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Income Tax Software 2012

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Income Tax Software 2012

Income tax software 2012 Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. Income tax software 2012 Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. Income tax software 2012 Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. Income tax software 2012 Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. Income tax software 2012 However, a joint undertaking merely to share expenses is not a partnership. Income tax software 2012 For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. Income tax software 2012 The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. Income tax software 2012 Organizations formed after 1996. Income tax software 2012   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. Income tax software 2012 An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. Income tax software 2012 An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. Income tax software 2012 An insurance company. Income tax software 2012 Certain banks. Income tax software 2012 An organization wholly owned by a state, local, or foreign government. Income tax software 2012 An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Income tax software 2012 Certain foreign organizations identified in section 301. Income tax software 2012 7701-2(b)(8) of the regulations. Income tax software 2012 A tax-exempt organization. Income tax software 2012 A real estate investment trust. Income tax software 2012 An organization classified as a trust under section 301. Income tax software 2012 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. Income tax software 2012 Any other organization that elects to be classified as a corporation by filing Form 8832. Income tax software 2012 For more information, see the instructions for Form 8832. Income tax software 2012 Limited liability company. Income tax software 2012   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Income tax software 2012 Unlike a partnership, none of the members of an LLC are personally liable for its debts. Income tax software 2012 An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. Income tax software 2012 7701-3. Income tax software 2012 See Form 8832 and section 301. Income tax software 2012 7701-3 of the regulations for more details. Income tax software 2012 A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. Income tax software 2012 Organizations formed before 1997. Income tax software 2012   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. Income tax software 2012 Community property. Income tax software 2012    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. Income tax software 2012 They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. Income tax software 2012 A change in reporting position will be treated for federal tax purposes as a conversion of the entity. Income tax software 2012   A qualified entity is a business entity that meets all the following requirements. Income tax software 2012 The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. Income tax software 2012 No person other than one or both spouses would be considered an owner for federal tax purposes. Income tax software 2012 The business entity is not treated as a corporation. Income tax software 2012   For more information about community property, see Publication 555, Community Property. Income tax software 2012 Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Income tax software 2012 Family Partnership Members of a family can be partners. Income tax software 2012 However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. Income tax software 2012 If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. Income tax software 2012 If capital is not a material income-producing factor, they joined together in good faith to conduct a business. Income tax software 2012 They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. Income tax software 2012 Capital is material. Income tax software 2012   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. Income tax software 2012 Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. Income tax software 2012 Capital is not material. Income tax software 2012   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. Income tax software 2012 Capital interest. Income tax software 2012   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. Income tax software 2012 The owner withdraws from the partnership. Income tax software 2012 The partnership liquidates. Income tax software 2012   The mere right to share in earnings and profits is not a capital interest in the partnership. Income tax software 2012 Gift of capital interest. Income tax software 2012   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. Income tax software 2012 It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. Income tax software 2012 The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. Income tax software 2012 Purchase. Income tax software 2012   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. Income tax software 2012 The fair market value of the purchased interest is considered donated capital. Income tax software 2012 For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). Income tax software 2012 Example. Income tax software 2012 A father sold 50% of his business to his son. Income tax software 2012 The resulting partnership had a profit of $60,000. Income tax software 2012 Capital is a material income-producing factor. Income tax software 2012 The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. Income tax software 2012 The $24,000 must be allocated to the father as compensation. Income tax software 2012 Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. Income tax software 2012 The son's share of partnership profit cannot be more than $18,000. Income tax software 2012 Business owned and operated by spouses. Income tax software 2012   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. Income tax software 2012 If so, they should report income or loss from the business on Form 1065. Income tax software 2012 They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. Income tax software 2012 However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. Income tax software 2012 Qualified Joint Venture Election. Income tax software 2012   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. Income tax software 2012 A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. Income tax software 2012   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. Income tax software 2012 All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. Income tax software 2012 Each spouse takes into account his or her respective share of these items as a sole proprietor. Income tax software 2012 Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). Income tax software 2012 For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. Income tax software 2012 e. Income tax software 2012 , based on their respective interests in the venture). Income tax software 2012   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. Income tax software 2012 Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. Income tax software 2012   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. Income tax software 2012 However, this may not be true if either spouse exceeds the social security tax limitation. Income tax software 2012   For more information on qualified joint ventures, go to IRS. Income tax software 2012 gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. Income tax software 2012 ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. Income