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1040ez Tax Forms 2014

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1040ez Tax Forms 2014

1040ez tax forms 2014 Internal Revenue Bulletin:  2009-17  April 27, 2009  Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2009-24 Table of Contents SECTION 1. 1040ez tax forms 2014 PURPOSE SECTION 2. 1040ez tax forms 2014 BACKGROUND SECTION 3. 1040ez tax forms 2014 SCOPE SECTION 4. 1040ez tax forms 2014 APPLICATION. 1040ez tax forms 2014 01 In General. 1040ez tax forms 2014 . 1040ez tax forms 2014 02 Limitations on Depreciation Deductions for Certain Automobiles. 1040ez tax forms 2014 . 1040ez tax forms 2014 03 Inclusions in Income of Lessees of Passenger Automobiles. 1040ez tax forms 2014 SECTION 5. 1040ez tax forms 2014 EFFECTIVE DATE SECTION 6. 1040ez tax forms 2014 DRAFTING INFORMATION SECTION 1. 1040ez tax forms 2014 PURPOSE . 1040ez tax forms 2014 01 This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2009, including a separate table of limitations on depreciation deductions for trucks and vans; and (2) the amounts to be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2009, including a separate table of inclusion amounts for lessees of trucks and vans. 1040ez tax forms 2014 . 1040ez tax forms 2014 02 The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code. 1040ez tax forms 2014 SECTION 2. 1040ez tax forms 2014 BACKGROUND . 1040ez tax forms 2014 01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. 1040ez tax forms 2014 Section 280F(d)(7) requires the amounts allowable as depreciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. 1040ez tax forms 2014 The method of calculating this price inflation amount for trucks and vans placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” component) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher depreciation deductions for trucks and vans. 1040ez tax forms 2014 This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. 1040ez tax forms 2014 . 1040ez tax forms 2014 02 Section 168(k)(1)(A) provides a 50 percent additional first year depreciation deduction for certain new property acquired by a taxpayer after December 31, 2007, and before January 1, 2010, if no written binding contract for the acquisition of the property existed before January 1, 2008. 1040ez tax forms 2014 Section 168(k)(2)(F)(i) increases the first year depreciation allowed under § 280F(a)(1)(A) by $8,000 for passenger automobiles to which the 50 percent additional first year depreciation deduction applies. 1040ez tax forms 2014 . 1040ez tax forms 2014 03 Section 168(k)(2)(D)(i) provides that the 50 percent additional first year depreciation deduction does not apply to any property required to be depreciated under the alternative depreciation system of § 168(g), including property described in § 280F(b)(1). 1040ez tax forms 2014 Section 168(k)(2)(D)(iii) permits a taxpayer to elect to not claim the 50 percent additional first year depreciation deduction for any class of property. 1040ez tax forms 2014 Section 168(k)(4) permits a corporation to elect to not claim the 50 percent additional first year depreciation deduction for all eligible qualified property (that is extension property or that is not extension property, as applicable) and instead to increase the business credit limitation under § 38(c) or the alternative minimum tax credit limitation under § 53(c). 1040ez tax forms 2014 Accordingly, this revenue procedure provides tables for passenger automobiles for which the 50 percent additional depreciation deduction applies and tables for passenger automobiles for which the 50 percent additional first year depreciation deduction does not apply, including passenger automobiles in a class of property for which the taxpayer “elects out” of the 50 percent additional first year depreciation deduction or passenger automobiles that are eligible qualified property to which the § 168(k)(4) election applies. 1040ez tax forms 2014 . 1040ez tax forms 2014 04 For leased passenger automobiles, § 280F(c) requires a reduction in the deduction allowed to the lessee of the passenger automobile. 1040ez tax forms 2014 The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. 1040ez tax forms 2014 Under § 1. 1040ez tax forms 2014 280F-7(a) of the Income Tax Regulations, this reduction requires a lessee to include in gross income an inclusion amount determined by applying a formula to the amount obtained from a table. 1040ez tax forms 2014 One table applies to lessees of trucks and vans and another table applies to all other passenger automobiles. 1040ez tax forms 2014 Each table shows inclusion amounts for a range of fair market values for each taxable year after the passenger automobile is first leased. 