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Www taxslayer com military Publication 509 - Main Content Table of Contents General Tax CalendarFirst Quarter Second Quarter Third Quarter Fourth Quarter Fiscal-Year Taxpayers Employer's Tax CalendarFirst Quarter Second Quarter Third Quarter Fourth Quarter Excise Tax CalendarFirst Quarter Second Quarter Third Quarter Fourth Quarter How To Get Tax Help General Tax Calendar This tax calendar has the due dates for 2014 that most taxpayers will need. Www taxslayer com military Employers and persons who pay excise taxes also should use the Employer's Tax Calendar and the Excise Tax Calendar . Www taxslayer com military Fiscal-year taxpayers. Www taxslayer com military   If you file your income tax return for a fiscal year rather than the calendar year, you must change some of the dates in this calendar. Www taxslayer com military These changes are described under Fiscal-Year Taxpayers at the end of this calendar. Www taxslayer com military First Quarter The first quarter of a calendar year is made up of January, February, and March. Www taxslayer com military Second Quarter The second quarter of a calendar year is made up of April, May, and June. Www taxslayer com military Third Quarter The third quarter of a calendar year is made up of July, August, and September. Www taxslayer com military Fourth Quarter The fourth quarter of a calendar year is made up of October, November, and December. Www taxslayer com military Fiscal-Year Taxpayers If you use a fiscal year (rather than the calendar year) as your tax year, you should change some of the dates in this calendar. Www taxslayer com military Use the following general guidelines to make these changes. Www taxslayer com military The 3 months that make up each quarter of a fiscal year may be different from those of each calendar quarter, depending on when the fiscal year begins. Www taxslayer com military Also see Saturday, Sunday, or legal holiday, earlier. Www taxslayer com military Individuals Form 1040. Www taxslayer com military    This form is due on the 15th day of the 4th month after the end of your tax year. Www taxslayer com military Form 4868 is used to request an extension of time to file Form 1040. Www taxslayer com military Estimated tax payments (Form 1040-ES). Www taxslayer com military   Payments are due on the 15th day of the 4th, 6th, and 9th months of your tax year and on the 15th day of the 1st month after your tax year ends. Www taxslayer com military Partnerships Form 1065. Www taxslayer com military   This form is due on the 15th day of the 4th month after the end of the partnership's tax year. Www taxslayer com military Provide each partner with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1. Www taxslayer com military Form 1065-B (electing large partnerships). Www taxslayer com military   This form is due on the 15th day of the 4th month after the end of the partnership's tax year. Www taxslayer com military Provide each partner with a copy of Schedule K-1 (Form 1065-B) or a substitute Schedule K-1 by the first March 15 following the close of the partnership's tax year. Www taxslayer com military Corporations and S Corporations Form 1120 and Form 1120S (or Form 7004). Www taxslayer com military   These forms are due on the 15th day of the 3rd month after the end of the corporation's tax year. Www taxslayer com military S corporations must provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. Www taxslayer com military Form 7004 is used to request an extension of time to file Form 1120 or Form 1120S. Www taxslayer com military Estimated tax payments. Www taxslayer com military   Payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Www taxslayer com military Form 2553. Www taxslayer com military   This form is used to choose S corporation treatment. Www taxslayer com military It is due no more than two months and 15 days after the beginning of the tax year the election is to take effect or at any time during the preceding tax year. Www taxslayer com military Employer's Tax Calendar This tax calendar covers various due dates of interest to employers. Www taxslayer com military Principally, it covers the following federal taxes. Www taxslayer com military Income tax you withhold from your employees' wages or from nonpayroll amounts you pay out. Www taxslayer com military Social security and Medicare taxes (FICA taxes) you withhold from your employees' wages and the social security and Medicare taxes you must pay as an employer. Www taxslayer com military Federal unemployment (FUTA) tax you must pay as an employer. Www taxslayer com military The calendar lists due dates for filing returns and for making deposits of these three taxes throughout the year. Www taxslayer com military Use this calendar with Publication 15 (Circular E), which gives the deposit rules. Www taxslayer com military Forms you may need. Www taxslayer com military   The following is a list and description of the primary employment tax forms you may need. Www taxslayer com military Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Www taxslayer com military This form is due the last day of the first calendar month after the calendar year ends. Www taxslayer com military Use it to report the FUTA tax on wages you paid. Www taxslayer com military Form 941, Employer's QUARTERLY Federal Tax Return. Www taxslayer com military This form is due the last day of the first calendar month after the calendar quarter ends. Www taxslayer com military Use it to report social security and Medicare taxes and withheld income taxes on wages if your employees are not farm workers or household employees. Www taxslayer com military Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Www taxslayer com military This form is due the last day of the first calendar month after the calendar year ends. Www taxslayer com military Use it to report social security and Medicare taxes and withheld income