tax software 2012 The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. Income tax software 2012 The agreement or modifications can be oral or written. Income tax software 2012 Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. Income tax software 2012 This filing date does not include any extension of time. Income tax software 2012 If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. Income tax software 2012 Terminating a Partnership A partnership terminates when one of the following events takes place. Income tax software 2012 All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. Income tax software 2012 At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. Income tax software 2012 Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. Income tax software 2012 See section 1. Income tax software 2012 708-1(b) of the regulations for more information on the termination of a partnership. Income tax software 2012 For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. Income tax software 2012 708-1(c) and 1. Income tax software 2012 708-1(d) of the regulations. Income tax software 2012 Date of termination. Income tax software 2012   The partnership's tax year ends on the date of termination. Income tax software 2012 For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. Income tax software 2012 For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. Income tax software 2012 Short period return. Income tax software 2012   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. Income tax software 2012 The return is due the 15th day of the fourth month following the date of termination. Income tax software 2012 See Partnership Return (Form 1065), later, for information about filing Form 1065. Income tax software 2012 Conversion of partnership into limited liability company (LLC). Income tax software 2012   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. Income tax software 2012 The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. Income tax software 2012   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. Income tax software 2012 Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. Income tax software 2012 If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. Income tax software 2012 For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. Income tax software 2012   The same rules apply if an LLC classified as a partnership is converted into a partnership. Income tax software 2012 IRS e-file (Electronic Filing) Please click here for the text description of the image. Income tax software 2012 e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). Income tax software 2012 Other partnerships generally have the option to file electronically. Income tax software 2012 For details about IRS e-file, see the Form 1065 instructions. Income tax software 2012 Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. Income tax software 2012 All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. Income tax software 2012 However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. Income tax software 2012 Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. Income tax software 2012 Investing partnership. Income tax software 2012   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. Income tax software 2012 They own the property as co-owners. Income tax software 2012 They reserve the right separately to take or dispose of their shares of any property acquired or retained. Income tax software 2012 They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. Income tax software 2012 Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. Income tax software 2012 Operating agreement partnership. Income tax software 2012   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. Income tax software 2012 They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. Income tax software 2012 They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. Income tax software 2012 They do not jointly sell services or the property produced or extracted. Income tax software 2012 Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. Income tax software 2012 However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. Income tax software 2012 Electing the exclusion. Income tax software 2012   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. Income tax software 2012 This filing date includes any extension of time. Income tax software 2012 See Regulations section 1. Income tax software 2012 761-2(b) for the procedures to follow. Income tax software 2012 Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. Income tax software 2012 The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. Income tax software 2012 The return must be signed by a general partner. Income tax software 2012 If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. Income tax software 2012 A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. Income tax software 2012 See the Instructions for Form 1065 for more information about who must file Form 1065. Income tax software 2012 Partnership Distributions Partnership distributions include the following. Income tax software 2012 A withdrawal by a partner in anticipation of the current year's earnings. Income tax software 2012 A distribution of the current year's or prior years' earnings not needed for working capital. Income tax software 2012 A complete or partial liquidation of a partner's interest. Income tax software 2012 A distribution to all partners in a complete liquidation of the partnership. Income tax software 2012 A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. Income tax software 2012 If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Income tax software 2012 Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. Income tax software 2012 Effect on partner's basis. Income tax software 2012   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. Income tax software 2012 See Adjusted Basis under Basis of Partner's Interest, later. Income tax software 2012 Effect on partnership. Income tax software 2012   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. Income tax software 2012 The partnership may be able to elect to adjust the basis of its undistributed property. Income tax software 2012 Certain distributions treated as a sale or exchange. Income tax software 2012   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. Income tax software 2012 Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. Income tax software 2012 Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. Income tax software 2012   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Income tax software 2012   This treatment does not apply to the following distributions. Income tax software 2012 A distribution of property to the partner who contributed the property to the partnership. Income tax software 2012 Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. Income tax software 2012 Substantially appreciated inventory items. Income tax software 2012   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. Income tax software 2012 However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. Income tax software 2012 Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Income tax software 2012 Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. Income tax software 2012 If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. Income tax software 2012 For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. Income tax software 2012 Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Income tax software 2012 Example. Income tax software 2012 The adjusted basis of Jo's partnership interest is $14,000. Income tax