1040ez tax forms 2014 SECTION 3. 1040ez tax forms 2014 SCOPE . 1040ez tax forms 2014 01 The limitations on depreciation deductions in section 4. 1040ez tax forms 2014 02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2009, and continue to apply for each taxable year that the passenger automobile remains in service. 1040ez tax forms 2014 . 1040ez tax forms 2014 02 The tables in section 4. 1040ez tax forms 2014 03 of this revenue procedure apply to leased passenger automobiles for which the lease term begins during calendar year 2009. 1040ez tax forms 2014 Lessees of these passenger automobiles must use these tables to determine the inclusion amount for each taxable year during which the passenger automobile is leased. 1040ez tax forms 2014 See Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2002-14, 2002-1 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 450, for passenger automobiles first leased before January 1, 2003, Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2003-75, 2003-2 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 1018, for passenger automobiles first leased during calendar year 2003, Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2004-20, 2004-1 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 642, for passenger automobiles first leased during calendar year 2004, Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2005-13, 2005-1 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 759, for passenger automobiles first leased during calendar year 2005, Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2006-18, 2006-1 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 645, for passenger automobiles first leased during calendar year 2006, Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2007-30, 2007-1 C. 1040ez tax forms 2014 B. 1040ez tax forms 2014 1104, for passenger automobiles first leased during calendar year 2007, and Rev. 1040ez tax forms 2014 Proc. 1040ez tax forms 2014 2008-22, 2008-12 I. 1040ez tax forms 2014 R. 1040ez tax forms 2014 B. 1040ez tax forms 2014 658, for passenger automobiles first leased during calendar year 2008. 1040ez tax forms 2014 SECTION 4. 1040ez tax forms 2014 APPLICATION . 1040ez tax forms 2014 01 In General. 1040ez tax forms 2014 (1) Limitations on depreciation deductions for certain automobiles. 1040ez tax forms 2014 The limitations on depreciation deductions for passenger automobiles placed in service by the taxpayer for the first time during calendar year 2009 are in Tables 1 through 4 in section 4. 1040ez tax forms 2014 02(2) of this revenue procedure. 1040ez tax forms 2014 (2) Inclusions in income of lessees of passenger automobiles. 1040ez tax forms 2014 A taxpayer first leasing a passenger automobile during calendar year 2009 must determine the inclusion amount that is added to gross income using Tables 5 and 6 in section 4. 1040ez tax forms 2014 03 of this revenue procedure. 1040ez tax forms 2014 In addition, the taxpayer must follow the procedures of § 1. 1040ez tax forms 2014 280F-7(a). 1040ez tax forms 2014 . 1040ez tax forms 2014 02 Limitations on Depreciation Deductions for Certain Automobiles. 1040ez tax forms 2014 (1) Amount of the inflation adjustment. 1040ez tax forms 2014 (a) Passenger automobiles (other than trucks or vans). 1040ez tax forms 2014 Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. 1040ez tax forms 2014 The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor. 1040ez tax forms 2014 The new car component of the CPI was 115. 1040ez tax forms 2014 2 for October 1987 and 134. 1040ez tax forms 2014 837 for October 2008. 1040ez tax forms 2014 The October 2008 index exceeded the October 1987 index by 19. 1040ez tax forms 2014 637. 1040ez tax forms 2014 The Internal Revenue Service has, therefore, determined that the automobile price inflation adjustment for 2009 for passenger automobiles (other than trucks and vans) is 17. 1040ez tax forms 2014 05 percent (19. 1040ez tax forms 2014 637/115. 1040ez tax forms 2014 2 x 100%). 1040ez tax forms 2014 This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2009. 1040ez tax forms 2014 The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. 1040ez tax forms 2014 1705, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to passenger automobiles (other than trucks and vans) for calendar year 2009. 1040ez tax forms 2014 (b) Trucks and vans. 1040ez tax forms 2014 To determine the dollar limitations applicable to trucks and vans first placed in service during calendar year 2009, the new truck component of the CPI is used instead of the new car component. 1040ez tax forms 2014 The new truck component of the CPI was 112. 1040ez tax forms 2014 4 for October 1987 and 133. 1040ez tax forms 2014 640 for October 2008. 