taxes on wages if your employees are farm workers. Www taxslayer com military Form 944, Employer's ANNUAL Federal Tax Return. Www taxslayer com military This form is due the last day of the first calendar month after the calendar year ends. Www taxslayer com military Certain small employers use it instead of Form 941 to report social security and Medicare taxes and withheld income tax. Www taxslayer com military Form 945, Annual Return of Withheld Federal Income Tax. Www taxslayer com military This form is due the last day of the first calendar month after the calendar year ends. Www taxslayer com military Use it to report income tax withheld on all nonpayroll items. Www taxslayer com military Nonpayroll items include the following. Www taxslayer com military Backup withholding. Www taxslayer com military Withholding on pensions, annuities, IRAs, and gambling winnings. Www taxslayer com military Payments of Indian gaming profits to tribal members. Www taxslayer com military Fiscal-year taxpayers. Www taxslayer com military   The dates in this calendar apply whether you use a fiscal year or the calendar year as your tax year. Www taxslayer com military The only exception is the date for filing Forms 5500, Annual Return/Report of Employee Benefit Plan, and 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. Www taxslayer com military These employee benefit plan forms are due by the last day of the seventh month after the plan year ends. Www taxslayer com military See July 31 , later. Www taxslayer com military Extended due dates. Www taxslayer com military   If you timely deposit in full the tax you are required to report on Form 940, 941, 943, 944, or 945, you have an additional 10 calendar days to file that form. Www taxslayer com military If you are subject to the semiweekly deposit rule, use Table 2 near the end of this publication for your deposit due dates. Www taxslayer com military However, if you accumulate $100,000 or more of taxes on any day during a deposit period, you must deposit the tax by the next business day instead of the date shown in Table 2. Www taxslayer com military First Quarter The first quarter of a calendar year is made up of January, February, and March. Www taxslayer com military Second Quarter The second quarter of a calendar year is made up of April, May, and June. Www taxslayer com military Third Quarter The third quarter of a calendar year is made up of July, August, and September. Www taxslayer com military Fourth Quarter The fourth quarter of a calendar year is made up of October, November, and December. Www taxslayer com military Excise Tax Calendar This tax calendar gives the due dates for filing returns and making deposits of excise taxes. Www taxslayer com military Use this calendar with Publication 510. Www taxslayer com military Also see the instructions for Forms 11-C, 720, 730, and 2290 for more information. Www taxslayer com military References to Form 2290 also apply to Form 2290(SP). Www taxslayer com military Forms you may need. Www taxslayer com military   The following is a list and description of the excise tax forms you may need. Www taxslayer com military Form 11-C, Occupational Tax and Registration Return for Wagering. Www taxslayer com military Use this form to register any wagering activity and to pay an occupational tax on wagering. Www taxslayer com military File Form 11-C if you are in the business of accepting wagers, including conducting a wagering pool or lottery, or are an agent of someone who accepts wagers. Www taxslayer com military You must file the form before you begin accepting wagers. Www taxslayer com military After that, file the form by July 1 of each year. Www taxslayer com military Also, see Form 730, later. Www taxslayer com military Form 720, Quarterly Federal Excise Tax Return. Www taxslayer com military File this form by the last day of the month following the calendar quarter. Www taxslayer com military Use this form to report a wide variety of excise taxes, including: Communications and air transportation taxes, Fuel taxes, Retail tax, Ship passenger tax, and Manufacturers taxes. Www taxslayer com military Form 730, Monthly Tax Return for Wagers. Www taxslayer com military Use this form to pay an excise tax on wagers you accept. Www taxslayer com military File this form for each month by the last day of the following month. Www taxslayer com military Also, see Form 11-C, earlier. Www taxslayer com military Form 2290, Heavy Highway Vehicle Use Tax Return. Www taxslayer com military Use this form to pay the federal use tax on heavy highway vehicles registered in your name. Www taxslayer com military File this form by the last day of the month following the month of the vehicle's first taxable use in the tax period. Www taxslayer com military The tax period begins on July 1 and ends the following June 30. Www taxslayer com military You must pay the full year's tax on all vehicles you have in use during the month of July. Www taxslayer com military You must also pay a partial-year tax on taxable vehicles that you put into use in a month after July. Www taxslayer com military For more information, see the Instructions for Form 2290. Www taxslayer com military Fiscal-year taxpayers. Www taxslayer com military   The dates in this calendar apply whether you use a fiscal year or the calendar year as your tax year. Www taxslayer com military Adjustments for Saturday, Sunday, or legal holidays. Www taxslayer com military   Generally, if a due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next day that is not a Saturday, Sunday, or legal holiday. Www taxslayer com military For excise taxes, there are two exceptions to this rule. Www taxslayer com military For deposits of regular method taxes, if the due date is a Saturday, Sunday, or legal holiday, the due date is the immediately preceding day that is not a Saturday, Sunday, or legal holiday. Www taxslayer com military Under the special September