software 2012 She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. Income tax software 2012 Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. Income tax software 2012 Any gain on the land will be recognized when she sells or otherwise disposes of it. Income tax software 2012 The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. Income tax software 2012 Marketable securities treated as money. Income tax software 2012   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. Income tax software 2012 This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. Income tax software 2012   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). Income tax software 2012   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. Income tax software 2012 Loss on distribution. Income tax software 2012   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. Income tax software 2012 The adjusted basis of the partner's interest in the partnership exceeds the distribution. Income tax software 2012 The partner's entire interest in the partnership is liquidated. Income tax software 2012 The distribution is in money, unrealized receivables, or inventory items. Income tax software 2012   There are exceptions to these general rules. Income tax software 2012 See the following discussions. Income tax software 2012 Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. Income tax software 2012 Distribution of partner's debt. Income tax software 2012   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). Income tax software 2012   The partner is treated as having satisfied the debt for its fair market value. Income tax software 2012 If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. Income tax software 2012   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. Income tax software 2012 Net precontribution gain. Income tax software 2012   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. Income tax software 2012   The gain recognized is the lesser of the following amounts. Income tax software 2012 The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. Income tax software 2012 The “net precontribution gain” of the partner. Income tax software 2012 This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. Income tax software 2012 For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. Income tax software 2012   The character of the gain is determined by reference to the character of the net precontribution gain. Income tax software 2012 This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. Income tax software 2012 For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. Income tax software 2012 Effect on basis. Income tax software 2012   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. Income tax software 2012 Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. Income tax software 2012 See Basis of Partner's Interest , later. Income tax software 2012   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. Income tax software 2012 Exceptions. Income tax software 2012   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. Income tax software 2012 For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. Income tax software 2012   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. Income tax software 2012 Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. Income tax software 2012 However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Income tax software 2012 Example 1. Income tax software 2012 The adjusted basis of Emily's partnership interest is $30,000. Income tax software 2012 She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. Income tax software 2012 Her basis for the property is $20,000. Income tax software 2012 Example 2. Income tax software 2012 The adjusted basis of Steve's partnership interest is $10,000. Income tax software 2012 He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. Income tax software 2012 His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). Income tax software 2012 Complete liquidation of partner's interest. Income tax software 2012   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. Income tax software 2012 Partner's holding period. Income tax software 2012   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. Income tax software 2012 If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. Income tax software 2012 Basis divided among properties. Income tax software 2012   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. Income tax software 2012 For property distributed after August 5, 1997, allocate the basis using the following rules. Income tax software 2012 Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. Income tax software 2012 If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Income tax software 2012 Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. Income tax software 2012 If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. Income tax software 2012 If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Income tax software 2012 Allocating a basis increase. Income tax software 2012   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. Income tax software 2012 If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. Income tax software 2012 Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. Income tax software 2012 Example. Income tax software 2012 Eun's basis in her partnership interest is $55,000. Income tax software 2012 In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. Income tax software 2012 Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. Income tax software 2012 Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. Income tax software 2012 To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). Income tax software 2012 This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). Income tax software 2012 She first allocates $35,000 to property A (its unrealized appreciation). Income tax software 2012 The remaining $5,000 is allocated between the properties based on their fair market values. Income tax software 2012 $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. Income tax software 2012 Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). Income tax software 2012 Allocating a basis decrease. Income tax software 2012   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. Income tax software 2012 Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. Income tax software 2012 If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. Income tax software 2012 Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). Income tax software 2012 Example. Income tax software 2012 Armando's basis in his partnership interest is $20,000. Income tax software 2012 In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. Income tax software 2012 Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. Income tax software 2012 Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. Income tax software 2012 To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). Income tax software 2012 This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). Income tax software 2012 He allocates the entire $10,000 to property D (its unrealized depreciation). Income tax software 2012 Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). Income tax software 2012 Distributions before August 6, 1997. Income tax software 2012   For property distributed before August 6, 1997, allocate the basis using the following rules. Income tax software 2012 Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. Income tax software 2012 If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. Income tax software 2012 Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. Income