1040ez tax forms 2014 The October 2008 index exceeded the October 1987 index by 21. 1040ez tax forms 2014 24. 1040ez tax forms 2014 The Service has, therefore, determined that the automobile price inflation adjustment for 2009 for trucks and vans is 18. 1040ez tax forms 2014 90 percent (21. 1040ez tax forms 2014 24/112. 1040ez tax forms 2014 4 x 100%). 1040ez tax forms 2014 This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2009. 1040ez tax forms 2014 The dollar limitations in § 280F(a) therefore must be multiplied by a factor of 0. 1040ez tax forms 2014 1890, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limitations applicable to trucks and vans. 1040ez tax forms 2014 (2) Amount of the limitation. 1040ez tax forms 2014 For passenger automobiles placed in service by the taxpayer in calendar year 2009, Tables 1 through 4 contain the dollar amount of the depreciation limitation for each taxable year. 1040ez tax forms 2014 Use Table 1 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a passenger automobile (other than a truck or van) in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a passenger automobile that is eligible qualified property to which the § 168(k)(4) election applies. 1040ez tax forms 2014 Use Table 2 for a passenger automobile (other than a truck or van) placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. 1040ez tax forms 2014 Use Table 3 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction does not apply, including a truck or van in a class of property for which the taxpayer elects out of the 50 percent additional first year depreciation deduction or a truck or van that is eligible qualified property to which the § 168(k)(4) election applies. 1040ez tax forms 2014 Use Table 4 for a truck or van placed in service by the taxpayer in calendar year 2009, for which the 50 percent additional first year depreciation deduction applies. 1040ez tax forms 2014 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $2,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 2 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $10,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,775 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 3 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION DOES NOT APPLY Tax Year Amount 1st Tax Year $3,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS PLACED IN SERVICE BY THE TAXPAYER IN CALENDAR YEAR 2009, FOR WHICH THE 50 PERCENT ADDITIONAL FIRST YEAR DEPRECIATION DEDUCTION APPLIES Tax Year Amount 1st Tax Year $11,060 2nd Tax Year $4,900 3rd Tax Year $2,950 Each Succeeding Year $1,775 . 1040ez tax forms 2014 03 Inclusions in Income of Lessees of Passenger Automobiles. 1040ez tax forms 2014 The inclusion amounts for passenger automobiles first leased in calendar year 2009 are calculated under the procedures described in § 1. 1040ez tax forms 2014 280F-7(a). 1040ez tax forms 2014 Lessees of passenger automobiles other than trucks and vans should use Table 5 of this revenue procedure in applying these procedures, while lessees of trucks and vans should use Table 6 of this revenue procedure. 1040ez tax forms 2014 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 5 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS OR VANS) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Passenger Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th & Later $18,500 $19,000 9 19 28 34 38 19,000 19,500 10 21 32 38 43 19,500 20,000 11 24 36 42 48 20,000 20,500 12 27 39 46 54 20,500 21,000 13 29 43 51 58 21,000 21,500 15 31 47 55 64 21,500 22,000 16 34 50 60 68 22,000 23,000 17 38 56 66 76 23,000 24,000 20 42 64 75 86 24,000 25,000 22 47 71 84 96 25,000 26,000 24 52 78 93 107 26,000 27,000 26 58 85 101 117 27,000 28,000 29 62 93 110 127 28,000 29,000 31 67 100 119 138 29,000 30,000 33 72 108 128 147 30,000 31,000 35 77 115 137 157 31,000 32,000 38 82 122 146 167 32,000 33,000 40 87 129 155 178 33,000 34,000 42 92 137 163 188 34,000 35,000 44 97 144 172 199 35,000 36,000 47 102 151 181 208 36,000 37,000 49 107 159 189 219 37,000 38,000 51 112 166 199 228 38,000 39,000 53 117 173 208 239 39,000 40,000 56 122 180 216 250 40,000 41,000 58 127 188 225 259 41,000 42,000 60 132 195 234 269 42,000 43,000 62 137 203 242 280 43,000 44,000 65 141 210 252 290 44,000 45,000 67 146 218 260 300 45,000 46,000 69 151 225 269 311 46,000 47,000 71 157 232 278 320 47,000 48,000 74 161 240 286 331 48,000 49,000 76 166 247 296 340 49,000 50,000 78 171 255 304 351 50,000 51,000 80 176 262 313 361 51,000 52,000 83 181 269 322 371 52,000 53,000 85 186 276 331 381 53,000 54,000 87 191 284 339 392 54,000 55,000 89 196 291 349 401 55,000 56,000 92 201 298 357 412 56,000 57,000 94 206 306 365 423 57,000 58,000 96 211 313 375 432 58,000 59,000 98 216 320 