gov. Free tax extension 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Free tax extension In applying for recognition of exemption, you should submit the information described in this section. Free tax extension Also see chapter 1 for the procedures to follow. Free tax extension Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Free tax extension Discrimination prohibited. Free tax extension   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Free tax extension   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Free tax extension Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Free tax extension Private benefit prohibited. Free tax extension   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Free tax extension For purposes of this requirement, it is not necessary that net earnings be actually distributed. Free tax extension Even undistributed earnings can benefit members. Free tax extension Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Free tax extension However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Free tax extension Purposes. Free tax extension   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Free tax extension You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Free tax extension   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Free tax extension A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Free tax extension   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Free tax extension For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Free tax extension Limited membership. Free tax extension   The membership in a social club must be limited. Free tax extension To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Free tax extension   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Free tax extension Corporate members of a club are not the kind of members contemplated by the law. Free tax extension Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Free tax extension See Gross receipts from nonmembership sources , later. Free tax extension Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Free tax extension   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Free tax extension However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Free tax extension Support. Free tax extension   In general, your club should be supported solely by membership fees, dues, and assessments. Free tax extension However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Free tax extension Business activities. Free tax extension   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Free tax extension However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Free tax extension Facilities open to public. Free tax extension   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Free tax extension This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Free tax extension Gross receipts from nonmembership sources. Free tax extension   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Free tax extension Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Free tax extension Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Free tax extension If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Free tax extension Gross receipts. Free tax extension   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Free tax extension These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Free tax extension Receipts do not include initiation fees and capital contributions. Free tax extension Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Free tax extension Nontraditional activities. Free tax extension   Activities conducted by a social club need to further its exempt purposes. Free tax extension Traditional business activities are those that further a social club's exempt purposes. Free tax extension Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Free tax extension Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Free tax extension Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Free tax extension Fraternity foundations. Free tax extension   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Free tax extension Tax treatment of donations. Free tax extension   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Free tax extension 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Free tax extension The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Free tax extension , purposes. Free tax extension The procedures to follow in applying for recognition of exemption are described in chapter 1. Free tax extension If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Free tax extension If so, your organization need not apply for individual recognition of exemption. Free tax extension For more information, see Group Exemption Letter in chapter 1 of this publication. Free tax extension Tax treatment of donations. Free tax extension   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Free tax extension Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Free tax extension The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Free tax extension Lodge system. Free tax extension   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Free tax extension Payment of benefits. Free tax extension   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Free tax extension An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Free tax extension   The benefits must be limited to members and their dependents. Free tax extension If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Free tax extension Whole-life insurance. Free tax extension   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Free tax extension Reinsurance pool. Free tax extension   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Free tax extension Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Free tax extension The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Free tax extension S. Free tax extension , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Free tax extension The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Free tax extension 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Free tax extension Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Free tax extension Chapter 1 describes the procedures to follow in applying for exemption. Free tax extension Tax treatment of donations. Free tax extension   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Free tax extension Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Free tax extension A local employees' association must apply for recognition of exemption by filing Form 1024. Free tax extension The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Free tax extension A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Free tax extension Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Free tax extension Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Free tax extension The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Free tax extension To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Free tax extension Note. Free tax extension Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Free tax extension Notice requirement. Free tax extension   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Free tax extension The organization gives notice by filing Form 1024. Free tax extension If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Free tax extension An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Free tax extension Membership. Free tax extension   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Free tax extension This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Free tax extension   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Free tax extension For example, the owner of a business whose employees are members of the association can be a member. Free tax extension An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Free tax extension Employees. Free tax extension   Employees include individuals who became entitled to membership because they are or were employees. Free tax extension For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Free tax extension   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Free tax extension Conversely, membership is involuntary if the designation as a member is due to employee status. Free tax extension However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Free tax extension An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Free tax extension Payment of benefits. Free tax extension   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Free tax extension The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Free tax extension Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Free tax extension Nondiscrimination requirements. Free tax extension   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Free tax extension However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Free tax extension   A plan meets the nondiscrimination requirements only if both of the following statements are true. Free tax extension Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Free tax extension The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Free tax extension A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Free tax extension   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Free tax extension This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Free tax extension   