deposit rules, if the due date falls on a Saturday, the deposit is due on the preceding Friday. Www taxslayer com military If the due date falls on a Sunday, the deposit is due on the following Monday. Www taxslayer com military For more information, see the Instructions for Form 720. Www taxslayer com military The Excise Tax Calendar has been adjusted for all of these provisions. Www taxslayer com military Regular method taxes. Www taxslayer com military   These are taxes, other than alternative method taxes used for communication and air transportation taxes, reported on Form 720 for which deposits are required. Www taxslayer com military First Quarter The first quarter of a calendar year is made up of January, February, and March. Www taxslayer com military Second Quarter The second quarter of a calendar year is made up of April, May, and June. Www taxslayer com military Third Quarter The third quarter of a calendar year is made up of July, August, and September. Www taxslayer com military Fourth Quarter The fourth quarter of a calendar year is made up of October, November, and December. Www taxslayer com military How To Get Tax Help Go online, use a smart phone, call or walk in to an office near you. Www taxslayer com military Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. Www taxslayer com military Free help with your tax return. Www taxslayer com military   Free help in preparing your return is available nationwide from IRS-certified volunteers. Www taxslayer com military The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. Www taxslayer com military The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Www taxslayer com military 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. Www taxslayer com military Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. Www taxslayer com military To find the nearest VITA or TCE site, visit IRS. Www taxslayer com military gov or call 1-800-906-9887. Www taxslayer com military   As part of the TCE program, AARP offers the Tax-Aide counseling program. Www taxslayer com military To find the nearest AARP Tax-Aide site, visit AARP's website at www. Www taxslayer com military aarp. Www taxslayer com military org/money/taxaide or call 1-888-227-7669. Www taxslayer com military   For more information on these programs, go to IRS. Www taxslayer com military gov and enter “VITA” in the search box. Www taxslayer com military Internet. Www taxslayer com military IRS. Www taxslayer com military gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. Www taxslayer com military Apply for an Employer Identification Number (EIN). Www taxslayer com military Go to IRS. Www taxslayer com military gov and enter Apply for an EIN in the search box. Www taxslayer com military Request an Electronic Filing PIN by going to IRS. Www taxslayer com military gov and entering Electronic Filing PIN in the search box. Www taxslayer com military Check the status of your 2013 refund with Where's My Refund? Go to IRS. Www taxslayer com military gov or the IRS2Go app, and click on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. Www taxslayer com military If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Www taxslayer com military Checking the status of your amended return. Www taxslayer com military Go to IRS. Www taxslayer com military gov and enter Where's My Amended Return in the search box. Www taxslayer com military Download forms, instructions, and publications, including some accessible versions. Www taxslayer com military Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. Www taxslayer com military gov or IRS2Go. Www taxslayer com military Tax return and tax account transcripts are generally available for the current year and past three years. Www taxslayer com military Figure your income tax withholding with the IRS Withholding Calculator on IRS. Www taxslayer com military gov. Www taxslayer com military 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. Www taxslayer com military Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. Www taxslayer com military gov. Www taxslayer com military Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. Www taxslayer com military gov or IRS2Go. Www taxslayer com military Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. Www taxslayer com military An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. Www taxslayer com military Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. Www taxslayer com military If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. Www taxslayer com military Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. Www taxslayer com military Locate the nearest volunteer help site with the VITA Locator Tool on IRS. Www taxslayer com military gov. Www taxslayer com military Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Www taxslayer com military The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Www taxslayer com military Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. Www taxslayer com military AARP offers the Tax-Aide counseling program as part of the TCE program. Www taxslayer com military Visit AARP's website to find the nearest Tax-Aide location. Www taxslayer com military Research your tax questions. Www taxslayer com military Search publications and instructions by topic or keyword. Www taxslayer com military Read the Internal Revenue Code, regulations, or other official guidance. Www taxslayer com military Read Internal Revenue Bulletins. Www taxslayer com military Sign up to receive local and national tax news by email. Www taxslayer com military Phone. Www taxslayer com military You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. Www taxslayer com military Download the free IRS2Go mobile app from the iTunes app store or from Google Play. Www taxslayer com military Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, 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. Www taxslayer com military Call to locate the