384 442 59,000 60,000 101 221 327 393 452 60,000 62,000 104 228 339 406 467 62,000 64,000 109 238 353 424 488 64,000 66,000 113 248 368 441 509 66,000 68,000 118 258 382 459 529 68,000 70,000 122 268 397 476 550 70,000 72,000 127 277 413 493 570 72,000 74,000 131 288 427 511 590 74,000 76,000 136 297 442 529 610 76,000 78,000 140 307 457 546 631 78,000 80,000 145 317 471 564 651 80,000 85,000 152 335 497 595 686 85,000 90,000 164 359 534 639 737 90,000 95,000 175 384 570 683 789 95,000 100,000 186 409 607 727 839 100,000 110,000 203 446 662 793 916 110,000 120,000 226 495 736 881 1,018 120,000 130,000 248 545 809 970 1,119 130,000 140,000 271 594 883 1,058 1,220 140,000 150,000 293 644 956 1,146 1,322 150,000 160,000 316 693 1,030 1,234 1,424 160,000 170,000 338 743 1,103 1,322 1,526 170,000 180,000 361 792 1,177 1,410 1,628 180,000 190,000 383 842 1,250 1,498 1,730 190,000 200,000 406 891 1,324 1,586 1,831 200,000 210,000 428 941 1,397 1,675 1,932 210,000 220,000 451 990 1,471 1,762 2,035 220,000 230,000 473 1,040 1,544 1,851 2,136 230,000 240,000 496 1,089 1,618 1,939 2,238 240,000 And up 518 1,139 1,691 2,027 2,340 REV. 1040ez tax forms 2014 PROC. 1040ez tax forms 2014 2009-24 TABLE 6 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2009 Fair Market Value of Electric Automobile Tax Year During Lease Over Not Over 1st 2nd 3rd 4th 5th and Later $18,500 $19,000 8 17 25 30 35 19,000 19,500 9 19 29 35 40 19,500 20,000 10 22 33 38 45 20,000 20,500 11 25 36 43 50 20,500 21,000 12 27 40 48 55 21,000 21,500 13 30 43 52 60 21,500 22,000 15 32 47 56 66 22,000 23,000 16 36 52 64 72 23,000 24,000 18 41 60 72 83 24,000 25,000 21 45 68 81 93 25,000 26,000 23 50 75 90 103 26,000 27,000 25 56 82 98 114 27,000 28,000 27 61 89 107 124 28,000 29,000 30 65 97 116 134 29,000 30,000 32 70 104 125 144 30,000 31,000 34 75 112 134 154 31,000 32,000 36 80 119 143 164 32,000 33,000 39 85 126 151 175 33,000 34,000 41 90 134 160 184 34,000 35,000 43 95 141 169 195 35,000 36,000 45 100 148 178 205 36,000 37,000 48 105 155 187 215 37,000 38,000 50 110 163 195 226 38,000 39,000 52 115 170 204 236 39,000 40,000 55 120 177 213 246 40,000 41,000 57 125 185 221 256 41,000 42,000 59 130 192 231 266 42,000 43,000 61 135 199 240 276 43,000 44,000 64 139 207 249 286 44,000 45,000 66 144 215 257 296 45,000 46,000 68 149 222 266 307 46,000 47,000 70 155 229 274 317 47,000 48,000 73 159 237 283 327 48,000 49,000 75 164 244 292 338 49,000 50,000 77 169 251 301 348 50,000 51,000 79 174 259 310 357 51,000 52,000 82 179 266 318 368 52,000 53,000 84 184 273 328 378 53,000 54,000 86 189 281 336 388 54,000 55,000 88 194 288 345 399 55,000 56,000 91 199 295 354 408 56,000 57,000 93 204 302 363 419 57,000 58,000 95 209 310 371 429 58,000 59,000 97 214 317 381 439 59,000 60,000 100 219 324 389 450 60,000 62,000 103 226 336 402 465 62,000 64,000 107 236 351 420 485 64,000 66,000 112 246 365 438 505 66,000 68,000 116 256 380 455 526 68,000 70,000 121 266 394 473 546 70,000 72,000 125 276 409 491 566 72,000 74,000 130 286 423 509 586 74,000 76,000 134 296 438 526 607 76,000 78,000 139 305 454 543 627 78,000 80,000 143 316 467 561 648 80,000 85,000 151 333 493 592 684 85,000 90,000 163 357 531 635 735 90,000 95,000 174 382 567 680 785 95,000 100,000 185 407 604 724 836 100,000 110,000 202 444 659 790 912 110,000 120,000 225 493 733 878 1,014 120,000 130,000 247 543 806 966 1,116 130,000 140,000 270 592 880 1,054 1,218 140,000 150,000 292 642 953 1,143 1,319 150,000 160,000 315 691 1,027 1,230 1,421 160,000 170,000 337 741 1,100 1,319 1,522 170,000 180,000 360 790 1,174 1,407 1,624 180,000 190,000 382 840 1,247 1,495 1,726 190,000 200,000 405 889 1,321 1,583 1,828 200,000 210,000 427 939 1,394 1,671 1,930 210,000 220,000 450 988 1,468 1,759 2,031 220,000 230,000 472 1,038 1,541 1,847 2,134 230,000 240,000 495 1,087 1,615 1,935 2,235 240,000 and up 517 1,137 1,688 2,024 2,336 SECTION 5. 1040ez tax forms 2014 EFFECTIVE DATE This revenue procedure applies to passenger automobiles (other than leased passenger automobiles) that are first placed in service by a taxpayer during calendar year 2009, and to leased passenger automobiles that are first leased by a taxpayer during calendar year 2009. 1040ez tax forms 2014 SECTION 6. 1040ez tax forms 2014 DRAFTING INFORMATION The principal author of this revenue procedure is Bernard P. 1040ez tax forms 2014 Harvey of the Office of Associate Chief Counsel (Income Tax & Accounting). 1040ez tax forms 2014 For further information regarding this revenue procedure, contact Mr. 1040ez tax forms 2014 Harvey at (202) 622-4930 (not a toll-free call). 1040ez tax forms 2014 Prev  Up  Next   Home   More Internal Revenue Bulletins
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IRA One-Rollover-Per-Year Rule