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Free tax extension The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Free tax extension For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Free tax extension Excluded employees. Free tax extension   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Free tax extension These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Free tax extension Highly compensated individual. Free tax extension   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Free tax extension Go to IRS. Free tax extension gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Free tax extension However, the employer can choose not to have (3) apply. Free tax extension Aggregation rules. Free tax extension   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Free tax extension Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Free tax extension Leased employees are treated as employees of the recipient. Free tax extension One employee. Free tax extension   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Free tax extension Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Free tax extension The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Free tax extension A conformed copy of the plan of which the trust is a part should be attached to the application. Free tax extension To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Free tax extension Note. Free tax extension Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Free tax extension Notice requirement. Free tax extension   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Free tax extension The organization gives notice by filing Form 1024. Free tax extension If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Free tax extension An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Free tax extension Types of payments. Free tax extension   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Free tax extension In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Free tax extension Diversion of funds. Free tax extension   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Free tax extension Discrimination in benefits. Free tax extension   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Free tax extension However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Free tax extension Prohibited transactions and exemption. Free tax extension   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Free tax extension It must file the claim on Form 1024. Free tax extension The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Free tax extension An authorized principal officer of your organization must make this declaration under the penalties of perjury. Free tax extension   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Free tax extension However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Free tax extension Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Free tax extension For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Free tax extension 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Free tax extension Benevolent life insurance associations of a purely local character and like organizations. Free tax extension Mutual ditch or irrigation companies and like organizations. Free tax extension Mutual or cooperative telephone companies and like organizations. Free tax extension A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Free tax extension The information to be provided upon application by each of these organizations is described in this section. Free tax extension For information as to the procedures to follow in applying for exemption, see chapter 1. Free tax extension General requirements. Free tax extension   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Free tax extension They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Free tax extension Mutual character. Free tax extension   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Free tax extension They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Free tax extension To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Free tax extension   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Free tax extension Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Free tax extension The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Free tax extension Membership. Free tax extension   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Free tax extension In a stock company, the stockholders are members. Free tax extension However, a mutual life insurance organization cannot have policyholders other than its members. Free tax extension Losses and expenses. Free tax extension   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Free tax extension Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Free tax extension If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Free tax extension Distributions of proceeds. Free tax extension   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Free tax extension Such distribution represents a refund in the costs of services rendered to the member. Free tax extension The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Free tax extension Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Free tax extension Mutual or cooperative telephone company. Free tax extension   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Free tax extension Mutual or cooperative electric company. Free tax extension   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Free tax extension   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Free tax extension Qualified pole rental. Free tax extension   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Free tax extension   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Free tax extension The 85% requirement is applied on the basis of an annual accounting period. Free tax extension Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Free tax extension Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Free tax extension Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Free tax extension Example. Free tax extension   The books of an organization reflect the following for the calendar year. Free tax extension Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Free tax extension   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Free tax extension   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Free tax extension   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Free tax extension Tax treatment of donations. Free tax extension   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Free tax extension Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Free tax extension If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Free tax extension To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Free tax extension If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Free tax extension A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Free tax extension A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Free tax extension Organizations similar to local benevolent life insurance companies. Free tax extension   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Free tax extension However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Free tax extension Burial and funeral benefit insurance organization. Free tax extension   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Free tax extension An organization that provides its benefits in the form of supplies and service is not a life insurance company. Free tax extension Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Free tax extension Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Free tax extension They can serve noncontiguous areas. Free tax extension Like organization. Free tax extension   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Free tax extension Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Free tax extension 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Free tax extension For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Free tax extension A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Free tax extension A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Free tax extension The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Free tax extension If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Free tax extension Operating a mortuary is not permitted. Free tax extension However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Free tax extension How income can be used. Free tax extension   You should show that your organization's earnings are or will be used only in one or more of the following ways. Free tax extension To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Free tax extension To buy cemetery property. Free tax extension To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Free tax extension No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Free tax extension Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Free tax extension Buying cemetery property. Free tax extension   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Free tax extension You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Free tax extension   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Free tax extension Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not
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Interest Rates Remain the Same for the Second Quarter of 2014

