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1040x Instructions Dummies

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1040x Instructions Dummies

1040x instructions dummies 7. 1040x instructions dummies   Interest Income Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationSSN for joint account. 1040x instructions dummies Custodian account for your child. 1040x instructions dummies Penalty for failure to supply SSN. 1040x instructions dummies Reporting backup withholding. 1040x instructions dummies Savings account with parent as trustee. 1040x instructions dummies Interest not reported on Form 1099-INT. 1040x instructions dummies Nominees. 1040x instructions dummies Incorrect amount. 1040x instructions dummies Information reporting requirement. 1040x instructions dummies Taxable InterestInterest subject to penalty for early withdrawal. 1040x instructions dummies Money borrowed to invest in certificate of deposit. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds Education Savings Bond Program U. 1040x instructions dummies S. 1040x instructions dummies Treasury Bills, Notes, and Bonds Bonds Sold Between Interest Dates Insurance State or Local Government Obligations Original Issue Discount (OID) When To Report Interest IncomeConstructive receipt. 1040x instructions dummies How To Report Interest IncomeSchedule B (Form 1040A or 1040). 1040x instructions dummies Reporting tax-exempt interest. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest previously reported. 1040x instructions dummies Reminder Foreign-source income. 1040x instructions dummies  If you are a U. 1040x instructions dummies S. 1040x instructions dummies citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. 1040x instructions dummies S. 1040x instructions dummies law. 1040x instructions dummies This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. 1040x instructions dummies Introduction This chapter discusses the following topics. 1040x instructions dummies Different types of interest income. 1040x instructions dummies What interest is taxable and what interest is nontaxable. 1040x instructions dummies When to report interest income. 1040x instructions dummies How to report interest income on your tax return. 1040x instructions dummies In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. 1040x instructions dummies Exceptions to this rule are discussed later in this chapter. 1040x instructions dummies You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. 1040x instructions dummies See Money borrowed to invest in certificate of deposit , later, and chapter 28. 1040x instructions dummies Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends 8815 Exclusion of Interest From Series EE and I U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds Issued After 1989 8818 Optional Form To Record Redemption of Series EE and I U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds Issued After 1989 General Information A few items of general interest are covered here. 1040x instructions dummies Recordkeeping. 1040x instructions dummies You should keep a list showing sources and interest amounts received during the year. 1040x instructions dummies Also, keep the forms you receive showing your interest income (Forms 1099-INT, for example) as an important part of your records. 1040x instructions dummies Tax on unearned income of certain children. 1040x instructions dummies    Part of a child's 2013 unearned income may be taxed at the parent's tax rate. 1040x instructions dummies If so, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. 1040x instructions dummies If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. 1040x instructions dummies   Some parents can choose to include the child's interest and dividends on the parent's return. 1040x instructions dummies If you can, use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. 1040x instructions dummies   For more information about the tax on unearned income of children and the parents' election, see chapter 31. 1040x instructions dummies Beneficiary of an estate or trust. 1040x instructions dummies   Interest you receive as a beneficiary of an estate or trust is generally taxable income. 1040x instructions dummies You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. 1040x instructions dummies , from the fiduciary. 1040x instructions dummies Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. 1040x instructions dummies Social security number (SSN). 1040x instructions dummies   You must give your name and SSN or individual tax identification number (ITIN) to any person required by federal tax law to make a return, statement, or other document that relates to you. 1040x instructions dummies This includes payers of interest. 1040x instructions dummies If you do not give your SSN or ITIN to the payer of interest, you may have to pay a penalty. 1040x instructions dummies SSN for joint account. 1040x instructions dummies   If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. 1040x instructions dummies (For information on who owns the funds in a joint account, see Joint accounts , later. 1040x instructions dummies ) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. 1040x instructions dummies This is because only one name and SSN can be shown on Form 1099. 1040x instructions dummies   These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. 1040x instructions dummies For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. 1040x instructions dummies Custodian account for your child. 1040x instructions dummies   If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. 1040x instructions dummies For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. 1040x instructions dummies Penalty for failure to supply SSN. 1040x instructions dummies   If you do not give your SSN to the payer of interest, you may have to pay a penalty. 1040x instructions dummies See Failure to supply SSN under Penalties in chapter 1. 1040x instructions dummies Backup withholding also may apply. 1040x instructions dummies Backup withholding. 1040x instructions dummies   Your interest income is generally not subject to regular withholding. 1040x instructions dummies However, it may be subject to backup withholding to ensure that income tax is collected on the income. 1040x instructions dummies Under backup withholding, the payer of interest must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. 1040x instructions dummies   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. 1040x instructions dummies For more information, see Backup Withholding in chapter 4. 1040x instructions dummies Reporting backup withholding. 1040x instructions dummies   If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year indicating the amount withheld. 1040x instructions dummies The Form 1099-INT will show any backup withholding as “Federal income tax withheld. 1040x instructions dummies ” Joint accounts. 1040x instructions dummies   If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law. 1040x instructions dummies Income from property given to a child. 1040x instructions dummies   Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property. 1040x instructions dummies   Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. 1040x instructions dummies Savings account with parent as trustee. 1040x instructions dummies   Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. 1040x instructions dummies The savings account legally belongs to the child. 1040x instructions dummies The parents are not legally permitted to use any of the funds to support the child. 1040x instructions dummies Form 1099-INT. 1040x instructions dummies   Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. 1040x instructions dummies This form shows you the interest you received during the year. 1040x instructions dummies Keep this form for your records. 1040x instructions dummies You do not have to attach it to your tax return. 1040x instructions dummies   Report on your tax return the total interest income you receive for the tax year. 1040x instructions dummies Interest not reported on Form 1099-INT. 1040x instructions dummies   Even if you do not receive Form 1099-INT, you must still report all of your interest income. 1040x instructions dummies For example, you may receive distributive shares of interest from partnerships or S corporations. 1040x instructions dummies This interest is reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deduction, Credits, etc. 1040x instructions dummies , or Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. 1040x instructions dummies Nominees. 1040x instructions dummies   Generally, if someone receives interest as a nominee for you, that person must give you a Form 1099-INT showing the interest received on your behalf. 1040x instructions dummies   If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or Schedule B (Form 1040A or 1040) instructions. 1040x instructions dummies Incorrect amount. 1040x instructions dummies   If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. 1040x instructions dummies The new Form 1099-INT you receive will be marked “Corrected. 1040x instructions dummies ” Form 1099-OID. 1040x instructions dummies   Reportable interest income also may be shown on Form 1099-OID, Original Issue Discount. 1040x instructions dummies For more information about amounts shown on this form, see Original Issue Discount (OID) , later in this chapter. 1040x instructions dummies Exempt-interest dividends. 1040x instructions dummies   Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. 1040x instructions dummies (However, see Information reporting requirement , next. 1040x instructions dummies ) Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. 1040x instructions dummies You do not reduce your basis for distributions that are exempt-interest dividends. 1040x instructions dummies Information reporting requirement. 1040x instructions dummies   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. 1040x instructions dummies This is an information reporting requirement and does not change the exempt-interest dividends into taxable income. 1040x instructions dummies Note. 1040x instructions dummies Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. 1040x instructions dummies See Alternative Minimum Tax (AMT) in chapter 30 for more information. 1040x instructions dummies Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations. 1040x instructions dummies Interest on VA dividends. 1040x instructions dummies   Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable. 1040x instructions dummies This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. 1040x instructions dummies Individual retirement arrangements (IRAs). 1040x instructions dummies   Interest on a Roth IRA generally is not taxable. 1040x instructions dummies Interest on a traditional IRA is tax deferred. 1040x instructions dummies You generally do not include it in your income until you make withdrawals from the IRA. 1040x instructions dummies See chapter 17. 1040x instructions dummies Taxable Interest Taxable interest includes interest you receive from bank accounts, loans you make to others, and other sources. 1040x instructions dummies The following are some sources of taxable interest. 1040x instructions dummies Dividends that are actually interest. 1040x instructions dummies   Certain distributions commonly called dividends are actually interest. 1040x instructions dummies You must report as interest so-called “dividends” on deposits or on share accounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks. 1040x instructions dummies  The “dividends” will be shown as interest income on Form 1099-INT. 1040x instructions dummies Money market funds. 1040x instructions dummies   Money market funds pay dividends and are offered by nonbank financial institutions, such as mutual funds and stock brokerage houses. 1040x instructions dummies Generally, amounts you receive from money market funds should be reported as dividends, not as interest. 1040x instructions dummies Certificates of deposit and other deferred interest accounts. 1040x instructions dummies   If you open any of these accounts, interest may be paid at fixed intervals of 1 year or less during the term of the account. 1040x instructions dummies You generally must include this interest in your income when you actually receive it or are entitled to receive it without paying a substantial penalty. 1040x instructions dummies The same is true for accounts that mature in 1 year or less and pay interest in a single payment at maturity. 1040x instructions dummies If interest is deferred for more than 1 year, see Original Issue Discount (OID) , later. 1040x instructions dummies Interest subject to penalty for early withdrawal. 1040x instructions dummies   If you withdraw funds from a deferred interest account before maturity, you may have to pay a penalty. 1040x instructions dummies You must report the total amount of interest paid or credited to your account during the year, without subtracting the penalty. 1040x instructions dummies See Penalty on early withdrawal of savings in chapter 1 of Publication 550 for more information on how to report the interest and deduct the penalty. 1040x instructions dummies Money borrowed to invest in certificate of deposit. 1040x instructions dummies   The interest you pay on money borrowed from a bank or savings institution to meet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separate items. 1040x instructions dummies You must report the total interest you earn on the certificate in your income. 1040x instructions dummies If you itemize deductions, you can deduct the interest you pay as investment interest, up to the amount of your net investment income. 1040x instructions dummies See Interest Expenses in chapter 3 of Publication 550. 1040x instructions dummies Example. 1040x instructions dummies You deposited $5,000 with a bank and borrowed $5,000 from the bank to make up the $10,000 minimum deposit required to buy a 6-month certificate of deposit. 1040x instructions dummies The certificate earned $575 at maturity in 2013, but you received only $265, which represented the $575 you earned minus $310 interest charged on your $5,000 loan. 1040x instructions dummies The bank gives you a Form 1099-INT for 2013 showing the $575 interest you earned. 