nearest volunteer help site, 1-800-906-9887. Www taxslayer com military Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. Www taxslayer com military The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. Www taxslayer com military Most VITA and TCE sites offer free electronic filing. Www taxslayer com military Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. Www taxslayer com military Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. Www taxslayer com military Call to check the status of your 2013 refund, 1-800-829-1954 or 1-800-829-4477. Www taxslayer com military The automated Where's My Refund? information is available 24 hours a day, 7 days a week. Www taxslayer com military If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. Www taxslayer com military Before you call, have your 2013 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Www taxslayer com military Where's My Refund? can give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. Www taxslayer com military Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. Www taxslayer com military Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. Www taxslayer com military Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). Www taxslayer com military You should receive your order within 10 business days. Www taxslayer com military Call to order transcripts of your tax returns or tax account, 1-800-908-9946. Www taxslayer com military Follow the prompts to provide your Social Security Number or Individual Taxpayer Identification Number, date of birth, street address and ZIP code. Www taxslayer com military Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. Www taxslayer com military Call to ask tax questions, 1-800-829-1040. Www taxslayer com military Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. Www taxslayer com military The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. Www taxslayer com military These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. Www taxslayer com military gsa. Www taxslayer com military gov/fedrelay. Www taxslayer com military Walk-in. Www taxslayer com military You can find a selection of forms, publications and services — in-person, face-to-face. Www taxslayer com military Products. Www taxslayer com military You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Www taxslayer com military Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. Www taxslayer com military Services. Www taxslayer com military You can walk in to your local TAC most business days for personal, face-to-face tax help. Www taxslayer com military An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Www taxslayer com military If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. Www taxslayer com military No appointment is necessary—just walk in. Www taxslayer com military Before visiting, check www. Www taxslayer com military irs. Www taxslayer com military gov/localcontacts for hours of operation and services provided. Www taxslayer com military Mail. Www taxslayer com military You can send your order for forms, instructions, and publications to the address below. Www taxslayer com military You should receive a response within 10 business days after your request is received. Www taxslayer com military  Internal Revenue Service 1201 N. Www taxslayer com military Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. Www taxslayer com military   The Taxpayer Advocate Service (TAS) is your voice at the IRS. Www taxslayer com military Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Www taxslayer com military What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. Www taxslayer com military 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. Www taxslayer com military You face (or your business is facing) an immediate threat of adverse action. Www taxslayer com military You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. Www taxslayer com military   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. Www taxslayer com military Here's why we can help: TAS is an independent organization within the IRS. Www taxslayer com military Our advocates know how to work with the IRS. Www taxslayer com military Our services are free and tailored to meet your needs. Www taxslayer com military We have offices in every state, the District of Columbia, and Puerto Rico. Www taxslayer com military 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 www. Www taxslayer com military irs. Www taxslayer com military gov/advocate, or call us toll-free at 1-877-777-4778. Www taxslayer com military How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. Www taxslayer com military If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. Www taxslayer com military irs. Www taxslayer com military gov/sams. Www taxslayer com military Low Income Taxpayer Clinics. Www taxslayer com military   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. Www taxslayer com military Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Www taxslayer com military Visit www. Www taxslayer com military TaxpayerAdvocate. Www taxslayer com military irs. Www taxslayer com military gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. Www taxslayer com military gnewbus01 Prev  Up  Next   Home   More Online Publications
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Understanding your CP51B Notice

We computed the tax on your Form 1040, 1040A or 1040EZ. You owe taxes.


What you need to do

  • Read your notice carefully. It will explain how we calculated refund.
  • You don't need to do anything if you agree with our calculations.
  • Contact us if you disagree with the amount of tax we computed.

You may want to...


Answers to Common Questions

What should I do if I disagree with the notice?
Call us at the toll free number on the top right corner of your notice. Please have your paperwork (such as cancelled checks, amended return, etc.) ready when you call.

When will I receive my refund?