Beginning as early as January 1, 2015, you can make only one rollover from a traditional IRA to another (or the same) traditional IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15). A similar limitation will apply to rollovers between Roth IRAs. You can, however, continue to make as many trustee-to-trustee transfers between IRAs as you want. Amounts transferred between traditional IRAs, either by rollover or trustee-to-trustee transfer, are excluded from your gross income.

Current law

You don’t have to include in your gross income any amount distributed to you from a traditional IRA if you deposit the amount into another (or the same) traditional IRA within 60 days (Internal Revenue Code Section 408(d)(3)). Under Internal Revenue Code Section 408(d)(3)(B), only one IRA-to-IRA rollover can be made in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590, Individual Retirement Arrangements (IRAs) interpret this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual.

U.S. Tax Court decision

The Tax Court recently held that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21). Following the holding in this decision means:

  • you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover in the preceding 12 months, and
  • you may be subject to the 10% early withdrawal tax on the amount you include in gross income.

Additionally, if you pay these amounts into another (or the same) IRA, they may be:

Prospective application

The IRS intends to follow the Tax Court’s interpretation of Internal Revenue Code Section 408(d)(3)(B). However, to give IRA owners and trustees time to adjust, the IRS will delay implementation until January 1, 2015, at the earliest. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii) will be withdrawn and Publication 590 will be revised to reflect the new interpretation.

Only rollovers will be affected

This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.