1040x instructions dummies The bank also gives you a statement showing that you paid $310 interest for 2013. 1040x instructions dummies You must include the $575 in your income. 1040x instructions dummies If you itemize your deductions on Schedule A (Form 1040), you can deduct $310, subject to the net investment income limit. 1040x instructions dummies Gift for opening account. 1040x instructions dummies   If you receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest. 1040x instructions dummies   For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. 1040x instructions dummies For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. 1040x instructions dummies The value is determined by the cost to the financial institution. 1040x instructions dummies Example. 1040x instructions dummies You open a savings account at your local bank and deposit $800. 1040x instructions dummies The account earns $20 interest. 1040x instructions dummies You also receive a $15 calculator. 1040x instructions dummies If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. 1040x instructions dummies You must report $35 interest income on your tax return. 1040x instructions dummies Interest on insurance dividends. 1040x instructions dummies   Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited to your account. 1040x instructions dummies However, if you can withdraw it only on the anniversary date of the policy (or other specified date), the interest is taxable in the year that date occurs. 1040x instructions dummies Prepaid insurance premiums. 1040x instructions dummies   Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies obligations. 1040x instructions dummies   Interest on U. 1040x instructions dummies S. 1040x instructions dummies obligations, such as U. 1040x instructions dummies S. 1040x instructions dummies Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. 1040x instructions dummies Interest on tax refunds. 1040x instructions dummies   Interest you receive on tax refunds is taxable income. 1040x instructions dummies Interest on condemnation award. 1040x instructions dummies   If the condemning authority pays you interest to compensate you for a delay in payment of an award, the interest is taxable. 1040x instructions dummies Installment sale payments. 1040x instructions dummies   If a contract for the sale or exchange of property provides for deferred payments, it also usually provides for interest payable with the deferred payments. 1040x instructions dummies That interest is taxable when you receive it. 1040x instructions dummies If little or no interest is provided for in a deferred payment contract, part of each payment may be treated as interest. 1040x instructions dummies See Unstated Interest and Original Issue Discount in Publication 537, Installment Sales. 1040x instructions dummies Interest on annuity contract. 1040x instructions dummies   Accumulated interest on an annuity contract you sell before its maturity date is taxable. 1040x instructions dummies Usurious interest. 1040x instructions dummies   Usurious interest is interest charged at an illegal rate. 1040x instructions dummies This is taxable as interest unless state law automatically changes it to a payment on the principal. 1040x instructions dummies Interest income on frozen deposits. 1040x instructions dummies   Exclude from your gross income interest on frozen deposits. 1040x instructions dummies A deposit is frozen if, at the end of the year, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because other financial institutions in the state are bankrupt or insolvent. 1040x instructions dummies   The amount of interest you must exclude is the interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from these deposits during the year, and The amount you could have withdrawn as of the end of the year (not reduced by any penalty for premature withdrawals of a time deposit). 1040x instructions dummies If you receive a Form 1099-INT for interest income on deposits that were frozen at the end of 2013, see Frozen deposits under How To Report Interest Income in chapter 1 of Publication 550, for information about reporting this interest income exclusion on your tax return. 1040x instructions dummies   The interest you exclude is treated as credited to your account in the following year. 1040x instructions dummies You must include it in income in the year you can withdraw it. 1040x instructions dummies Example. 1040x instructions dummies $100 of interest was credited on your frozen deposit during the year. 1040x instructions dummies You withdrew $80 but could not withdraw any more as of the end of the year. 1040x instructions dummies You must include $80 in your income and exclude $20 from your income for the year. 1040x instructions dummies You must include the $20 in your income for the year you can withdraw it. 1040x instructions dummies Bonds traded flat. 1040x instructions dummies   If you buy a bond at a discount when interest has been defaulted or when the interest has accrued but has not been paid, the transaction is described as trading a bond flat. 1040x instructions dummies The defaulted or unpaid interest is not income and is not taxable as interest if paid later. 1040x instructions dummies When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. 1040x instructions dummies Interest that accrues after the date of purchase, however, is taxable interest income for the year it is received or accrued. 1040x instructions dummies See Bonds Sold Between Interest Dates , later, for more information. 1040x instructions dummies Below-market loans. 1040x instructions dummies   In general, a below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 1040x instructions dummies See Below-Market Loans in chapter 1 of Publication 550 for more information. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds This section provides tax information on U. 1040x instructions dummies S. 1040x instructions dummies savings bonds. 1040x instructions dummies It explains how to report the interest income on these bonds and how to treat transfers of these bonds. 1040x instructions dummies For other information on U. 1040x instructions dummies S. 1040x instructions dummies savings bonds, write to:  For series EE and I paper savings bonds: Bureau of the Public Debt Division of Customer Assistance P. 1040x instructions dummies O. 1040x instructions dummies Box 7012 Parkersburg, WV 26106-7012  For series EE and I electronic bonds: Bureau of the Public Debt Division of Customer Assistance P. 1040x instructions dummies O. 1040x instructions dummies Box 7015 Parkersburg, WV 26106–7015  For series HH/H: Bureau of the Public Debt Division of Customer Assistance P. 1040x instructions dummies O. 1040x instructions dummies Box 2186 Parkersburg, WV 26106-2186 Or, on the Internet, visit: www. 1040x instructions dummies treasurydirect. 1040x instructions dummies gov/indiv/indiv. 1040x instructions dummies htm. 1040x instructions dummies Accrual method taxpayers. 1040x instructions dummies   If you use an accrual method of accounting, you must report interest on U. 1040x instructions dummies S. 1040x instructions dummies savings bonds each year as it accrues. 1040x instructions dummies You cannot postpone reporting interest until you receive it or until the bonds mature. 1040x instructions dummies Accrual methods of accounting are explained in chapter 1 under Accounting Methods . 1040x instructions dummies Cash method taxpayers. 1040x instructions dummies   If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U. 1040x instructions dummies S. 1040x instructions dummies savings bonds when you receive it. 1040x instructions dummies The cash method of accounting is explained in chapter 1 under Accounting Methods. 1040x instructions dummies But see Reporting options for cash method taxpayers , later. 1040x instructions dummies Series HH bonds. 1040x instructions dummies    These bonds were issued at face value. 1040x instructions dummies Interest is paid twice a year by direct deposit to your bank account. 1040x instructions dummies If you are a cash method taxpayer, you must report interest on these bonds as income in the year you receive it. 1040x instructions dummies   Series HH bonds were first offered in 1980 and last offered in August 2004. 1040x instructions dummies Before 1980, series H bonds were issued. 1040x instructions dummies Series H bonds are treated the same as series HH bonds. 1040x instructions dummies If you are a cash method taxpayer, you must report the interest when you receive it. 1040x instructions dummies   Series H bonds have a maturity period of 30 years. 1040x instructions dummies Series HH bonds mature in 20 years. 1040x instructions dummies The last series H bonds matured in 2009. 1040x instructions dummies Series EE and series I bonds. 1040x instructions dummies   Interest on these bonds is payable when you redeem the bonds. 1040x instructions dummies The difference between the purchase price and the redemption value is taxable interest. 1040x instructions dummies Series EE bonds. 1040x instructions dummies   Series EE bonds were first offered in January 1980 and have a maturity period of 30 years. 1040x instructions dummies   Before July 1980, series E bonds were issued. 1040x instructions dummies The original 10-year maturity period of series E bonds has been extended to 40 years for bonds issued before December 1965 and 30 years for bonds issued after November 1965. 1040x instructions dummies Paper series EE and series E bonds are issued at a discount. 1040x instructions dummies The face value is payable to you at maturity. 1040x instructions dummies Electronic series EE bonds are issued at their face value. 1040x instructions dummies The face value plus accrued interest is payable to you at maturity. 1040x instructions dummies As of January 1, 2012, paper savings bonds were no longer sold at financial institutions. 1040x instructions dummies   Owners of paper series EE bonds can convert them to electronic bonds. 1040x instructions dummies These converted bonds do not retain the denomination listed on the paper certificate but are posted at their purchase price (with accrued interest). 1040x instructions dummies Series I bonds. 1040x instructions dummies   Series I bonds were first offered in 1998. 1040x instructions dummies These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. 1040x instructions dummies The face value plus all accrued interest is payable to you at maturity. 1040x instructions dummies Reporting options for cash method taxpayers. 1040x instructions dummies   If you use the cash method of reporting income, you can report the interest on series EE, series E, and series I bonds in either of the following ways. 1040x instructions dummies Method 1. 1040x instructions dummies Postpone reporting the interest until the earlier of the year you cash or dispose of the bonds or the year they mature. 1040x instructions dummies (However, see Savings bonds traded , later. 1040x instructions dummies )  Note. 1040x instructions dummies Series EE bonds issued in 1983 matured in 2013. 1040x instructions dummies If you have used method 1, you generally must report the interest on these bonds on your 2013 return. 1040x instructions dummies The last series E bonds were issued in 1980 and matured in 2010. 1040x instructions dummies If you used method 1, you generally should have reported the interest on these bonds on your 2010 return. 1040x instructions dummies Method 2. 1040x instructions dummies Choose to report the increase in redemption value as interest each year. 1040x instructions dummies You must use the same method for all series EE, series E, and series I bonds you own. 1040x instructions dummies If you do not choose method 2 by reporting the increase in redemption value as interest each year, you must use method 1. 1040x instructions dummies    If you plan to cash your bonds in the same year you will pay for higher education expenses, you may want to use method 1 because you may be able to exclude the interest from your income. 1040x instructions dummies To learn how, see Education Savings Bond Program, later. 1040x instructions dummies Change from method 1. 1040x instructions dummies   If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. 1040x instructions dummies In the year of change you must report all interest accrued to date and not previously reported for all your bonds. 1040x instructions dummies   Once you choose to report the interest each year, you must continue to do so for all series EE, series E, and series I bonds you own and for any you get later, unless you request permission to change, as explained next. 1040x instructions dummies Change from method 2. 1040x instructions dummies   To change from method 2 to method 1, you must request permission from the IRS. 1040x instructions dummies Permission for the change is automatically granted if you send the IRS a statement that meets all the following requirements. 1040x instructions dummies You have typed or printed the following number at the top: “131. 1040x instructions dummies ” It includes your name and social security number under “131. 1040x instructions dummies ” It includes the year of change (both the beginning and ending dates). 1040x instructions dummies It identifies the savings bonds for which you are requesting this change. 1040x instructions dummies It includes your agreement to: Report all interest on any bonds acquired during or after the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, and Report all interest on the bonds acquired before the year of change when the interest is realized upon disposition, redemption, or final maturity, whichever is earliest, with the exception of the interest reported in prior tax years. 1040x instructions dummies   You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). 1040x instructions dummies   You can have an automatic extension of 6 months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. 1040x instructions dummies On the statement, type or print “Filed pursuant to section 301. 1040x instructions dummies 9100-2. 1040x instructions dummies ” To get this extension, you must have filed your original return for the year of the change by the due date (including extensions). 