tax software 2012 Partner's interest more than partnership basis. Income tax software 2012   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. Income tax software 2012 Special adjustment to basis. Income tax software 2012   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. Income tax software 2012 To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. Income tax software 2012 Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. Income tax software 2012   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. Income tax software 2012 However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. Income tax software 2012   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. Income tax software 2012 If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. Income tax software 2012   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. Income tax software 2012 The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. Income tax software 2012 Example. Income tax software 2012 Chin Ho purchased a 25% interest in X partnership for $17,000 cash. Income tax software 2012 At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. Income tax software 2012 Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. Income tax software 2012 Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. Income tax software 2012 The value of the inventory received was 25% of the value of all partnership inventory. Income tax software 2012 (It is immaterial whether the inventory he received was on hand when he acquired his interest. Income tax software 2012 ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. Income tax software 2012 His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). Income tax software 2012 The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. Income tax software 2012 The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). Income tax software 2012 His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). Income tax software 2012 The remaining $11,500 is allocated to his new basis for the other property he received. Income tax software 2012 Mandatory adjustment. Income tax software 2012   A partner does not always have a choice of making this special adjustment to basis. Income tax software 2012 The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. Income tax software 2012 The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. Income tax software 2012 If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. Income tax software 2012 The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. Income tax software 2012 Required statement. Income tax software 2012   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. Income tax software 2012 The statement must provide information necessary for the partner to compute the special basis adjustment. Income tax software 2012 Marketable securities. Income tax software 2012   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. Income tax software 2012 See Marketable securities treated as money under Partner's Gain or Loss, earlier. Income tax software 2012 The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. Income tax software 2012 Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. Income tax software 2012 These transactions include the following. Income tax software 2012 Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. Income tax software 2012 Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. Income tax software 2012 Payments by accrual basis partnership to cash basis partner. Income tax software 2012   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. Income tax software 2012 However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. Income tax software 2012 Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Income tax software 2012 A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. Income tax software 2012 This treatment is for purposes of determining gross income and deductible business expenses only. Income tax software 2012 For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Income tax software 2012 Guaranteed payments are not subject to income tax withholding. Income tax software 2012 The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. Income tax software 2012 They are also listed on Schedules K and K-1 of the partnership return. Income tax software 2012 The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. Income tax software 2012 Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. Income tax software 2012 Generally, organizational and syndication expenses are not deductible by the partnership. Income tax software 2012 However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). Income tax software 2012 Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. Income tax software 2012 Minimum payment. Income tax software 2012   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. Income tax software 2012 Example. Income tax software 2012 Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. Income tax software 2012 The partnership has net income of $20,000. Income tax software 2012 Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). Income tax software 2012 The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). Income tax software 2012 Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. Income tax software 2012 If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. Income tax software 2012 Self-employed health insurance premiums. Income tax software 2012   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. Income tax software 2012 The partnership can deduct the payments as a business expense, and the partner must include them in gross income. Income tax software 2012 However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. Income tax software 2012   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. Income tax software 2012 The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. Income tax software 2012 For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. Income tax software 2012 Including payments in partner's income. Income tax software 2012   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. Income tax software 2012 Example 1. Income tax software 2012 Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. Income tax software 2012 Her distributive share of the partnership income is 10%. Income tax software 2012 The partnership has $50,000 of ordinary income after deducting the guaranteed payment. Income tax software 2012 She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. Income tax software 2012 Example 2. Income tax software 2012 Lamont is a calendar year taxpayer who is a partner in a partnership. Income tax software 2012 The partnership uses a fiscal year that ended January 31, 2013. Income tax software 2012 Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. Income tax software 2012 He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. Income tax software 2012 Payments resulting in loss. Income tax software 2012   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. Income tax software 2012 The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. Income tax software 2012 Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. Income tax software 2012 Losses. Income tax software 2012   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. Income tax software 2012   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. Income tax software 2012   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. Income tax software 2012   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. Income tax software 2012 If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. Income tax software 