Additional resources

Page Last Reviewed or Updated: 26-Mar-2014

The 1040ez Tax Forms 2014

1040ez tax forms 2014 4. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. 1040ez tax forms 2014 Net unrelated income. 1040ez tax forms 2014 Net unrelated loss. 1040ez tax forms 2014 Control. 1040ez tax forms 2014 Income from property financed with qualified 501(c)(3) bonds. 1040ez tax forms 2014 Disposition of property received from taxable subsidiary and used in unrelated business. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. 1040ez tax forms 2014 Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. 1040ez tax forms 2014 Dividends, interest, annuities and other investment income. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Exception for insurance activity income of a controlled foreign corporation. 1040ez tax forms 2014   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Certain exceptions to this rule apply. 1040ez tax forms 2014 For more information, see section 512(b)(17). 1040ez tax forms 2014 Other exceptions. 1040ez tax forms 2014   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). 1040ez tax forms 2014 Income from lending securities. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Royalties. 1040ez tax forms 2014   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. 1040ez tax forms 2014   To be considered a royalty, a payment must relate to the use of a valuable right. 1040ez tax forms 2014 Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. 1040ez tax forms 2014 Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. 1040ez tax forms 2014 However, royalties do not include payments for personal services. 1040ez tax forms 2014 Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. 1040ez tax forms 2014   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. 1040ez tax forms 2014   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Exceptions. 1040ez tax forms 2014   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). 1040ez tax forms 2014 Rents. 1040ez tax forms 2014   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. 1040ez tax forms 2014 Rents from personal property are not excluded. 1040ez tax forms 2014 However, special rules apply to “mixed leases” of both real and personal property. 1040ez tax forms 2014 Mixed leases. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. 1040ez tax forms 2014   Property is placed in service when the lessee first may use it under the terms of a lease. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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). 1040ez tax forms 2014 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. 1040ez tax forms 2014 Exception for rents based on net profit. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Exception for income from personal services. 1040ez tax forms 2014   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Other exceptions. 1040ez tax forms 2014   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. 1040ez tax forms 2014 ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). 1040ez tax forms 2014 See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. 1040ez tax forms 2014 Income from research. 1040ez tax forms 2014   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. 1040ez tax forms 2014 However, the extent of the exclusion depends on the nature of the organization and the type of research. 1040ez tax forms 2014   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. 1040ez tax forms 2014   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. 1040ez tax forms 2014 Gains and losses from disposition of property. 1040ez tax forms 2014   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. 1040ez tax forms 2014   It should be noted that the last exception relates only to cut timber. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Lapse or termination of options. 1040ez tax forms 2014   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. 1040ez tax forms 2014 The exclusion applies only if the option is written in connection with the exempt organization's investment activities. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Exception. 1040ez tax forms 2014   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. 1040ez tax forms 2014 Gain or loss on disposition of certain brownfield property. 1040ez tax forms 2014   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. 1040ez tax forms 2014 See sections 512(b)(19) and 514(b)(1)(E). 1040ez tax forms 2014 Income from services provided under federal license. 1040ez tax forms 2014   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. 1040ez tax forms 2014   This exclusion applies only if the following requirements are met. 1040ez tax forms 2014 The trade or business must have been operated by the order or by the institution before May 27, 1959. 1040ez tax forms 2014 The trade or business must provide services under a license issued by a federal regulatory agency. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Exception. 1040ez tax forms 2014    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). 1040ez tax forms 2014 Member income of mutual or cooperative electric companies. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Exception. 1040ez tax forms 2014   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. 1040ez tax forms 2014 The limit on dues paid by an associate member is $148 for 2011. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 They cannot be directly connected with excluded income. 1040ez tax forms 2014 For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. 1040ez tax forms 2014 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. 1040ez tax forms 2014 For an exception, see Expenses attributable to exploitation of exempt activities, later. 1040ez tax forms 2014 Expenses attributable solely to unrelated business. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Expenses attributable to dual use of facilities or personnel. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example 1. 1040ez tax forms 2014 A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. 1040ez tax forms 2014 The school provides the tennis courts, housing, and dining facilities. 1040ez tax forms 2014 The contracted individual hires the instructors, recruits campers, and provides supervision. 1040ez tax forms 2014 The income the school receives from this activity is from a dual use of the facilities and personnel. 1040ez tax forms 2014 The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. 1040ez tax forms 2014 Example 2. 1040ez tax forms 2014 An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. 1040ez tax forms 2014 The president devotes approximately 10% of his time to the unrelated business. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Expenses attributable to exploitation of exempt activities. 1040ez tax forms 2014   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. 1040ez tax forms 2014 (See Exploitation of exempt functions under Not substantially related in chapter 3. 1040ez tax forms 2014 ) 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. 1040ez tax forms 2014 Exception. 1040ez tax forms 2014   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. 1040ez tax forms 2014 The unrelated business exploits the exempt activity. 1040ez tax forms 2014 The unrelated business is a type normally conducted for profit by taxable organizations. 1040ez tax forms 2014 The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. 1040ez tax forms 2014 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. 1040ez tax forms 2014   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. 1040ez tax forms 2014 ) Figuring unrelated business taxable income (UBTI). 1040ez tax forms 2014   The UBTI of an advertising activity is the amount shown in the following chart. 1040ez tax forms 2014 IF gross advertising income is . 1040ez tax forms 2014 . 