Interest Rates Remain the Same for the Second Quarter of 2014

IR-2014-29, March 14, 2014  

 

WASHINGTON — The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning April 1, 2014.  The rates will be: 

  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during January 2014 to take effect February 1, 2014, based on daily compounding.

Revenue Ruling 2014-11 providing the rates of interest will appear in Internal Revenue Bulletin 2014-14, dated March 31, 2014.

 

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Page Last Reviewed or Updated: 14-Mar-2014

The Free Tax Extension

Free tax extension Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Free tax extension Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Free tax extension Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Free tax extension Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Free tax extension It is intended only as a guide. Free tax extension Look in this publication for more complete information. Free tax extension   Appendix A. Free tax extension Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Free tax extension Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Free tax extension Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Free tax extension Sean enrolled as a full-time graduate student in August 2013 at California State College. Free tax extension He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Free tax extension His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Free tax extension Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Free tax extension In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Free tax extension California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Free tax extension California State College reports amounts billed in 2013 instead of amounts paid during 2013. Free tax extension In completing Form 8863, the Joneses use the amounts they paid. Free tax extension Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Free tax extension Dave and Valerie figure their education credits by completing Form 8863. Free tax extension They begin Form 8863 on page 2 before completing Part I on page 1. Free tax extension Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Free tax extension The Joneses decide to complete Part III for Carey first, as shown later. Free tax extension They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Free tax extension The Joneses complete a separate Part III for their son Sean. Free tax extension They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Free tax extension They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Free tax extension Once they have completed Part III for each student, they figure their credits. Free tax extension The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Free tax extension They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Free tax extension The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Free tax extension They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Free tax extension They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Free tax extension The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Free tax extension The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Free tax extension They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Free tax extension This image is too large to be displayed in the current screen. Free tax extension Please click the link to view the image. Free tax extension Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free tax extension Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Free tax extension Less adjustments:     a. Free tax extension Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free tax extension Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free tax extension Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free tax extension Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free tax extension Adjusted qualified education expenses. Free tax extension Subtract line 3 from line 1. Free tax extension If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Free tax extension Please click the link to view the image. Free tax extension Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Free tax extension Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Free tax extension Less adjustments:     a. Free tax extension Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Free tax extension Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Free tax extension Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Free tax extension Total adjustments (add lines 2a, 2b, and 2c) 0 4. Free tax extension Adjusted qualified education expenses. Free tax extension Subtract line 3 from line 1. Free tax extension If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Free tax extension Enter the amount from Form 8863, line 18 1. Free tax extension 1,190 2. Free tax extension Enter the amount from Form 8863, line 9 2. Free tax extension 1,500 3. Free tax extension Add lines 1 and 2 3. Free tax extension 2,690 4. Free tax extension Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Free tax extension 1,000 5. Free tax extension Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Free tax extension 0 6. Free tax extension Subtract line 5 from line 4 6. Free tax extension 1,000 7. Free tax extension   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Free tax extension 1,000 This image is too large to be displayed in the current screen. Free tax extension Please click the link to view the image. Free tax extension Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Free tax extension Please click the link to view the image. Free tax extension Carey Jones page 2 This image is too large to be displayed in the current screen. Free tax extension Please click the link to view the image. Free tax extension Filled-in Form 8863 Jones page 2 Appendix B. Free tax extension Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Free tax extension See the text for definitions and details. Free tax extension Do not rely on this chart alone. Free tax extension    Caution:You generally cannot claim more than one benefit for the same education expense. Free tax extension   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Free tax extension    40% of the credit may be refundable (limited to $1,000 per student). Free tax extension Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Free tax extension , that must be paid to the educational institution, etc. Free tax extension , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Free tax extension   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Free tax extension Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Free tax extension For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Free tax extension For each term listed below that