1040x instructions dummies    By the date you file the original statement with your return, you must also send a signed copy to the address below. 1040x instructions dummies   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) P. 1040x instructions dummies O. 1040x instructions dummies Box 7604 Benjamin Franklin Station Washington, DC 20044   If you use a private delivery service, send the signed copy to the address below. 1040x instructions dummies   Internal Revenue Service Attention: CC:IT&A (Automatic Rulings Branch) Room 5336 1111 Constitution Avenue, NW  Washington, DC 20224   Instead of filing this statement, you can request permission to change from method 2 to method 1 by filing Form 3115, Application for Change in Accounting Method. 1040x instructions dummies In that case, follow the form instructions for an automatic change. 1040x instructions dummies No user fee is required. 1040x instructions dummies Co-owners. 1040x instructions dummies   If a U. 1040x instructions dummies S. 1040x instructions dummies savings bond is issued in the names of co-owners, such as you and your child or you and your spouse, interest on the bond is generally taxable to the co-owner who bought the bond. 1040x instructions dummies One co-owner's funds used. 1040x instructions dummies    If you used your funds to buy the bond, you must pay the tax on the interest. 1040x instructions dummies This is true even if you let the other co-owner redeem the bond and keep all the proceeds. 1040x instructions dummies Under these circumstances, the co-owner who redeemed the bond will receive a Form 1099-INT at the time of redemption and must provide you with another Form 1099-INT showing the amount of interest from the bond taxable to you. 1040x instructions dummies The co-owner who redeemed the bond is a “nominee. 1040x instructions dummies ” See Nominee distributions under How To Report Interest Income in chapter 1 of Publication 550 for more information about how a person who is a nominee reports interest income belonging to another person. 1040x instructions dummies Both co-owners' funds used. 1040x instructions dummies   If you and the other co-owner each contribute part of the bond's purchase price, the interest is generally taxable to each of you, in proportion to the amount each of you paid. 1040x instructions dummies Community property. 1040x instructions dummies   If you and your spouse live in a community property state and hold bonds as community property, one-half of the interest is considered received by each of you. 1040x instructions dummies If you file separate returns, each of you generally must report one-half of the bond interest. 1040x instructions dummies For more information about community property, see Publication 555. 1040x instructions dummies Table 7-1. 1040x instructions dummies   These rules are also shown in Table 7-1. 1040x instructions dummies Ownership transferred. 1040x instructions dummies   If you bought series E, series EE, or series I bonds entirely with your own funds and had them reissued in your co-owner's name or beneficiary's name alone, you must include in your gross income for the year of reissue all interest that you earned on these bonds and have not previously reported. 1040x instructions dummies But, if the bonds were reissued in your name alone, you do not have to report the interest accrued at that time. 1040x instructions dummies   This same rule applies when bonds (other than bonds held as community property) are transferred between spouses or incident to divorce. 1040x instructions dummies Purchased jointly. 1040x instructions dummies   If you and a co-owner each contributed funds to buy series E, series EE, or series I bonds jointly and later have the bonds reissued in the co-owner's name alone, you must include in your gross income for the year of reissue your share of all the interest earned on the bonds that you have not previously reported. 1040x instructions dummies The former co-owner does not have to include in gross income at the time of reissue his or her share of the interest earned that was not reported before the transfer. 1040x instructions dummies This interest, however, as well as all interest earned after the reissue, is income to the former co-owner. 1040x instructions dummies   This income-reporting rule also applies when the bonds are reissued in the name of your former co-owner and a new co-owner. 1040x instructions dummies But the new co-owner will report only his or her share of the interest earned after the transfer. 1040x instructions dummies   If bonds that you and a co-owner bought jointly are reissued to each of you separately in the same proportion as your contribution to the purchase price, neither you nor your co-owner has to report at that time the interest earned before the bonds were reissued. 1040x instructions dummies    Table 7-1. 1040x instructions dummies Who Pays the Tax on U. 1040x instructions dummies S. 1040x instructions dummies Savings Bond Interest IF . 1040x instructions dummies . 1040x instructions dummies . 1040x instructions dummies THEN the interest must be reported by . 1040x instructions dummies . 1040x instructions dummies . 1040x instructions dummies you buy a bond in your name and the name of another person as co-owners, using only your own funds you. 1040x instructions dummies you buy a bond in the name of another person, who is the sole owner of the bond the person for whom you bought the bond. 1040x instructions dummies you and another person buy a bond as co-owners, each contributing part of the purchase price both you and the other co-owner, in proportion to the amount each paid for the bond. 1040x instructions dummies you and your spouse, who live in a community property state, buy a bond that is community property you and your spouse. 1040x instructions dummies If you file separate returns, both you and your spouse generally report one-half of the interest. 1040x instructions dummies Example 1. 1040x instructions dummies You and your spouse each spent an equal amount to buy a $1,000 series EE savings bond. 1040x instructions dummies The bond was issued to you and your spouse as co-owners. 1040x instructions dummies You both postpone reporting interest on the bond. 1040x instructions dummies You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. 1040x instructions dummies At that time neither you nor your spouse has to report the interest earned to the date of reissue. 1040x instructions dummies Example 2. 1040x instructions dummies You bought a $1,000 series EE savings bond entirely with your own funds. 1040x instructions dummies The bond was issued to you and your spouse as co-owners. 1040x instructions dummies You both postpone reporting interest on the bond. 1040x instructions dummies You later have the bond reissued as two $500 bonds, one in your name and one in your spouse's name. 1040x instructions dummies You must report half the interest earned to the date of reissue. 1040x instructions dummies Transfer to a trust. 1040x instructions dummies   If you own series E, series EE, or series I bonds and transfer them to a trust, giving up all rights of ownership, you must include in your income for that year the interest earned to the date of transfer if you have not already reported it. 1040x instructions dummies However, if you are considered the owner of the trust and if the increase in value both before and after the transfer continues to be taxable to you, you can continue to defer reporting the interest earned each year. 1040x instructions dummies You must include the total interest in your income in the year you cash or dispose of the bonds or the year the bonds finally mature, whichever is earlier. 1040x instructions dummies   The same rules apply to previously unreported interest on series EE or series E bonds if the transfer to a trust consisted of series HH or series H bonds you acquired in a trade for the series EE or series E bonds. 1040x instructions dummies See Savings bonds traded , later. 1040x instructions dummies Decedents. 1040x instructions dummies   The manner of reporting interest income on series E, series EE, or series I bonds, after the death of the owner (decedent), depends on the accounting and income-reporting methods previously used by the decedent. 1040x instructions dummies This is explained in chapter 1 of Publication 550. 1040x instructions dummies Savings bonds traded. 1040x instructions dummies   If you postponed reporting the interest on your series EE or series E bonds, you did not recognize taxable income when you traded the bonds for series HH or series H bonds, unless you received cash in the trade. 1040x instructions dummies (You cannot trade series I bonds for series HH bonds. 1040x instructions dummies After August 31, 2004, you cannot trade any other series of bonds for series HH bonds. 1040x instructions dummies ) Any cash you received is income up to the amount of the interest earned on the bonds traded. 1040x instructions dummies When your series HH or series H bonds mature, or if you dispose of them before maturity, you report as interest the difference between their redemption value and your cost. 1040x instructions dummies Your cost is the sum of the amount you paid for the traded series EE or series E bonds plus any amount you had to pay at the time of the trade. 1040x instructions dummies Example. 1040x instructions dummies You traded series EE bonds (on which you postponed reporting the interest) for $2,500 in series HH bonds and $223 in cash. 1040x instructions dummies You reported the $223 as taxable income on your tax return. 1040x instructions dummies At the time of the trade, the series EE bonds had accrued interest of $523 and a redemption value of $2,723. 1040x instructions dummies You hold the series HH bonds until maturity, when you receive $2,500. 1040x instructions dummies You must report $300 as interest income in the year of maturity. 1040x instructions dummies This is the difference between their redemption value, $2,500, and your cost, $2,200 (the amount you paid for the series EE bonds). 1040x instructions dummies (It is also the difference between the accrued interest of $523 on the series EE bonds and the $223 cash received on the trade. 1040x instructions dummies ) Choice to report interest in year of trade. 1040x instructions dummies   You could have chosen to treat all of the previously unreported accrued interest on the series EE or series E bonds traded for series HH bonds as income in the year of the trade. 1040x instructions dummies If you made this choice, it is treated as a change from method 1. 1040x instructions dummies See Change from method 1 under Series EE and series I bonds, earlier. 1040x instructions dummies Form 1099-INT for U. 1040x instructions dummies S. 1040x instructions dummies savings bonds interest. 1040x instructions dummies   When you cash a bond, the bank or other payer that redeems it must give you a Form 1099-INT if the interest part of the payment you receive is $10 or more. 1040x instructions dummies Box 3 of your Form 1099-INT should show the interest as the difference between the amount you received and the amount paid for the bond. 1040x instructions dummies However, your Form 1099-INT may show more interest than you have to include on your income tax return. 1040x instructions dummies For example, this may happen if any of the following are true. 1040x instructions dummies You chose to report the increase in the redemption value of the bond each year. 1040x instructions dummies The interest shown on your Form 1099-INT will not be reduced by amounts previously included in income. 1040x instructions dummies You received the bond from a decedent. 1040x instructions dummies The interest shown on your Form 1099-INT will not be reduced by any interest reported by the decedent before death, or on the decedent's final return, or by the estate on the estate's income tax return. 1040x instructions dummies Ownership of the bond was transferred. 1040x instructions dummies The interest shown on your Form 1099-INT will not be reduced by interest that accrued before the transfer. 1040x instructions dummies You were named as a co-owner, and the other co-owner contributed funds to buy the bond. 1040x instructions dummies The interest shown on your Form 1099-INT will not be reduced by the amount you received as nominee for the other co-owner. 1040x instructions dummies (See Co-owners , earlier in this chapter, for more information about the reporting requirements. 1040x instructions dummies ) You received the bond in a taxable distribution from a retirement or profit-sharing plan. 1040x instructions dummies The interest shown on your Form 1099-INT will not be reduced by the interest portion of the amount taxable as a distribution from the plan and not taxable as interest. 1040x instructions dummies (This amount is generally shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1040x instructions dummies , for the year of distribution. 1040x instructions dummies )   For more information on including the correct amount of interest on your return, see How To Report Interest Income , later. 1040x instructions dummies Publication 550 includes examples showing how to report these amounts. 1040x instructions dummies    Interest on U. 1040x instructions dummies S. 1040x instructions dummies savings bonds is exempt from state and local taxes. 1040x instructions dummies The Form 1099-INT you receive will indicate the amount that is for U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest in box 3. 1040x instructions dummies Education Savings Bond Program You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U. 1040x instructions dummies S. 1040x instructions dummies savings bonds during the year if you pay qualified higher educational expenses during the same year. 1040x instructions dummies This exclusion is known as the Education Savings Bond Program. 1040x instructions dummies You do not qualify for this exclusion if your filing status is married filing separately. 1040x instructions dummies Form 8815. 1040x instructions dummies   Use Form 8815 to figure your exclusion. 1040x instructions dummies Attach the form to your Form 1040 or Form 1040A. 1040x instructions dummies Qualified U. 1040x instructions dummies S. 1040x instructions dummies savings bonds. 