2012 Gains. Income tax software 2012   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. Income tax software 2012 More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). Income tax software 2012 The property in the hands of the transferee immediately after the transfer is not a capital asset. Income tax software 2012 Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. Income tax software 2012 More than 50% ownership. Income tax software 2012   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. Income tax software 2012 An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. Income tax software 2012 An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. Income tax software 2012 For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. Income tax software 2012 If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. Income tax software 2012 However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. Income tax software 2012 Example. Income tax software 2012 Individuals A and B and Trust T are equal partners in Partnership ABT. Income tax software 2012 A's husband, AH, is the sole beneficiary of Trust T. Income tax software 2012 Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. Income tax software 2012 As a result, A is a more-than-50% partner. Income tax software 2012 This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. Income tax software 2012 More information. Income tax software 2012   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Income tax software 2012 Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. Income tax software 2012 This applies whether a partnership is being formed or is already operating. Income tax software 2012 The partnership's holding period for the property includes the partner's holding period. Income tax software 2012 The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. Income tax software 2012 The exchange is not subject to the rules explained later under Disposition of Partner's Interest. Income tax software 2012 Disguised sales. Income tax software 2012   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. Income tax software 2012 The distribution would not have been made but for the contribution. Income tax software 2012 The partner's right to the distribution does not depend on the success of partnership operations. Income tax software 2012   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. Income tax software 2012 However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. Income tax software 2012 If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. Income tax software 2012 Form 8275 required. Income tax software 2012   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. Income tax software 2012 For exceptions to this requirement, see section 1. Income tax software 2012 707-3(c)(2) of the regulations. Income tax software 2012   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. Income tax software 2012   Form 8275 must include the following information. Income tax software 2012 A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. Income tax software 2012 A description of the transferred property or money, including its value. Income tax software 2012 A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. Income tax software 2012 See section 1. Income tax software 2012 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. Income tax software 2012 Contribution to partnership treated as investment company. Income tax software 2012   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. Income tax software 2012   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. Income tax software 2012 These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. Income tax software 2012 For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. Income tax software 2012 Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. Income tax software 2012   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. Income tax software 2012 Contribution to foreign partnership. Income tax software 2012   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. Income tax software 2012 Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. Income tax software 2012 The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. Income tax software 2012   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. Income tax software 2012 See the form instructions for more information. Income tax software 2012 Basis of contributed property. Income tax software 2012   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. Income tax software 2012 Allocations to account for built-in gain or loss. Income tax software 2012   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. Income tax software 2012 The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. Income tax software 2012 This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. Income tax software 2012   The partnership can use different allocation methods for different items of contributed property. Income tax software 2012 A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. Income tax software 2012 See section 1. Income tax software 2012 704-3 of the regulations for allocation methods generally considered reasonable. Income tax software 2012   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. Income tax software 2012 If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. Income tax software 2012 However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. Income tax software 2012 Example. Income tax software 2012 Areta and Sofia formed an equal partnership. Income tax software 2012 Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. Income tax software 2012 The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. Income tax software 2012 In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. Income tax software 2012 Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. Income tax software 2012 To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. Income tax software 2012 However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. Income tax software 2012 The entire $400 must be allocated to Areta. Income tax software 2012 Distribution of contributed property to another partner. Income tax software 2012   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. Income tax software 2012   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. Income tax software 2012 This amount is the difference between the property's basis and its fair market value at the time of contribution. Income tax software 2012 The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. Income tax software 2012 Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. Income tax software 2012 Disposition of certain contributed property. Income tax software 2012   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. Income tax software 2012 Unrealized receivables. Income tax software 2012 If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. Income tax software 2012 Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. Income tax software 2012 When reading the definition, substitute “partner” for “partnership. Income tax software 2012 ” Inventory items. Income tax software 2012 If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. Income tax software 2012 Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. Income tax software 2012 Capital loss property. Income tax software 2012 If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. Income tax software 2012 The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. Income tax software 2012 Substituted basis property. Income tax software 2012 If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. Income