has more than one definition, the definition for each education benefit is listed. Free tax extension Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Free tax extension If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Free tax extension Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Free tax extension They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Free tax extension For information on a specific benefit, see the appropriate chapter in this publication. Free tax extension Candidate for a degree:   A student who meets either of the following requirements. Free tax extension Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Free tax extension Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Free tax extension Eligible educational institution:    American opportunity credit. Free tax extension Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free tax extension It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free tax extension Coverdell education savings account (ESA). Free tax extension Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free tax extension It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free tax extension Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Free tax extension Education savings bond program. Free tax extension Same as American opportunity credit in this category. Free tax extension IRA, early distributions from. Free tax extension Same as American opportunity credit in this category. Free tax extension Lifetime learning credit. Free tax extension Same as American opportunity credit in this category. Free tax extension Qualified tuition program (QTP). Free tax extension Same as American opportunity credit in this category. Free tax extension Scholarships and fellowships. Free tax extension An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Free tax extension Student loan, cancellation of. Free tax extension Same as Scholarships and fellowships in this category. Free tax extension Student loan interest deduction. Free tax extension Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Free tax extension It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free tax extension Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Free tax extension Tuition and fees deduction. Free tax extension Same as American opportunity credit in this category. Free tax extension Eligible student:    American opportunity credit. Free tax extension A student who meets all of the following requirements for the tax year for which the credit is being determined. Free tax extension Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Free tax extension Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Free tax extension For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Free tax extension Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Free tax extension Lifetime learning credit. Free tax extension A student who is enrolled in one or more courses at an eligible educational institution. Free tax extension Student loan interest deduction. Free tax extension A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Free tax extension Tuition and fees deduction. Free tax extension A student who is enrolled in one or more courses at an eligible educational institution. Free tax extension Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Free tax extension Modified adjusted gross income (MAGI):    American opportunity credit. Free tax extension Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free tax extension Coverdell education savings account (ESA). Free tax extension Same as American opportunity credit in this category. Free tax extension Education savings bond program. Free tax extension Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Free tax extension Lifetime learning credit. Free tax extension Same as American opportunity credit in this category. Free tax extension Student loan interest deduction. Free tax extension Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free tax extension Tuition and fees deduction. Free tax extension Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free tax extension Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Free tax extension Qualified education expenses:   See pertinent chapter for specific items. Free tax extension    American opportunity credit. Free tax extension Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Free tax extension Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Free tax extension Does not include expenses for room and board. Free tax extension Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Free tax extension Coverdell education savings account (ESA). Free tax extension Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Free tax extension Many specialized expenses included for K–12. Free tax extension Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Free tax extension Education savings bond program. Free tax extension Tuition and fees required to enroll at or attend an eligible educational institution. Free tax extension Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Free tax extension Does not include expenses for room and board. Free tax extension Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Free tax extension IRA, early distributions from. Free tax extension Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free tax extension Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Free tax extension Lifetime learning credit. Free tax extension Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free tax extension Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free tax extension Does not include expenses for room and board. Free tax extension Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Free tax extension Qualified tuition program (QTP). Free tax extension Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Free tax extension Includes expenses for special needs services and computer access. Free tax extension Scholarships and fellowships. Free tax extension Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Free tax extension Course-related items must be required of all students in the course of instruction. Free tax extension Student loan interest deduction. Free tax extension Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Free tax extension Tuition and fees deduction. Free tax extension Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Free tax extension Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Free tax extension Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Free tax extension To include as tax on your current year's return an amount allowed as a credit in a prior year. Free tax extension Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Free tax extension Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Free tax extension Prev  Up  Next   Home   More Online Publications