1040x instructions dummies   A qualified U. 1040x instructions dummies S. 1040x instructions dummies savings bond is a series EE bond issued after 1989 or a series I bond. 1040x instructions dummies The bond must be issued either in your name (sole owner) or in your and your spouse's names (co-owners). 1040x instructions dummies You must be at least 24 years old before the bond's issue date. 1040x instructions dummies For example, a bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child. 1040x instructions dummies    The issue date of a bond may be earlier than the date the bond is purchased because the issue date assigned to a bond is the first day of the month in which it is purchased. 1040x instructions dummies Beneficiary. 1040x instructions dummies   You can designate any individual (including a child) as a beneficiary of the bond. 1040x instructions dummies Verification by IRS. 1040x instructions dummies   If you claim the exclusion, the IRS will check it by using bond redemption information from the Department of the Treasury. 1040x instructions dummies Qualified expenses. 1040x instructions dummies   Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent (for whom you claim an exemption) to attend an eligible educational institution. 1040x instructions dummies   Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account. 1040x instructions dummies   Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. 1040x instructions dummies Eligible educational institutions. 1040x instructions dummies   These institutions include most public, private, and nonprofit universities, colleges, and vocational schools that are accredited and eligible to participate in student aid programs run by the U. 1040x instructions dummies S. 1040x instructions dummies Department of Education. 1040x instructions dummies Reduction for certain benefits. 1040x instructions dummies   You must reduce your qualified higher educational expenses by all of the following tax-free benefits. 1040x instructions dummies Tax-free part of scholarships and fellowships (see Scholarships and fellowships in chapter 12). 1040x instructions dummies Expenses used to figure the tax-free portion of distributions from a Coverdell ESA. 1040x instructions dummies Expenses used to figure the tax-free portion of distributions from a qualified tuition program. 1040x instructions dummies Any tax-free payments (other than gifts or inheritances) received for educational expenses, such as Veterans' educational assistance benefits, Qualified tuition reductions, or Employer-provided educational assistance. 1040x instructions dummies Any expense used in figuring the American Opportunity and lifetime learning credits. 1040x instructions dummies Amount excludable. 1040x instructions dummies   If the total proceeds (interest and principal) from the qualified U. 1040x instructions dummies S. 1040x instructions dummies savings bonds you redeem during the year are not more than your adjusted qualified higher educational expenses for the year, you may be able to exclude all of the interest. 1040x instructions dummies If the proceeds are more than the expenses, you may be able to exclude only part of the interest. 1040x instructions dummies   To determine the excludable amount, multiply the interest part of the proceeds by a fraction. 1040x instructions dummies The numerator of the fraction is the qualified higher educational expenses you paid during the year. 1040x instructions dummies The denominator of the fraction is the total proceeds you received during the year. 1040x instructions dummies Example. 1040x instructions dummies In February 2013, Mark and Joan, a married couple, cashed a qualified series EE U. 1040x instructions dummies S. 1040x instructions dummies savings bond they bought in April 1997. 1040x instructions dummies They received proceeds of $8,372 representing principal of $5,000 and interest of $3,372. 1040x instructions dummies In 2013, they paid $4,000 of their daughter's college tuition. 1040x instructions dummies They are not claiming an education credit for that amount, and their daughter does not have any tax-free educational assistance. 1040x instructions dummies They can exclude $1,611 ($3,372 × ($4,000 ÷ $8,372)) of interest in 2013. 1040x instructions dummies They must pay tax on the remaining $1,761 ($3,372 − $1,611) interest. 1040x instructions dummies Modified adjusted gross income limit. 1040x instructions dummies   The interest exclusion is limited if your modified adjusted gross income (modified AGI) is: $74,700 to $89,700 for taxpayers filing single or head of household, and $112,050 to $142,050 for married taxpayers filing jointly or for a qualifying widow(er) with dependent child. 1040x instructions dummies You do not qualify for the interest exclusion if your modified AGI is equal to or more than the upper limit for your filing status. 1040x instructions dummies   Modified AGI, for purposes of this exclusion, is adjusted gross income (Form 1040, line 37, or Form 1040A, line 21) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion and deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for tuition and fees, Deduction for student loan interest, and Deduction for domestic production activities. 1040x instructions dummies   Use the Line 9 Worksheet in the Form 8815 instructions to figure your modified AGI. 1040x instructions dummies If you claim any of the exclusion or deduction items listed above (except items 6, 7, and 8), add the amount of the exclusion or deduction (except items 6, 7, and 8) to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. 1040x instructions dummies   If you have investment interest expense incurred to earn royalties and other investment income, see Education Savings Bond Program in chapter 1 of Publication 550. 1040x instructions dummies Recordkeeping. 1040x instructions dummies If you claim the interest exclusion, you must keep a written record of the qualified U. 1040x instructions dummies S. 1040x instructions dummies savings bonds you redeem. 1040x instructions dummies Your record must include the serial number, issue date, face value, and total redemption proceeds (principal and interest) of each bond. 1040x instructions dummies You can use Form 8818 to record this information. 1040x instructions dummies You should also keep bills, receipts, canceled checks, or other documentation that shows you paid qualified higher educational expenses during the year. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies Treasury Bills, Notes, and Bonds Treasury bills, notes, and bonds are direct debts (obligations) of the U. 1040x instructions dummies S. 1040x instructions dummies Government. 1040x instructions dummies Taxation of interest. 1040x instructions dummies   Interest income from Treasury bills, notes, and bonds is subject to federal income tax but is exempt from all state and local income taxes. 1040x instructions dummies You should receive Form 1099-INT showing the interest (in box 3) paid to you for the year. 1040x instructions dummies   Payments of principal and interest generally will be credited to your designated checking or savings account by direct deposit through the TreasuryDirect® system. 1040x instructions dummies Treasury bills. 1040x instructions dummies   These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period. 1040x instructions dummies They are generally issued at a discount in the amount of $100 and multiples of $100. 1040x instructions dummies The difference between the discounted price you pay for the bills and the face value you receive at maturity is interest income. 1040x instructions dummies Generally, you report this interest income when the bill is paid at maturity. 1040x instructions dummies If you paid a premium for a bill (more than the face value), you generally report the premium as a section 171 deduction when the bill is paid at maturity. 1040x instructions dummies Treasury notes and bonds. 1040x instructions dummies   Treasury notes have maturity periods of more than 1 year, ranging up to 10 years. 1040x instructions dummies Maturity periods for Treasury bonds are longer than 10 years. 1040x instructions dummies Both generally are issued in denominations of $100 to $1 million and generally pay interest every 6 months. 1040x instructions dummies Generally, you report this interest for the year paid. 1040x instructions dummies For more information, see U. 1040x instructions dummies S. 1040x instructions dummies Treasury Bills, Notes, and Bonds in chapter 1 of Publication 550. 1040x instructions dummies For other information on Treasury notes or bonds, write to:  Bureau of the Public Debt P. 1040x instructions dummies O. 1040x instructions dummies Box 7015 Parkersburg, WV 26106-7015 Or, on the Internet, visit: www. 1040x instructions dummies treasurydirect. 1040x instructions dummies gov/indiv/indiv. 1040x instructions dummies htm. 1040x instructions dummies For information on series EE, series I, and series HH savings bonds, see U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds , earlier. 1040x instructions dummies Treasury inflation-protected securities (TIPS). 1040x instructions dummies   These securities pay interest twice a year at a fixed rate, based on a principal amount adjusted to take into account inflation and deflation. 1040x instructions dummies For the tax treatment of these securities, see Inflation-Indexed Debt Instruments under Original Issue Discount (OID), in Publication 550. 1040x instructions dummies Bonds Sold Between Interest Dates If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. 1040x instructions dummies You must report that part of the sales price as interest income for the year of sale. 1040x instructions dummies If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. 1040x instructions dummies When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. 1040x instructions dummies See Accrued interest on bonds under How To Report Interest Income in chapter 1 of Publication 550 for information on reporting the payment. 1040x instructions dummies Insurance Life insurance proceeds paid to you as beneficiary of the insured person are usually not taxable. 1040x instructions dummies But if you receive the proceeds in installments, you must usually report a part of each installment payment as interest income. 1040x instructions dummies For more information about insurance proceeds received in installments, see Publication 525, Taxable and Nontaxable Income. 1040x instructions dummies Annuity. 1040x instructions dummies   If you buy an annuity with life insurance proceeds, the annuity payments you receive are taxed as pension and annuity income from a nonqualified plan, not as interest income. 1040x instructions dummies See chapter 10 for information on pension and annuity income from nonqualified plans. 1040x instructions dummies State or Local Government Obligations Interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a possession of the United States, or any of their political subdivisions. 1040x instructions dummies Bonds issued after 1982 (including tribal economic development bonds issued after February 17, 2009) by an Indian tribal government are treated as issued by a state. 1040x instructions dummies Interest on these bonds is generally tax exempt if the bonds are part of an issue of which substantially all proceeds are to be used in the exercise of any essential government function. 1040x instructions dummies For information on federally guaranteed bonds, mortgage revenue bonds, arbitrage bonds, private activity bonds, qualified tax credit bonds, and Build America bonds, see State or Local Government Obligations in chapter 1 of Publication 550. 1040x instructions dummies Information reporting requirement. 1040x instructions dummies   If you must file a tax return, you are required to show any tax-exempt interest you received on your return. 1040x instructions dummies This is an information reporting requirement only. 1040x instructions dummies It does not change tax-exempt interest to taxable interest. 1040x instructions dummies Original Issue Discount (OID) Original issue discount (OID) is a form of interest. 1040x instructions dummies You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer. 1040x instructions dummies A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. 1040x instructions dummies OID is the difference between the stated redemption price at maturity and the issue price. 1040x instructions dummies All debt instruments that pay no interest before maturity are presumed to be issued at a discount. 1040x instructions dummies Zero coupon bonds are one example of these instruments. 1040x instructions dummies The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). 1040x instructions dummies See Discount on Short-Term Obligations in chapter 1 of Publication 550. 1040x instructions dummies De minimis OID. 1040x instructions dummies   You can treat the discount as zero if it is less than one-fourth of 1% (. 1040x instructions dummies 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. 1040x instructions dummies This small discount is known as “de minimis” OID. 1040x instructions dummies Example 1. 1040x instructions dummies You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. 1040x instructions dummies One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. 1040x instructions dummies Because the $20 discount is less than $25, the OID is treated as zero. 1040x instructions dummies (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain. 1040x instructions dummies ) Example 2. 1040x instructions dummies The facts are the same as in Example 1, except that the bond was issued at $950. 1040x instructions dummies The OID is $50. 1040x instructions dummies Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond. 1040x instructions dummies Debt instrument bought after original issue. 1040x instructions dummies   If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. 1040x instructions dummies If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. 1040x instructions dummies See Market Discount Bonds in chapter 1 of Publication 550. 