tax software 2012 Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. Income tax software 2012 Capital interest. Income tax software 2012   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. Income tax software 2012 This determination generally is made at the time of receipt of the partnership interest. Income tax software 2012 The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. Income tax software 2012 The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. Income tax software 2012   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. Income tax software 2012 Profits interest. Income tax software 2012   A profits interest is a partnership interest other than a capital interest. Income tax software 2012 If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. Income tax software 2012 However, this does not apply in the following situations. Income tax software 2012 The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. Income tax software 2012 Within 2 years of receipt, the partner disposes of the profits interest. Income tax software 2012 The profits interest is a limited partnership interest in a publicly traded partnership. Income tax software 2012   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. Income tax software 2012 Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. Income tax software 2012 If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. Income tax software 2012 Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. Income tax software 2012 Interest acquired by gift, etc. Income tax software 2012   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. Income tax software 2012 Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). Income tax software 2012 The basis of an interest in a partnership is increased or decreased by certain items. Income tax software 2012 Increases. Income tax software 2012   A partner's basis is increased by the following items. Income tax software 2012 The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. Income tax software 2012 The partner's distributive share of taxable and nontaxable partnership income. Income tax software 2012 The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. Income tax software 2012 Decreases. Income tax software 2012   The partner's basis is decreased (but never below zero) by the following items. Income tax software 2012 The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. Income tax software 2012 The partner's distributive share of the partnership losses (including capital losses). Income tax software 2012 The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. Income tax software 2012 This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. Income tax software 2012 The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. Income tax software 2012 Partner's liabilities assumed by partnership. Income tax software 2012   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. Income tax software 2012 This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. Income tax software 2012 The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. Income tax software 2012 See Effect of Partnership Liabilities , later. Income tax software 2012 Example 1. Income tax software 2012 Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. Income tax software 2012 The partnership assumed payment of the mortgage. Income tax software 2012 The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. Income tax software 2012 If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. Income tax software 2012 The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. Income tax software 2012 However, this gain would not increase the basis of his partnership interest. Income tax software 2012 Book value of partner's interest. Income tax software 2012   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. Income tax software 2012 Example. Income tax software 2012 Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. Income tax software 2012 His partner contributes $1,000 cash. Income tax software 2012 While each partner has increased his capital account by $1,000, which will be re
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The Income Tax Software 2012

Income tax software 2012 7. Income tax software 2012   How To Get Tax Help Table of Contents Low Income Taxpayer Clinics Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. Income tax software 2012 Free help with your tax return. Income tax software 2012   You can get free help preparing your return nationwide from IRS-certified volunteers. Income tax software 2012 The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. Income tax software 2012 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Income tax software 2012 Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Income tax software 2012 In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. Income tax software 2012 To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. Income tax software 2012 gov, download the IRS2Go app, or call 1-800-906-9887. Income tax software 2012   As part of the TCE program, AARP offers the Tax-Aide counseling program. Income tax software 2012 To find the nearest AARP Tax-Aide site, visit AARP's website at www. Income tax software 2012 aarp. Income tax software 2012 org/money/taxaide or call 1-888-227-7669. Income tax software 2012 For more information on these programs, go to IRS. Income tax software 2012 gov and enter “VITA” in the search box. Income tax software 2012 Internet. Income tax software 2012    IRS. Income tax software 2012 gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. Income tax software 2012 Download the free IRS2Go app from the iTunes app store or from Google Play. Income tax software 2012 Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. Income tax software 2012 Check the status of your 2013 refund with the Where's My Refund? application on IRS. Income tax software 2012 gov or download the IRS2Go app and select the Refund Status option. Income tax software 2012 The IRS issues more than 9 out of 10 refunds in less than 21 days. Income tax software 2012 Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. Income tax software 2012 You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. Income tax software 2012 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Income tax software 2012 Use the Interactive Tax Assistant (ITA) to research your tax questions. Income tax software 2012 No need to wait on the phone or stand in line. Income tax software 2012 The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. Income tax software 2012 When you reach the response screen, you can print the entire interview and the final response for your records. Income tax software 2012 New subject areas are added on a regular basis. Income tax software 2012  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. Income tax software 2012 gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. Income tax software 2012 You can use the IRS Tax Map, to search publications and instructions by topic or keyword. Income tax software 2012 The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. Income tax software 2012 When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. Income tax software 2012 Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. Income tax software 2012 You can also ask the IRS to mail a return or an account transcript to you. Income tax software 2012 Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. Income tax software 2012 gov or by calling 1-800-908-9946. Income tax software 2012 Tax return and tax account transcripts are generally available for the current year and the past three years. Income