If you have not already received your refund and if you owe no other taxes or other debts we are required to collect, you should receive it within 2-3 weeks.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 04-Mar-2014

Printable samples of this notice (PDF)

 

Tax publications you may find useful

 

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Www Taxslayer Com Military

Www taxslayer com military 4. Www taxslayer com military   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. Www taxslayer com military Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. Www taxslayer com military Net unrelated income. Www taxslayer com military Net unrelated loss. Www taxslayer com military Control. Www taxslayer com military Income from property financed with qualified 501(c)(3) bonds. Www taxslayer com military Disposition of property received from taxable subsidiary and used in unrelated business. Www taxslayer com military Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. Www taxslayer com military If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. Www taxslayer com military In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. Www taxslayer com military Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. Www taxslayer com military For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. Www taxslayer com military Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. Www taxslayer com military Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. Www taxslayer com military Dividends, interest, annuities and other investment income. Www taxslayer com military   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. Www taxslayer com military Exception for insurance activity income of a controlled foreign corporation. Www taxslayer com military   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. Www taxslayer com military The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. Www taxslayer com military Certain exceptions to this rule apply. Www taxslayer com military For more information, see section 512(b)(17). Www taxslayer com military Other exceptions. Www taxslayer com military   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). Www taxslayer com military Income from lending securities. Www taxslayer com military   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. Www taxslayer com military   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. Www taxslayer com military The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. Www taxslayer com military Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. Www taxslayer com military Royalties. Www taxslayer com military   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. Www taxslayer com military   To be considered a royalty, a payment must relate to the use of a valuable right. Www taxslayer com military Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. Www taxslayer com military Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. Www taxslayer com military However, royalties do not include payments for personal services. Www taxslayer com military Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. Www taxslayer com military   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. Www taxslayer com military   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. Www taxslayer com military However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. Www taxslayer com military To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. Www taxslayer com military To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. Www taxslayer com military Exceptions. Www taxslayer com military   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). Www taxslayer com military Rents. Www taxslayer com military   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. Www taxslayer com military Rents from personal property are not excluded. Www taxslayer com military However, special rules apply to “mixed leases” of both real and personal property. Www taxslayer com military Mixed leases. Www taxslayer com military   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. Www taxslayer com military If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. Www taxslayer com military If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. Www taxslayer com military   Property is placed in service when the lessee first may use it under the terms of a lease. Www taxslayer com military For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. Www taxslayer com military   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. Www taxslayer com military   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). Www taxslayer com military Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. Www taxslayer com military Exception for rents based on net profit. Www taxslayer com military   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. Www taxslayer com military Exception for income from personal services. Www taxslayer com military   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. Www taxslayer com military Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. Www taxslayer com military Other exceptions. Www taxslayer com military   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. Www taxslayer com military ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). Www taxslayer com military See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. Www taxslayer com military Income from research. Www taxslayer com military   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. Www taxslayer com military However, the extent of the exclusion depends on the nature of the organization and the type of research. Www taxslayer com military   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. Www taxslayer com military   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. Www taxslayer com military   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. Www taxslayer com military   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. Www taxslayer com military In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. Www taxslayer com military Gains and losses from disposition of property. Www taxslayer com military   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. Www taxslayer com military   It should be noted that the last exception relates only to cut timber. Www taxslayer com military The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. Www taxslayer com military Lapse or termination of options. Www taxslayer com military   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. Www taxslayer com military The exclusion applies only if the option is written in connection with the exempt organization's investment activities. Www taxslayer com military Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. Www taxslayer com military Exception. Www taxslayer com military   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. Www taxslayer com military Gain or loss on disposition of certain brownfield property. Www taxslayer com military   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. Www taxslayer com military See sections 512(b)(19) and 514(b)(1)(E). Www taxslayer com military Income from services provided under federal license. Www taxslayer com military   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. Www taxslayer com military   This exclusion applies only if the following requirements are met. Www taxslayer com military The trade or business must have been operated by the order or by the institution before May 27, 1959. Www taxslayer com military The trade or business must provide services under a license issued by a federal regulatory agency. Www taxslayer com military More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. Www taxslayer com military The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. Www taxslayer com military Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. Www taxslayer com military Exception. Www taxslayer com military    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). Www taxslayer com military Member income of mutual or cooperative electric companies. Www taxslayer com military   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. Www taxslayer com military Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. Www taxslayer com military For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. Www taxslayer com military Exception. Www taxslayer com military   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. Www taxslayer com military The limit on dues paid by an associate member is $148 for 2011. Www taxslayer com military   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. Www taxslayer com military Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. Www taxslayer com military They cannot be directly connected with excluded income. Www taxslayer com military For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. Www taxslayer com military Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. Www taxslayer com military For an exception, see Expenses attributable to exploitation of exempt activities, later. Www taxslayer com military Expenses attributable solely to unrelated business. Www taxslayer com military   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. Www