1040x instructions dummies Exceptions to reporting OID. 1040x instructions dummies   The OID rules discussed in this chapter do not apply to the following debt instruments. 1040x instructions dummies Tax-exempt obligations. 1040x instructions dummies (However, see Stripped tax-exempt obligations under Stripped Bonds and Coupons in chapter 1 of Publication 550). 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies savings bonds. 1040x instructions dummies Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue). 1040x instructions dummies Obligations issued by an individual before March 2, 1984. 1040x instructions dummies Loans between individuals if all the following are true. 1040x instructions dummies The lender is not in the business of lending money. 1040x instructions dummies The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less. 1040x instructions dummies Avoiding any federal tax is not one of the principal purposes of the loan. 1040x instructions dummies Form 1099-OID. 1040x instructions dummies   The issuer of the debt instrument (or your broker if you held the instrument through a broker) should give you Form 1099-OID, or a similar statement, if the total OID for the calendar year is $10 or more. 1040x instructions dummies Form 1099-OID will show, in box 1, the amount of OID for the part of the year that you held the bond. 1040x instructions dummies It also will show, in box 2, the stated interest you must include in your income. 1040x instructions dummies A copy of Form 1099-OID will be sent to the IRS. 1040x instructions dummies Do not file your copy with your return. 1040x instructions dummies Keep it for your records. 1040x instructions dummies   In most cases, you must report the entire amount in boxes 1 and 2 of Form 1099-OID as interest income. 1040x instructions dummies But see Refiguring OID shown on Form 1099-OID, later in this discussion, for more information. 1040x instructions dummies Form 1099-OID not received. 1040x instructions dummies   If you had OID for the year but did not receive a Form 1099-OID, you can find tables on IRS. 1040x instructions dummies gov that list total OID on certain debt instruments and have information that will help you figure OID. 1040x instructions dummies For the latest OID tables, go to www. 1040x instructions dummies irs. 1040x instructions dummies gov and enter “OID tables” in the Search box. 1040x instructions dummies If your debt instrument is not listed, consult the issuer for further information about the accrued OID for the year. 1040x instructions dummies Nominee. 1040x instructions dummies   If someone else is the holder of record (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID. 1040x instructions dummies Refiguring OID shown on Form 1099-OID. 1040x instructions dummies   You must refigure the OID shown in box 1 or box 8 of Form 1099-OID if either of the following apply. 1040x instructions dummies You bought the debt instrument after its original issue and paid a premium or an acquisition premium. 1040x instructions dummies The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). 1040x instructions dummies For information about figuring the correct amount of OID to include in your income, see Figuring OID on Long-Term Debt Instruments in Publication 1212. 1040x instructions dummies Refiguring periodic interest shown on Form 1099-OID. 1040x instructions dummies   If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates , earlier, for information about the treatment of periodic interest that may be shown in box 2 of Form 1099-OID for that instrument. 1040x instructions dummies Certificates of deposit (CDs). 1040x instructions dummies   If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID. 1040x instructions dummies   This also applies to similar deposit arrangements with banks, building and loan associations, etc. 1040x instructions dummies , including: Time deposits, Bonus plans, Savings certificates, Deferred income certificates, Bonus savings certificates, and Growth savings certificates. 1040x instructions dummies Bearer CDs. 1040x instructions dummies   CDs issued after 1982 generally must be in registered form. 1040x instructions dummies Bearer CDs are CDs not in registered form. 1040x instructions dummies They are not issued in the depositor's name and are transferable from one individual to another. 1040x instructions dummies   Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT. 1040x instructions dummies More information. 1040x instructions dummies   See chapter 1 of Publication 550 for more information about OID and related topics, such as market discount bonds. 1040x instructions dummies When To Report Interest Income When to report your interest income depends on whether you use the cash method or an accrual method to report income. 1040x instructions dummies Cash method. 1040x instructions dummies   Most individual taxpayers use the cash method. 1040x instructions dummies If you use this method, you generally report your interest income in the year in which you actually or constructively receive it. 1040x instructions dummies However, there are special rules for reporting the discount on certain debt instruments. 1040x instructions dummies See U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds and Original Issue Discount (OID) , earlier. 1040x instructions dummies Example. 1040x instructions dummies On September 1, 2011, you loaned another individual $2,000 at 12%, compounded annually. 1040x instructions dummies You are not in the business of lending money. 1040x instructions dummies The note stated that principal and interest would be due on August 31, 2013. 1040x instructions dummies In 2013, you received $2,508. 1040x instructions dummies 80 ($2,000 principal and $508. 1040x instructions dummies 80 interest). 1040x instructions dummies If you use the cash method, you must include in income on your 2013 return the $508. 1040x instructions dummies 80 interest you received in that year. 1040x instructions dummies Constructive receipt. 1040x instructions dummies   You constructively receive income when it is credited to your account or made available to you. 1040x instructions dummies You do not need to have physical possession of it. 1040x instructions dummies For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal. 1040x instructions dummies This is true even if they are not yet entered in your passbook. 1040x instructions dummies   You constructively receive income on the deposit or account even if you must: Make withdrawals in multiples of even amounts, Give a notice to withdraw before making the withdrawal, Withdraw all or part of the account to withdraw the earnings, or Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity. 1040x instructions dummies Accrual method. 1040x instructions dummies   If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. 1040x instructions dummies Interest is earned over the term of the debt instrument. 1040x instructions dummies Example. 1040x instructions dummies If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. 1040x instructions dummies You would report the interest as follows: 2011, $80; 2012, $249. 1040x instructions dummies 60; and 2013, $179. 1040x instructions dummies 20. 1040x instructions dummies Coupon bonds. 1040x instructions dummies   Interest on coupon bonds is taxable in the year the coupon becomes due and payable. 1040x instructions dummies It does not matter when you mail the coupon for payment. 1040x instructions dummies How To Report Interest Income Generally, you report all your taxable interest income on Form 1040, line 8a; Form 1040A, line 8a; or Form 1040EZ, line 2. 1040x instructions dummies You cannot use Form 1040EZ if your taxable interest income is more than $1,500. 1040x instructions dummies Instead, you must use Form 1040A or Form 1040. 1040x instructions dummies Form 1040A. 1040x instructions dummies   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040A and any of the following are true. 1040x instructions dummies Your taxable interest income is more than $1,500. 1040x instructions dummies You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). 1040x instructions dummies You received interest from a seller-financed mortgage, and the buyer used the property as a home. 1040x instructions dummies You received a Form 1099-INT for U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest that includes amounts you reported before 2013. 1040x instructions dummies You received, as a nominee, interest that actually belongs to someone else. 1040x instructions dummies You received a Form 1099-INT for interest on frozen deposits. 1040x instructions dummies You are reporting OID in an amount less than the amount shown on Form 1099-OID. 1040x instructions dummies You received a Form 1099-INT for interest on a bond you bought between interest payment dates. 1040x instructions dummies You acquired taxable bonds after 1987 and choose to reduce interest income from the bonds by any amortizable bond premium (see Bond Premium Amortization in chapter 3 of Publication 550). 1040x instructions dummies List each payer's name and the amount of interest income received from each payer on line 1. 1040x instructions dummies If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. 1040x instructions dummies   You cannot use Form 1040A if you must use Form 1040, as described next. 1040x instructions dummies Form 1040. 1040x instructions dummies   You must use Form 1040 instead of Form 1040A or Form 1040EZ if: You forfeited interest income because of the early withdrawal of a time deposit; You acquired taxable bonds after 1987, you choose to reduce interest income from the bonds by any amortizable bond premium, and you are deducting the excess of bond premium amortization for the accrual period over the qualified stated interest for the period (see Bond Premium Amortization in chapter 3 of Publication 550); or You received tax-exempt interest from private activity bonds issued after August 7, 1986. 1040x instructions dummies Schedule B (Form 1040A or 1040). 1040x instructions dummies   You must complete Schedule B (Form 1040A or 1040), Part I, if you file Form 1040 and any of the following apply. 1040x instructions dummies Your taxable interest income is more than $1,500. 1040x instructions dummies You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier). 1040x instructions dummies You received interest from a seller-financed mortgage, and the buyer used the property as a home. 1040x instructions dummies You received a Form 1099-INT for U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest that includes amounts you reported before 2013. 1040x instructions dummies You received, as a nominee, interest that actually belongs to someone else. 1040x instructions dummies You received a Form 1099-INT for interest on frozen deposits. 1040x instructions dummies You received a Form 1099-INT for interest on a bond you bought between interest payment dates. 1040x instructions dummies You are reporting OID in an amount less than the amount shown on Form 1099-OID. 1040x instructions dummies Statement (2) in the preceding list under Form 1040 is true. 1040x instructions dummies In Part I, line 1, list each payer's name and the amount received from each. 1040x instructions dummies If you received a Form 1099-INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer. 1040x instructions dummies Reporting tax-exempt interest. 1040x instructions dummies   Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including tax-exempt interest on zero coupon municipal bonds) and exempt-interest dividends from a mutual fund as shown on Form 1099-INT, box 8, and on Form 1099-DIV, box 10. 1040x instructions dummies Add these amounts to any other tax-exempt interest you received. 1040x instructions dummies Report the total on line 8b of Form 1040A or 1040. 1040x instructions dummies   If you file Form 1040EZ, enter “TEI” and the amount in the space to the left of line 2. 1040x instructions dummies Do not add tax-exempt interest in the total on Form 1040EZ, line 2. 1040x instructions dummies   Form 1099-INT, box 9, and Form 1099-DIV, box 11, show the tax-exempt interest subject to the alternative minimum tax on Form 6251. 1040x instructions dummies These amounts are already included in the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. 1040x instructions dummies Do not add the amounts in Form 1099-INT, box 9 and Form 1099-DIV, box 11 to, or subtract them from, the amounts on Form 1099-INT, box 8, and Form 1099-DIV, box 10. 1040x instructions dummies    Do not report interest from an individual retirement account (IRA) as tax-exempt interest. 1040x instructions dummies Form 1099-INT. 1040x instructions dummies   Your taxable interest income, except for interest from U. 1040x instructions dummies S. 1040x instructions dummies savings bonds and Treasury obligations, is shown in box 1 of Form 1099-INT. 1040x instructions dummies Add this amount to any other taxable interest income you received. 1040x instructions dummies You must report all of your taxable interest income even if you do not receive a Form 1099-INT. 1040x instructions dummies Generally, contact your financial institution if you do not receive a Form 1099-INT by February 15. 1040x instructions dummies Your identifying number may be truncated on any paper Form 1099-INT you receive. 1040x instructions dummies   If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be shown on Form 1099-INT in box 2. 1040x instructions dummies See Penalty on early withdrawal of savings in chapter 1 of Publication 550. 1040x instructions dummies   Box 3 of Form 1099-INT shows the interest income you received from U. 1040x instructions dummies S. 1040x instructions dummies savings bonds, Treasury bills, Treasury notes, and Treasury bonds. 1040x instructions dummies Add the amount shown in box 3 to any other taxable interest income you received, unless part of the amount in box 3 was previously included in your interest income. 1040x instructions dummies If part of the amount shown in box 3 was previously included in your interest income, see U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest previously reported , later. 1040x instructions dummies   Box 4 of Form 1099-INT will contain an amount if you were subject to backup withholding. 