1040ez tax forms 2014 . 1040ez tax forms 2014 THEN UBTI is . 1040ez tax forms 2014 . 1040ez tax forms 2014 . 1040ez tax forms 2014 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. 1040ez tax forms 2014 Equal to or less than direct advertising costs Zero. 1040ez tax forms 2014   • Circulation income and readership costs are not taken into account. 1040ez tax forms 2014   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. 1040ez tax forms 2014   The terms used in the chart are explained in the following discussions. 1040ez tax forms 2014 Periodical Income Gross advertising income. 1040ez tax forms 2014   This is all the income from the unrelated advertising activities of an exempt organization periodical. 1040ez tax forms 2014 Circulation income. 1040ez tax forms 2014   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). 1040ez tax forms 2014 It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. 1040ez tax forms 2014 It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. 1040ez tax forms 2014 Allocable membership receipts. 1040ez tax forms 2014   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. 1040ez tax forms 2014   The amount used to allocate membership receipts is the amount shown in the following chart. 1040ez tax forms 2014   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. 1040ez tax forms 2014 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. 1040ez tax forms 2014 IF . 1040ez tax forms 2014 . 1040ez tax forms 2014 . 1040ez tax forms 2014 THEN the amount used to allocate membership receipts is . 1040ez tax forms 2014 . 1040ez tax forms 2014 . 1040ez tax forms 2014 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 U is an exempt scientific organization with 10,000 members who pay annual dues of $15. 1040ez tax forms 2014 One of U's activities is publishing a monthly periodical distributed to all of its members. 1040ez tax forms 2014 U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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). 1040ez tax forms 2014 Example 2. 1040ez tax forms 2014 Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). 1040ez tax forms 2014 U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). 1040ez tax forms 2014 Periodical Costs Direct advertising costs. 1040ez tax forms 2014   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Readership costs. 1040ez tax forms 2014   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. 1040ez tax forms 2014 Costs partly attributable to other activities. 1040ez tax forms 2014   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. 1040ez tax forms 2014 When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. 1040ez tax forms 2014 The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. 1040ez tax forms 2014 Consolidated treatment, once adopted, must be followed consistently and is binding. 1040ez tax forms 2014 This treatment can be changed only with the consent of the Internal Revenue Service. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. 1040ez tax forms 2014 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. 1040ez tax forms 2014 It is not engaged in for profit. 1040ez tax forms 2014 Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Modifications Net operating loss deduction. 1040ez tax forms 2014   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. 1040ez tax forms 2014 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. 1040ez tax forms 2014 For example, a loss from an unrelated trade or business is not diminished because dividend income was received. 1040ez tax forms 2014   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. 1040ez tax forms 2014 This would reduce the loss that could be applied against unrelated business income of prior or future tax years. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Charitable contributions deduction. 1040ez tax forms 2014   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. 1040ez tax forms 2014   To be deductible, the contribution must be paid to another qualified organization. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Deduction limits. 1040ez tax forms 2014   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. 1040ez tax forms 2014 See the Instructions for Form 990-T for more information. 1040ez tax forms 2014    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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   Contributions in excess of the limits just described may be carried over to the next 5 tax years. 1040ez tax forms 2014 A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. 1040ez tax forms 2014 Suspension of deduction limits for farmers and ranchers. 1040ez tax forms 2014   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. 1040ez tax forms 2014 See the Instructions for Form 990-T for details. 1040ez tax forms 2014 Specific deduction. 1040ez tax forms 2014   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. 1040ez tax forms 2014 However, the specific deduction is not allowed in computing an NOL or the NOL deduction. 1040ez tax forms 2014   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. 1040ez tax forms 2014 Exception. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The local units cannot file separate returns. 1040ez tax forms 2014 However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 X is an association of churches and is divided into local units A, B, C, and D. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 No distinction is made between limited and general partners. 1040ez tax forms 2014 The organization is required to notify the partnership of its tax-exempt status. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The partnership is required to provide the organization this information on Schedule K-1. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 An exempt educational organization is a partner in a partnership that operates a factory. 1040ez tax forms 2014 The partnership also holds stock in a corporation. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Different tax years. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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). 1040ez tax forms 2014 These organizations must figure unrelated business taxable income under special rules. 1040ez tax forms 2014 Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. 1040ez tax forms 2014 ). 1040ez tax forms 2014 (See Exclusions under Income, earlier. 1040ez tax forms 2014 ) Therefore, they are generally subject to unrelated business income tax on this income. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Losses from nonexempt activities. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. 1040ez tax forms 2014 Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. 1040ez tax forms 2014 Modifications. 1040ez tax forms 2014   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). 1040ez tax forms 2014 Exempt function income. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Exempt function income also includes income set aside for qualified purposes. 1040ez tax forms 2014 Income that is set aside. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. 1040ez tax forms 2014 These rules are explained in section 512(a)(3)(E)(ii). 1040ez tax forms 2014   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. 1040ez tax forms 2014 In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The income set aside must have been includible in gross income for that earlier year. 1040ez tax forms 2014 Nonrecognition of gain. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 For details, see section 512(a)(4) and the regulations under that section. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. 1040ez tax forms 2014 Excess qualifying specified payments. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   If a controlled participant is not required to file a U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 income tax return, the participant must ensure that the copy or copies of the Regulations section 1. 