taxslayer com military   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. Www taxslayer com military Expenses attributable to dual use of facilities or personnel. Www taxslayer com military   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. Www taxslayer com military The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. Www taxslayer com military Example 1. Www taxslayer com military A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. Www taxslayer com military The school provides the tennis courts, housing, and dining facilities. Www taxslayer com military The contracted individual hires the instructors, recruits campers, and provides supervision. Www taxslayer com military The income the school receives from this activity is from a dual use of the facilities and personnel. Www taxslayer com military The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. Www taxslayer com military Example 2. Www taxslayer com military An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. Www taxslayer com military The president devotes approximately 10% of his time to the unrelated business. Www taxslayer com military To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. Www taxslayer com military Expenses attributable to exploitation of exempt activities. Www taxslayer com military   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. Www taxslayer com military (See Exploitation of exempt functions under Not substantially related in chapter 3. Www taxslayer com military ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. Www taxslayer com military Exception. Www taxslayer com military   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. Www taxslayer com military The unrelated business exploits the exempt activity. Www taxslayer com military The unrelated business is a type normally conducted for profit by taxable organizations. Www taxslayer com military The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. Www taxslayer com military The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. Www taxslayer com military   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. Www taxslayer com military Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. Www taxslayer com military Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. Www taxslayer com military (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. Www taxslayer com military ) Figuring unrelated business taxable income (UBTI). Www taxslayer com military   The UBTI of an advertising activity is the amount shown in the following chart. Www taxslayer com military IF gross advertising income is . Www taxslayer com military . Www taxslayer com military . Www taxslayer com military THEN UBTI is . Www taxslayer com military . Www taxslayer com military . Www taxslayer com military More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. Www taxslayer com military Equal to or less than direct advertising costs Zero. Www taxslayer com military   • Circulation income and readership costs are not taken into account. Www taxslayer com military   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. Www taxslayer com military   The terms used in the chart are explained in the following discussions. Www taxslayer com military Periodical Income Gross advertising income. Www taxslayer com military   This is all the income from the unrelated advertising activities of an exempt organization periodical. Www taxslayer com military Circulation income. Www taxslayer com military   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). Www taxslayer com military It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. Www taxslayer com military It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. Www taxslayer com military Allocable membership receipts. Www taxslayer com military   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. Www taxslayer com military   The amount used to allocate membership receipts is the amount shown in the following chart. Www taxslayer com military   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. Www taxslayer com military The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. Www taxslayer com military IF . Www taxslayer com military . Www taxslayer com military . Www taxslayer com military THEN the amount used to allocate membership receipts is . Www taxslayer com military . Www taxslayer com military . Www taxslayer com military 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. Www taxslayer com military The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. Www taxslayer com military Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. Www taxslayer com military U is an exempt scientific organization with 10,000 members who pay annual dues of $15. Www taxslayer com military One of U's activities is publishing a monthly periodical distributed to all of its members. Www taxslayer com military U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. Www taxslayer com military Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. Www taxslayer com military Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). Www taxslayer com military Example 2. Www taxslayer com military Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. Www taxslayer com military Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. Www taxslayer com military U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. Www taxslayer com military Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. Www taxslayer com military Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. Www taxslayer com military Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). Www taxslayer com military U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). Www taxslayer com military Periodical Costs Direct advertising costs. Www taxslayer com military   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. Www taxslayer com military   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. Www taxslayer com military Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. Www taxslayer com military   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. Www taxslayer com military For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. Www taxslayer com military Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. Www taxslayer com military   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. Www taxslayer com military Readership costs. Www taxslayer com military   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. Www taxslayer com military Costs partly attributable to other activities. Www taxslayer com military   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. Www taxslayer com military When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. Www taxslayer com military The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. Www taxslayer com military Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. Www taxslayer com military Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. Www taxslayer com military It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. Www taxslayer com military Consolidated treatment, once adopted, must be followed consistently and is binding. Www taxslayer com military This treatment can be changed only with the consent of the Internal Revenue Service. Www taxslayer com military An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. Www taxslayer com military Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. Www taxslayer com military The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. Www taxslayer com military For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. Www taxslayer com military The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. Www taxslayer com military Example. Www taxslayer com military Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. Www taxslayer com military Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. Www taxslayer com military Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. Www taxslayer com military The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. Www taxslayer com military The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. Www taxslayer com military It is not engaged in for profit. Www taxslayer com military Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. Www taxslayer com military It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. Www taxslayer com military Modifications Net operating loss deduction. Www taxslayer com military   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. Www taxslayer com military However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. Www taxslayer com military For example, a loss from an unrelated trade or business is not diminished because dividend income was received. Www taxslayer com military   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. Www taxslayer com military This would reduce the loss that could be applied against unrelated business income of prior or future tax years. Www taxslayer com military Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. Www taxslayer com military   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. Www taxslayer com military   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. Www taxslayer com military   