1040x instructions dummies Report the amount from box 4 on Form 1040EZ, line 7; on Form 1040A, line 36; or Form 1040, line 62 (federal income tax withheld). 1040x instructions dummies   Box 5 of Form 1099-INT shows investment expenses you may be able to deduct as an itemized deduction. 1040x instructions dummies See chapter 28 for more information about investment expenses. 1040x instructions dummies   If there are entries in boxes 6 and 7 of Form 1099-INT, you must file Form 1040. 1040x instructions dummies You may be able to take a credit for the amount shown in box 6 unless you deduct this amount on line 8 of Schedule A (Form 1040). 1040x instructions dummies To take the credit, you may have to file Form 1116, Foreign Tax Credit. 1040x instructions dummies For more information, see Publication 514, Foreign Tax Credit for Individuals. 1040x instructions dummies U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest previously reported. 1040x instructions dummies   If you received a Form 1099-INT for U. 1040x instructions dummies S. 1040x instructions dummies savings bond interest, the form may show interest you do not have to report. 1040x instructions dummies See Form 1099-INT for U. 1040x instructions dummies S. 1040x instructions dummies savings bonds interest , earlier, under U. 1040x instructions dummies S. 1040x instructions dummies Savings Bonds. 1040x instructions dummies   On Schedule B (Form 1040A or 1040), Part I, line 1, report all the interest shown on your Form 1099-INT. 1040x instructions dummies Then follow these steps. 1040x instructions dummies Several lines above line 2, enter a subtotal of all interest listed on line 1. 1040x instructions dummies Below the subtotal enter “U. 1040x instructions dummies S. 1040x instructions dummies Savings Bond Interest Previously Reported” and enter amounts previously reported or interest accrued before you received the bond. 1040x instructions dummies Subtract these amounts from the subtotal and enter the result on line 2. 1040x instructions dummies More information. 1040x instructions dummies   For more information about how to report interest income, see chapter 1 of Publication 550 or the instructions for the form you must file. 1040x instructions dummies Prev  Up  Next   Home   More Online Publications
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The 1040x Instructions Dummies

1040x instructions dummies Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. 1040x instructions dummies After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. 1040x instructions dummies Examination selection criteria. 1040x instructions dummies   Your return may be selected for examination on the basis of computer scoring. 1040x instructions dummies A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. 1040x instructions dummies If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. 1040x instructions dummies   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. 1040x instructions dummies Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. 1040x instructions dummies   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. 1040x instructions dummies This information can come from a number of sources, including newspapers, public records, and individuals. 1040x instructions dummies The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. 1040x instructions dummies Notice of IRS contact of third parties. 1040x instructions dummies    The IRS must give you reasonable notice before contacting other persons about your tax matters. 1040x instructions dummies You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. 1040x instructions dummies The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. 1040x instructions dummies    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. 1040x instructions dummies Taxpayer Advocate Service. 1040x instructions dummies   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. 1040x instructions dummies If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. 1040x instructions dummies    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. 1040x instructions dummies Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. 1040x instructions dummies   For more information, see Publication 1546. 1040x instructions dummies See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. 1040x instructions dummies Comments from small business. 1040x instructions dummies    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. 1040x instructions dummies The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. 1040x instructions dummies If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. 1040x instructions dummies Fax your comments to 1-202-481-5719. 1040x instructions dummies Write to the following address: Office of the National Ombudsman U. 1040x instructions dummies S. 1040x instructions dummies Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. 1040x instructions dummies Send an email to ombudsman@sba. 1040x instructions dummies gov. 1040x instructions dummies File a comment or complaint online at www. 1040x instructions dummies sba. 1040x instructions dummies gov/ombudsman. 1040x instructions dummies If Your Return Is Examined Some examinations are handled entirely by mail. 1040x instructions dummies Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. 1040x instructions dummies If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. 1040x instructions dummies However, the IRS makes the final determination of when, where, and how the examination will take place. 1040x instructions dummies Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. 1040x instructions dummies If you filed a joint return, either you or your spouse, or both, can meet with the IRS. 1040x instructions dummies The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. 1040x instructions dummies If you want someone to represent you in your absence, you must furnish that person with proper written authorization. 1040x instructions dummies You can use Form 2848 or any other properly written authorization. 1040x instructions dummies If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. 1040x instructions dummies In most cases, the IRS must suspend the interview and reschedule it. 1040x instructions dummies The IRS cannot suspend the interview if you are there because of an administrative summons. 1040x instructions dummies Third party authorization. 1040x instructions dummies   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. 1040x instructions dummies The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. 1040x instructions dummies For more information, see the instructions for your return. 1040x instructions dummies Confidentiality privilege. 1040x instructions dummies   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. 1040x instructions dummies   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. 1040x instructions dummies   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. 1040x instructions dummies   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. 1040x instructions dummies Recordings. 1040x instructions dummies    You can make an audio recording of the examination interview. 1040x instructions dummies Your request to record the interview should be made in writing. 1040x instructions dummies You must notify the examiner 10 days in advance and bring your own recording equipment. 1040x instructions dummies The IRS also can record an interview. 1040x instructions dummies If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. 1040x instructions dummies Transfers to another area. 1040x instructions dummies    Generally, your return is examined in the area where you live. 1040x instructions dummies But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. 1040x instructions dummies Repeat examinations. 1040x instructions dummies    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. 1040x instructions dummies If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. 1040x instructions dummies The Examination An examination usually begins when you are notified that your return has been selected. 1040x instructions dummies The IRS will tell you which records you will need. 1040x instructions dummies The examination can proceed more easily if you gather your records before any interview. 1040x instructions dummies Any proposed changes to your return will be explained to you or your authorized representative. 1040x instructions dummies It is important that you understand the reasons for any proposed changes. 1040x instructions dummies You should not hesitate to ask about anything that is unclear to you. 1040x instructions dummies The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. 1040x instructions dummies The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. 1040x instructions dummies However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. 1040x instructions dummies Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. 1040x instructions dummies If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. 1040x instructions dummies A more complete discussion of appeal rights is found later under Appeal Rights . 1040x instructions dummies If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. 1040x instructions dummies You must pay interest on any additional tax. 1040x instructions dummies If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. 1040x instructions dummies If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. 1040x instructions dummies If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. 1040x instructions dummies This period is extended to 21 calendar days if the amount due is less than $100,000. 1040x instructions dummies If you are due a refund, you will receive it sooner if you sign the agreement form. 1040x instructions dummies You will be paid interest on the refund. 1040x instructions dummies If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. 1040x instructions dummies You should keep this letter with your tax records. 1040x instructions dummies If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. 1040x instructions dummies If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. 1040x instructions dummies If an agreement is reached, your case will be closed. 1040x instructions dummies If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. 1040x instructions dummies The examiner will forward your case for processing. 1040x instructions dummies Fast track mediation. 1040x instructions dummies   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. 1040x instructions dummies   Most cases that are not docketed in any court qualify for fast track mediation. 1040x instructions dummies Mediation can take place at a conference you request with a supervisor, or later. 1040x instructions dummies The process involves an Appeals Officer who has been trained in mediation. 1040x instructions dummies You may represent yourself at the mediation session, or someone else can act as your representative. 1040x instructions dummies For more information, see Publication 3605. 1040x instructions dummies 30-day letter and 90-day letter. 1040x instructions dummies   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. 1040x instructions dummies You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. 1040x instructions dummies The letter will explain what steps you should take, depending on which action you choose. 1040x instructions dummies Be sure to follow the instructions carefully. 1040x instructions dummies Appeal Rights are explained later. 1040x instructions dummies 90-day letter. 1040x instructions dummies   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. 1040x instructions dummies You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. 1040x instructions dummies Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . 1040x instructions dummies The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. 1040x instructions dummies Suspension of interest and penalties. 1040x instructions dummies   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. 1040x instructions dummies However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. 1040x instructions dummies If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. 1040x instructions dummies   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. 1040x instructions dummies Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. 1040x instructions dummies    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. 1040x instructions dummies Seeking relief from improperly assessed interest. 1040x instructions dummies   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. 1040x instructions dummies   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. 1040x instructions dummies The IRS will review the Form 843 and notify you whether interest will be abated. 1040x instructions dummies If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. 1040x instructions dummies If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. 1040x instructions dummies   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. 1040x instructions dummies If the IRS denies your claim, the Tax Court may be able to review that determination. 1040x instructions dummies See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . 1040x instructions dummies If you later agree. 1040x instructions dummies    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. 1040x instructions dummies Keep a copy for your records. 1040x instructions dummies You can pay any additional amount you owe without waiting for a bill. 1040x instructions dummies Include interest on the additional tax at the applicable rate. 1040x instructions dummies This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. 1040x instructions dummies The examiner can tell you the interest rate(s) or help you figure the amount. 1040x instructions dummies   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. 1040x instructions dummies Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. 1040x instructions dummies   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. 1040x instructions dummies This period is extended to 21 calendar days if the amount due is less than $100,000. 1040x instructions dummies How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. 1040x instructions dummies Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. 