1040ez tax forms 2014 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 Corporation or a Foreign Corporation Engaged in a U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 Trade or Business, or any Form 8865, Return of U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 Persons With Respect to Certain Foreign Partnerships, filed for that participant. 1040ez tax forms 2014 Addition to tax for valuation misstatements. 1040ez tax forms 2014   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. 1040ez tax forms 2014 See section 512(b)(13)(E)(ii) for more information. 1040ez tax forms 2014 Net unrelated income. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Net unrelated loss. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Control. 1040ez tax forms 2014   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. 1040ez tax forms 2014 For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. 1040ez tax forms 2014   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). 1040ez tax forms 2014 Income from property financed with qualified 501(c)(3) bonds. 1040ez tax forms 2014 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. 1040ez tax forms 2014 No deduction is allowed for interest on the private activity bond. 1040ez tax forms 2014 See sections 150(b)(3) and (c) for more information. 1040ez tax forms 2014 Disposition of property received from taxable subsidiary and used in unrelated business. 1040ez tax forms 2014 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). 1040ez tax forms 2014 The assets are treated as if sold at fair market value. 1040ez tax forms 2014 Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. 1040ez tax forms 2014 S. 1040ez tax forms 2014 and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 In such a case the built-in appreciation is preserved in the replacement property received in the transaction. 1040ez tax forms 2014 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). 1040ez tax forms 2014 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. 1040ez tax forms 2014 In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. 1040ez tax forms 2014 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. 1040ez tax forms 2014 If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. 1040ez tax forms 2014 Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The amount of income included is proportionate to the debt on the property. 1040ez tax forms 2014 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). 1040ez tax forms 2014 It includes rental real estate, tangible personal property, and corporate stock. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example 1. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example 2. 1040ez tax forms 2014 X, an exempt organization, forms a partnership with A and B. 1040ez tax forms 2014 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. 1040ez tax forms 2014 X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. 1040ez tax forms 2014 The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. 1040ez tax forms 2014 The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. 1040ez tax forms 2014 The loan is secured by a mortgage on the entire office building. 1040ez tax forms 2014 By agreement with Y bank, X is not personally liable for payment of the mortgage. 1040ez tax forms 2014 X has acquisition indebtedness of $7 million. 1040ez tax forms 2014 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). 1040ez tax forms 2014 Example 3. 1040ez tax forms 2014 A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. 1040ez tax forms 2014 The union has no outstanding debt on the property. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. 1040ez tax forms 2014 Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Accordingly, the debt is not acquisition indebtedness. 1040ez tax forms 2014 Change in use of property. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 Four years ago a university borrowed funds to acquire an apartment building as housing for married students. 1040ez tax forms 2014 Last year, the university rented the apartment building to the public for nonexempt purposes. 1040ez tax forms 2014 The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. 1040ez tax forms 2014 Continued debt. 1040ez tax forms 2014   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. 1040ez tax forms 2014 This is true even if the original property was not debt-financed property. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The office building was not debt-financed property. 1040ez tax forms 2014 The organization later sold the building for $1 million without repaying the $400,000 loan. 1040ez tax forms 2014 It used the sale proceeds to buy an apartment building it rents to the general public. 1040ez tax forms 2014 The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. 1040ez tax forms 2014 Property acquired subject to mortgage or lien. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. 1040ez tax forms 2014 The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. 1040ez tax forms 2014 Liens similar to a mortgage. 1040ez tax forms 2014   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. 1040ez tax forms 2014 A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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). 1040ez tax forms 2014 Exception for property acquired by gift, bequest, or devise. 1040ez tax forms 2014   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. 1040ez tax forms 2014 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. 1040ez tax forms 2014   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). 1040ez tax forms 2014   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. 1040ez tax forms 2014 Modifying existing debt. 1040ez tax forms 2014   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Extension or renewal. 1040ez tax forms 2014   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. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Debt increase. 1040ez tax forms 2014   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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. 1040ez tax forms 2014 These include the following. 1040ez tax forms 2014 Debts incurred in performing an exempt purpose. 1040ez tax forms 2014 Annuity obligations. 1040ez tax forms 2014 Securities loans. 1040ez tax forms 2014 Real property debts of qualified organizations. 1040ez tax forms 2014 Certain Federal financing. 1040ez tax forms 2014 Debt incurred in performing exempt purpose. 1040ez tax forms 2014   A debt incurred in performing an exempt purpose is not acquisition indebtedness. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Annuity obligation. 1040ez tax forms 2014   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. 1040ez tax forms 2014 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. 1040ez tax forms 2014 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. 1040ez tax forms 2014 It must be payable over the lives of either one or two individuals living when issued. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Example. 1040ez tax forms 2014 X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. 1040ez tax forms 2014 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. 1040ez tax forms 2014 The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. 1040ez tax forms 2014 The present value of this annuity is $81,156, determined from IRS valuation tables. 1040ez tax forms 2014 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. 1040ez tax forms 2014 Securities loans. 1040ez tax forms 2014   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). 1040ez tax forms 2014 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. 1040ez tax forms 2014   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from