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. Www taxslayer com military For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. Www taxslayer com military   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Www taxslayer com military Charitable contributions deduction. Www taxslayer com military   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. Www taxslayer com military   To be deductible, the contribution must be paid to another qualified organization. Www taxslayer com military For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. Www taxslayer com military   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. Www taxslayer com military Deduction limits. Www taxslayer com military   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. Www taxslayer com military See the Instructions for Form 990-T for more information. Www taxslayer com military    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. Www taxslayer com military However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. Www taxslayer com military   Contributions in excess of the limits just described may be carried over to the next 5 tax years. Www taxslayer com military A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. Www taxslayer com military Suspension of deduction limits for farmers and ranchers. Www taxslayer com military   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. Www taxslayer com military See the Instructions for Form 990-T for details. Www taxslayer com military Specific deduction. Www taxslayer com military   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. Www taxslayer com military However, the specific deduction is not allowed in computing an NOL or the NOL deduction. Www taxslayer com military   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. Www taxslayer com military Exception. Www taxslayer com military   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. Www taxslayer com military In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. Www taxslayer com military   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. Www taxslayer com military The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. Www taxslayer com military The local units cannot file separate returns. Www taxslayer com military However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. Www taxslayer com military See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. Www taxslayer com military Example. Www taxslayer com military X is an association of churches and is divided into local units A, B, C, and D. Www taxslayer com military Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. Www taxslayer com military X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. Www taxslayer com military Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. Www taxslayer com military If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. Www taxslayer com military No distinction is made between limited and general partners. Www taxslayer com military The organization is required to notify the partnership of its tax-exempt status. Www taxslayer com military Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. Www taxslayer com military The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. Www taxslayer com military The partnership is required to provide the organization this information on Schedule K-1. Www taxslayer com military Example. Www taxslayer com military An exempt educational organization is a partner in a partnership that operates a factory. Www taxslayer com military The partnership also holds stock in a corporation. Www taxslayer com military The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. Www taxslayer com military Different tax years. Www taxslayer com military   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. Www taxslayer com military S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. Www taxslayer com military For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. Www taxslayer com military The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. Www taxslayer com military Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. Www taxslayer com military To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. Www taxslayer com military Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). Www taxslayer com military These organizations must figure unrelated business taxable income under special rules. Www taxslayer com military Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. Www taxslayer com military ). Www taxslayer com military (See Exclusions under Income, earlier. Www taxslayer com military ) Therefore, they are generally subject to unrelated business income tax on this income. Www taxslayer com military The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. Www taxslayer com military The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. Www taxslayer com military Losses from nonexempt activities. Www taxslayer com military   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. Www taxslayer com military Example. Www taxslayer com military A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. Www taxslayer com military The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. Www taxslayer com military Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. Www taxslayer com military Modifications. Www taxslayer com military   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). Www taxslayer com military Exempt function income. Www taxslayer com military   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. Www taxslayer com military Exempt function income also includes income set aside for qualified purposes. Www taxslayer com military Income that is set aside. Www taxslayer com military   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Www taxslayer com military In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. Www taxslayer com military   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. Www taxslayer com military Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. Www taxslayer com military These rules are explained in section 512(a)(3)(E)(ii). Www taxslayer com military   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. Www taxslayer com military In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. Www taxslayer com military   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. Www taxslayer com military However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. Www taxslayer com military The income set aside must have been includible in gross income for that earlier year. Www taxslayer com military Nonrecognition of gain. Www taxslayer com military   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. Www taxslayer com military The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. Www taxslayer com military   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. Www taxslayer com military Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. Www taxslayer com military The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. Www taxslayer com military For details, see section 512(a)(4) and the regulations under that section. Www taxslayer com military Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. Www taxslayer com military The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. Www taxslayer com military All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. Www taxslayer com military Excess qualifying specified payments. Www taxslayer com military   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. Www taxslayer com military Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. Www taxslayer com military   If a controlled participant is not required to file a U. Www taxslayer com military S. Www taxslayer com military income tax return, the participant must ensure that the copy or copies of the Regulations section 1. Www taxslayer com military 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. Www taxslayer com military S. Www taxslayer com military Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. Www taxslayer com military S. Www taxslayer com military Corporation or a Foreign Corporation Engaged in a U. Www taxslayer com military S. Www taxslayer com military Trade or Business, or any Form 8865, Return of U. Www taxslayer com military S. Www taxslayer com military Persons With Respect to Certain Foreign Partnerships, filed for that participant. Www taxslayer com military Addition to tax for valuation misstatements. Www taxslayer com military   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. Www taxslayer com military See section 512(b)(13)(E)(ii) for more information. Www taxslayer com military Net unrelated income. Www taxslayer com military   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. Www taxslayer com military Net unrelated loss. Www taxslayer com military   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. Www taxslayer com military Control. Www taxslayer com military   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. Www taxslayer com military For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. Www taxslayer com military   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). Www taxslayer com military Income from property financed with qualified 501(c)(3) bonds. Www