1040x instructions dummies You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. 1040x instructions dummies Both a deposit and a payment stop any further accrual of interest. 1040x instructions dummies However, making a deposit or payment will stop the accrual of interest on only the amount you sent. 1040x instructions dummies Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. 1040x instructions dummies To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. 1040x instructions dummies Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. 1040x instructions dummies However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. 1040x instructions dummies Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. 1040x instructions dummies The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. 1040x instructions dummies The IRS determines that the deposit should be applied against another tax liability. 1040x instructions dummies Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). 1040x instructions dummies The deposit returned will be treated as a tax payment to the extent of the disputed tax. 1040x instructions dummies A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. 1040x instructions dummies Notice not mailed. 1040x instructions dummies    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. 1040x instructions dummies You must make your request in writing. 1040x instructions dummies   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. 1040x instructions dummies Keep copies of all correspondence you send to the IRS. 1040x instructions dummies   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. 1040x instructions dummies If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. 1040x instructions dummies See Tax Court , later under Appeal Rights . 1040x instructions dummies Notice mailed. 1040x instructions dummies    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. 1040x instructions dummies You will still be able to petition the Tax Court. 1040x instructions dummies   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. 1040x instructions dummies Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. 1040x instructions dummies The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. 1040x instructions dummies If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. 1040x instructions dummies Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. 1040x instructions dummies You will still have the right to take your case to the Tax Court. 1040x instructions dummies Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. 1040x instructions dummies To be valid, your request must be approved by the IRS. 1040x instructions dummies However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. 1040x instructions dummies Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. 1040x instructions dummies You will continue to be charged interest and penalties on the amount you owe until it is paid in full. 1040x instructions dummies Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). 1040x instructions dummies If your income is below a certain level, you may qualify to pay a reduced fee of $43. 1040x instructions dummies For more information about installment agreements, see Form 9465, Installment Agreement Request. 1040x instructions dummies Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). 1040x instructions dummies As a result, the net rate is zero for that period. 1040x instructions dummies Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). 1040x instructions dummies Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. 1040x instructions dummies The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. 1040x instructions dummies Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. 1040x instructions dummies An audit notification letter is such a contact. 1040x instructions dummies The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. 1040x instructions dummies Ministerial act. 1040x instructions dummies    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. 1040x instructions dummies A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. 1040x instructions dummies Example 1. 1040x instructions dummies You move from one state to another before the IRS selects your tax return for examination. 1040x instructions dummies A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. 1040x instructions dummies When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. 1040x instructions dummies The examination group manager approves your request. 1040x instructions dummies After your request has been approved, the transfer is a ministerial act. 1040x instructions dummies The IRS can reduce the interest because of any unreasonable delay in transferring the case. 1040x instructions dummies Example 2. 1040x instructions dummies An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. 1040x instructions dummies After you and the IRS discuss the issues, the notice is prepared and reviewed. 1040x instructions dummies After the review process, issuing the notice of deficiency is a ministerial act. 1040x instructions dummies If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. 1040x instructions dummies Managerial act. 1040x instructions dummies    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. 1040x instructions dummies A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. 1040x instructions dummies Example. 1040x instructions dummies A revenue agent is examining your tax return. 1040x instructions dummies During the middle of the examination, the agent is sent to an extended training course. 1040x instructions dummies The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. 1040x instructions dummies Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. 1040x instructions dummies How to request abatement of interest. 1040x instructions dummies    You request an abatement (reduction) of interest on Form 843. 1040x instructions dummies You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. 1040x instructions dummies   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. 1040x instructions dummies If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. 1040x instructions dummies   Generally, you should file a separate Form 843 for each tax period and each type of tax. 1040x instructions dummies However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). 1040x instructions dummies   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. 1040x instructions dummies Tax Court can review failure to abate interest. 1040x instructions dummies    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. 1040x instructions dummies The IRS has mailed you a notice of final determination or a notice of disallowance. 1040x instructions dummies You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. 1040x instructions dummies   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. 1040x instructions dummies For this purpose, individuals filing a joint return shall be treated as separate individuals. 1040x instructions dummies For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. 1040x instructions dummies For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. 1040x instructions dummies Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. 1040x instructions dummies The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. 1040x instructions dummies The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. 1040x instructions dummies If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. 1040x instructions dummies To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. 1040x instructions dummies Notify you when the adjustments are made. 1040x instructions dummies Refund any interest paid by you where appropriate. 1040x instructions dummies For more information on disaster area losses, see Disaster Area Losses in Publication 547. 1040x instructions dummies For more information on other tax relief for victims of terrorist attacks, see Publication 3920. 1040x instructions dummies Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. 1040x instructions dummies If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. 1040x instructions dummies The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). 1040x instructions dummies There is doubt as to whether you can pay the amount you owe based on your financial situation. 1040x instructions dummies An economic hardship would result if you had to pay the full amount owed. 1040x instructions dummies Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. 1040x instructions dummies If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. 1040x instructions dummies The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. 1040x instructions dummies For more information, see Publication 3605. 1040x instructions dummies Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. 1040x instructions dummies The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. 1040x instructions dummies The 30 days immediately after the offer is rejected. 1040x instructions dummies While your timely-filed appeal is being considered by Appeals. 1040x instructions dummies Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. 1040x instructions dummies For more information about submitting an offer in compromise, see Form 656. 1040x instructions dummies Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. 1040x instructions dummies Most differences can be settled within this system without expensive and time-consuming court trials. 1040x instructions dummies However, your reasons for disagreeing must come within the scope of the tax laws. 1040x instructions dummies For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. 1040x instructions dummies In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. 1040x instructions dummies See Appeals to the Courts , later, for more information. 1040x instructions dummies Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. 1040x instructions dummies The Appeals Office is the only level of appeal within the IRS. 1040x instructions dummies Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. 1040x instructions dummies If you want an appeals conference, follow the instructions in the letter you received. 1040x instructions dummies Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. 1040x instructions dummies You or your representative should be prepared to discuss all disputed issues at the conference. 1040x instructions dummies Most differences are settled at this level. 1040x instructions dummies If agreement is not reached at your appeals conference, you may be eligible to take your case to court. 1040x instructions dummies See Appeals to the Courts , later. 1040x instructions dummies Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. 1040x instructions dummies Also, see the special appeal request procedures in Publication 1660. 1040x instructions dummies Written protest. 1040x instructions dummies   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. 1040x instructions dummies All partnership and S corporation cases without regard to the dollar amount at issue. 1040x instructions dummies All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. 1040x instructions dummies   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. 1040x instructions dummies The IRS urges you to provide as much information as you can, as it will help speed up your appeal. 1040x instructions dummies That will save you both time and money. 1040x instructions dummies    Be sure to send the protest within the time limit specified in the letter you received. 1040x instructions dummies Small case request. 1040x instructions dummies   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. 1040x instructions dummies In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. 1040x instructions dummies If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. 1040x instructions dummies For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. 1040x instructions dummies Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. 1040x instructions dummies If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. 1040x instructions dummies You can use a Form 2848 or any other properly written power of attorney or authorization. 1040x instructions dummies You can also bring witnesses to support your position. 1040x instructions dummies Confidentiality privilege. 1040x instructions dummies   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. 1040x instructions dummies See Confidentiality privilege under If Your Return Is Examined , earlier. 1040x instructions dummies Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. 1040x instructions dummies These courts are independent of the IRS. 1040x instructions dummies If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. 1040x instructions dummies However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. 1040x instructions dummies If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. 1040x instructions dummies See Appeal Within the IRS, earlier. 1040x instructions dummies Prohibition on requests to taxpayers to give up rights to bring civil action. 1040x instructions dummies   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. 1040x instructions dummies However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. 1040x instructions dummies Burden of proof. 1040x instructions dummies   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. 1040x instructions dummies You complied with all substantiation requirements of the Internal Revenue Code. 1040x instructions dummies You maintained all records required by the Internal Revenue Code. 1040x instructions dummies You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. 1040x instructions dummies You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. 1040x instructions dummies    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. 1040x instructions dummies Use of statistical information. 1040x instructions dummies   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. 1040x instructions dummies Penalties. 1040x instructions dummies   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. 1040x instructions dummies Recovering litigation or administrative costs. 1040x instructions dummies   These are the expenses that you pay to defend your position to the IRS or the courts. 