tax software 2012 Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. Income tax software 2012 Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. Income tax software 2012 If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. Income tax software 2012 Check the status of your amended return using Where's My Amended Return? Go to IRS. Income tax software 2012 gov and enter Where's My Amended Return? in the search box. Income tax software 2012 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Income tax software 2012 It can take up to 3 weeks from the date you mailed it to show up in our system. Income tax software 2012 Make a payment using one of several safe and convenient electronic payment options available on IRS. Income tax software 2012 gov. Income tax software 2012 Select the Payment tab on the front page of IRS. Income tax software 2012 gov for more information. Income tax software 2012 Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. Income tax software 2012 Figure your income tax withholding with the IRS Withholding Calculator on IRS. Income tax software 2012 gov. Income tax software 2012 Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. Income tax software 2012 Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Income tax software 2012 gov. Income tax software 2012 Request an Electronic Filing PIN by going to IRS. Income tax software 2012 gov and entering Electronic Filing PIN in the search box. Income tax software 2012 Download forms, instructions and publications, including accessible versions for people with disabilities. Income tax software 2012 Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. Income tax software 2012 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. Income tax software 2012 An employee can answer questions about your tax account or help you set up a payment plan. Income tax software 2012 Before you visit, check the Office Locator on IRS. Income tax software 2012 gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. Income tax software 2012 If you have a special need, such as a disability, you can request an appointment. Income tax software 2012 Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Income tax software 2012 Apply for an Employer Identification Number (EIN). Income tax software 2012 Go to IRS. Income tax software 2012 gov and enter Apply for an EIN in the search box. Income tax software 2012 Read the Internal Revenue Code, regulations, or other official guidance. Income tax software 2012 Read Internal Revenue Bulletins. Income tax software 2012 Sign up to receive local and national tax news and more by email. Income tax software 2012 Just click on “subscriptions” above the search box on IRS. Income tax software 2012 gov and choose from a variety of options. Income tax software 2012    Phone. Income tax software 2012 You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Income tax software 2012 Download the free IRS2Go app from the iTunes app store or from Google Play. Income tax software 2012 Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. Income tax software 2012 gov, or download the IRS2Go app. Income tax software 2012 Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Income tax software 2012 The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. Income tax software 2012 Most VITA and TCE sites offer free electronic filing. Income tax software 2012 Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Income tax software 2012 Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Income tax software 2012 Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. Income tax software 2012 If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Income tax software 2012 The IRS issues more than 9 out of 10 refunds in less than 21 days. Income tax software 2012 Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Income tax software 2012 Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. Income tax software 2012 The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. Income tax software 2012 Note, the above information is for our automated hotline. Income tax software 2012 Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. Income tax software 2012 Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Income tax software 2012 You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. Income tax software 2012 It can take up to 3 weeks from the date you mailed it to show up in our system. Income tax software 2012 Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). Income tax software 2012 You should receive your order within 10 business days. Income tax software 2012 Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. Income tax software 2012 If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. Income tax software 2012 Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Income tax software 2012 The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Income tax software 2012 These individuals can also contact the IRS through relay services such as the Federal Relay Service. Income tax software 2012    Walk-in. Income tax software 2012 You can find a selection of forms, publications and services — in-person. Income tax software 2012 Products. Income tax software 2012 You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Income tax software 2012 Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Income tax software 2012 Services. Income tax software 2012 You can walk in to your local TAC for face-to-face tax help. Income tax software 2012 An employee can answer questions about your tax account or help you set up a payment plan. Income tax software 2012 Before visiting, use the Office Locator tool on IRS. Income tax software 2012 gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. Income tax software 2012    Mail. Income tax software 2012 You can send your order for forms, instructions, and publications to the address below. Income tax software 2012 You should receive a response within 10 business days after your request is received. Income tax software 2012 Internal Revenue Service 1201 N. Income tax software 2012 Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. Income tax software 2012 The Taxpayer Advocate Service (TAS) is your voice at the IRS. Income tax software 2012 Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Income tax software 2012   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. Income tax software 2012 We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. Income tax software 2012 You face (or your business is facing) an immediate threat of adverse action. Income tax software 2012 You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Income tax software 2012   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. Income tax software 2012 Here's why we can help: TAS is an independent organization within the IRS. Income tax software 2012 Our advocates know how to work with the IRS. Income tax software 2012 Our services are free and tailored to meet your needs. Income tax software 2012 We have offices in every state, the District of Columbia, and Puerto Rico. Income tax software 2012   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. Income tax software 2012   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Income tax software 2012 If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. Income tax software 2012 Low Income Taxpayer Clinics Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. Income tax software 2012 Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Income tax software 2012 Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. Income tax software 2012 Prev  Up  Next   Home   More Online Publications