taxslayer com military If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. Www taxslayer com military No deduction is allowed for interest on the private activity bond. Www taxslayer com military See sections 150(b)(3) and (c) for more information. Www taxslayer com military Disposition of property received from taxable subsidiary and used in unrelated business. Www taxslayer com military A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). Www taxslayer com military The assets are treated as if sold at fair market value. Www taxslayer com military Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. Www taxslayer com military S. Www taxslayer com military and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. Www taxslayer com military A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. Www taxslayer com military However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. Www taxslayer com military In such a case the built-in appreciation is preserved in the replacement property received in the transaction. Www taxslayer com military A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). Www taxslayer com military This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. Www taxslayer com military In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. Www taxslayer com military If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. Www taxslayer com military If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. Www taxslayer com military Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. Www taxslayer com military Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. Www taxslayer com military Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. Www taxslayer com military The amount of income included is proportionate to the debt on the property. Www taxslayer com military Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). Www taxslayer com military It includes rental real estate, tangible personal property, and corporate stock. Www taxslayer com military Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. Www taxslayer com military The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. Www taxslayer com military That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. Www taxslayer com military Example 1. Www taxslayer com military Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. Www taxslayer com military The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. Www taxslayer com military Example 2. Www taxslayer com military X, an exempt organization, forms a partnership with A and B. Www taxslayer com military The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. Www taxslayer com military X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. Www taxslayer com military The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. Www taxslayer com military The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. Www taxslayer com military The loan is secured by a mortgage on the entire office building. Www taxslayer com military By agreement with Y bank, X is not personally liable for payment of the mortgage. Www taxslayer com military X has acquisition indebtedness of $7 million. Www taxslayer com military This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). Www taxslayer com military Example 3. Www taxslayer com military A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. Www taxslayer com military The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. Www taxslayer com military Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. Www taxslayer com military The union has no outstanding debt on the property. Www taxslayer com military The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. Www taxslayer com military The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. Www taxslayer com military Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. Www taxslayer com military In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. Www taxslayer com military Accordingly, the debt is not acquisition indebtedness. Www taxslayer com military Change in use of property. Www taxslayer com military   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. Www taxslayer com military Example. Www taxslayer com military Four years ago a university borrowed funds to acquire an apartment building as housing for married students. Www taxslayer com military Last year, the university rented the apartment building to the public for nonexempt purposes. Www taxslayer com military The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. Www taxslayer com military Continued debt. Www taxslayer com military   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. Www taxslayer com military This is true even if the original property was not debt-financed property. Www taxslayer com military Example. Www taxslayer com military To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. Www taxslayer com military The office building was not debt-financed property. Www taxslayer com military The organization later sold the building for $1 million without repaying the $400,000 loan. Www taxslayer com military It used the sale proceeds to buy an apartment building it rents to the general public. Www taxslayer com military The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. Www taxslayer com military Property acquired subject to mortgage or lien. Www taxslayer com military   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. Www taxslayer com military Example. Www taxslayer com military An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. Www taxslayer com military The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. Www taxslayer com military Liens similar to a mortgage. Www taxslayer com military   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. Www taxslayer com military A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. Www taxslayer com military However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. Www taxslayer com military Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). Www taxslayer com military Exception for property acquired by gift, bequest, or devise. Www taxslayer com military   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. Www taxslayer com military However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. Www taxslayer com military   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). Www taxslayer com military   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. Www taxslayer com military Modifying existing debt. Www taxslayer com military   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. Www taxslayer com military When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. Www taxslayer com military Extension or renewal. Www taxslayer com military   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. Www taxslayer com military   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. Www taxslayer com military Debt increase. Www taxslayer com military   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. Www taxslayer com military Example. Www taxslayer com military An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. Www taxslayer com military The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. Www taxslayer com military A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. Www taxslayer com military Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. Www taxslayer com military These include the following. Www taxslayer com military Debts incurred in performing an exempt purpose. Www taxslayer com military Annuity obligations. Www taxslayer com military Securities loans. Www taxslayer com military Real property debts of qualified organizations. Www taxslayer com military Certain Federal financing. Www taxslayer com military Debt incurred in performing exempt purpose. Www taxslayer com military   A debt incurred in performing an exempt purpose is not acquisition indebtedness. Www taxslayer com military For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. Www taxslayer com military Annuity obligation. Www taxslayer com military   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. Www taxslayer com military It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. Www taxslayer com military Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. Www taxslayer com military It must be payable over the lives of either one or two individuals living when issued. Www taxslayer com military It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. Www taxslayer com military Example. Www taxslayer com military X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. Www taxslayer com military In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. Www taxslayer com military The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. Www taxslayer com military The present value of this annuity is $81,156, determined from IRS valuation tables. Www taxslayer com military Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. Www taxslayer com military Securities loans. Www taxslayer com military   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). Www taxslayer com military This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. Www taxslayer com military   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from