1040x instructions dummies You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. 1040x instructions dummies You exhaust all administrative remedies within the IRS. 1040x instructions dummies Your net worth is below a certain limit (see Net worth requirements , later). 1040x instructions dummies You do not unreasonably delay the proceeding. 1040x instructions dummies You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. 1040x instructions dummies You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. 1040x instructions dummies ustaxcourt. 1040x instructions dummies gov  www. 1040x instructions dummies ustaxcourt. 1040x instructions dummies gov . 1040x instructions dummies   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. 1040x instructions dummies Note. 1040x instructions dummies If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. 1040x instructions dummies Prevailing party. 1040x instructions dummies   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. 1040x instructions dummies   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. 1040x instructions dummies The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. 1040x instructions dummies ), or Has lost in courts of appeal for other circuits on substantially similar issues. 1040x instructions dummies   The court will generally decide who is the prevailing party. 1040x instructions dummies Reasonable litigation costs. 1040x instructions dummies   These include the following costs: Reasonable court costs. 1040x instructions dummies The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. 1040x instructions dummies The reasonable costs of expert witnesses. 1040x instructions dummies Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. 1040x instructions dummies See Attorney fees , later. 1040x instructions dummies Reasonable administrative costs. 1040x instructions dummies   These include the following costs: Any administrative fees or similar charges imposed by the IRS. 1040x instructions dummies The reasonable costs of studies, analyses, engineering reports, tests, or projects. 1040x instructions dummies The reasonable costs of expert witnesses. 1040x instructions dummies Attorney fees that generally may not exceed $125 per hour. 1040x instructions dummies See Attorney fees , later. 1040x instructions dummies Timing of costs. 1040x instructions dummies    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. 1040x instructions dummies Net worth requirements. 1040x instructions dummies   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. 1040x instructions dummies For this purpose, individuals filing a joint return are treated as separate individuals. 1040x instructions dummies For estates — your net worth does not exceed $2 million as of the date of the decedent's death. 1040x instructions dummies For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. 1040x instructions dummies For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. 1040x instructions dummies Qualified offer rule. 1040x instructions dummies    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. 1040x instructions dummies You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. 1040x instructions dummies Qualified offer. 1040x instructions dummies    This is a written offer made by you during the qualified offer period. 1040x instructions dummies It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. 1040x instructions dummies   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. 1040x instructions dummies Qualified offer period. 1040x instructions dummies    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. 1040x instructions dummies It ends 30 days before your case is first set for trial. 1040x instructions dummies Attorney fees. 1040x instructions dummies   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. 1040x instructions dummies However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. 1040x instructions dummies See IRS. 1040x instructions dummies gov for more information. 1040x instructions dummies    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. 1040x instructions dummies In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. 1040x instructions dummies   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. 1040x instructions dummies Jurisdiction for determination of employment status. 1040x instructions dummies    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. 1040x instructions dummies Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). 1040x instructions dummies   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. 1040x instructions dummies S. 1040x instructions dummies Tax Court for a determination of employment status. 1040x instructions dummies There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. 1040x instructions dummies   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. 1040x instructions dummies Section 530(a) of the Revenue Act of 1978. 1040x instructions dummies   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. 1040x instructions dummies It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. 1040x instructions dummies Tax Court review of request for relief from joint and several liability on a joint return. 1040x instructions dummies    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). 1040x instructions dummies You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. 1040x instructions dummies   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. 1040x instructions dummies See Publication 971 for more information. 1040x instructions dummies Note. 1040x instructions dummies Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. 1040x instructions dummies See Rev. 1040x instructions dummies Proc. 1040x instructions dummies 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. 1040x instructions dummies irs. 1040x instructions dummies gov/pub/irs-irbs/irb03-05. 1040x instructions dummies pdf. 1040x instructions dummies Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. 1040x instructions dummies For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. 1040x instructions dummies For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. 1040x instructions dummies For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. 1040x instructions dummies You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. 1040x instructions dummies You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). 1040x instructions dummies The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. 1040x instructions dummies Withdrawal of notice of deficiency. 1040x instructions dummies If you consent, the IRS can withdraw a notice of deficiency. 1040x instructions dummies A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. 1040x instructions dummies However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. 1040x instructions dummies See Revenue Procedure 98-54 for a more detailed explanation of the requirements. 1040x instructions dummies Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. 1040x instructions dummies The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. 1040x instructions dummies After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. 1040x instructions dummies Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. 1040x instructions dummies Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. 1040x instructions dummies If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. 1040x instructions dummies Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). 1040x instructions dummies Collection can proceed even if you think that the amount is excessive. 1040x instructions dummies Publication 594 explains IRS collection procedures. 1040x instructions dummies If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. 1040x instructions dummies You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. 1040x instructions dummies Small tax case procedure. 1040x instructions dummies   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. 1040x instructions dummies If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. 1040x instructions dummies You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. 1040x instructions dummies W. 1040x instructions dummies , Washington, DC 20217. 1040x instructions dummies More information can be found on the Tax Court's website at www. 1040x instructions dummies ustaxcourt. 1040x instructions dummies gov. 1040x instructions dummies Motion to request redetermination of interest. 1040x instructions dummies   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. 1040x instructions dummies You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. 1040x instructions dummies The assessment included interest. 1040x instructions dummies You have paid the entire amount of the deficiency plus the interest claimed by the IRS. 1040x instructions dummies The Tax Court has found that you made an overpayment. 1040x instructions dummies You must file the motion within one year after the decision of the Tax Court becomes final. 1040x instructions dummies District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. 1040x instructions dummies The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. 1040x instructions dummies Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. 1040x instructions dummies Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. 1040x instructions dummies As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. 1040x instructions dummies If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. 1040x instructions dummies If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. 1040x instructions dummies You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. 1040x instructions dummies However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. 1040x instructions dummies You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. 1040x instructions dummies However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. 1040x instructions dummies For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. 1040x instructions dummies Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. 1040x instructions dummies In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. 1040x instructions dummies The court can order these refunds before its decision on the case is final. 1040x instructions dummies Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. 1040x instructions dummies Note. 1040x instructions dummies The court may no longer order a refund of an overpayment after the case is final. 1040x instructions dummies Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. 1040x instructions dummies Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. 1040x instructions dummies You can claim a credit or refund by filing Form 1040X. 1040x instructions dummies See Time for Filing a Claim for Refund , later. 1040x instructions dummies File your claim by mailing it to the IRS Service Center where you filed your original return. 1040x instructions dummies File a separate form for each year or period involved. 1040x instructions dummies Include an explanation of each item of income, deduction, or credit on which you are basing your claim. 1040x instructions dummies Corporations should file Form 1120X, Amended U. 1040x instructions dummies S. 1040x instructions dummies Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. 1040x instructions dummies See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. 1040x instructions dummies Requesting a copy of your tax return. 1040x instructions dummies   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. 1040x instructions dummies This includes a copy of the Form W-2 or Form 1099 filed with your return. 1040x instructions dummies Use Form 4506 to make your request. 1040x instructions dummies You will be charged a fee, which you must pay when you submit Form 4506. 1040x instructions dummies Requesting a copy of your tax account information. 1040x instructions dummies   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. 1040x instructions dummies The tax return transcript contains most of the line items of a tax return. 1040x instructions dummies A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. 1040x instructions dummies A record of account is a combination of line item information and later adjustments to the account. 1040x instructions dummies Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. 1040x instructions dummies Penalty for erroneous claim for refund. 1040x instructions dummies   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. 1040x instructions dummies An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. 1040x instructions dummies The penalty may be waived if you can show that you had a reasonable basis for making the claim. 1040x instructions dummies Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. 1040x instructions dummies If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. 1040x instructions dummies If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. 1040x instructions dummies Returns you filed before the due date are considered filed on the due date. 1040x instructions dummies This is true even when the due date is a Saturday, Sunday, or legal holiday. 1040x instructions dummies Disaster area claims for refund. 1040x instructions dummies   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. 1040x instructions dummies This section discusses the special rules that apply to Presidentially declared disaster area refunds. 1040x instructions dummies    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. 1040x instructions dummies Postponed refund deadlines. 1040x instructions dummies   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. 1040x instructions dummies The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. 1040x instructions dummies The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. 1040x instructions dummies For more information, see Publication 547. 1040x instructions dummies   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. 1040x instructions dummies A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. 1040x instructions dummies fema. 1040x instructions dummies gov and at the IRS website at www. 1040x instructions dummies irs. 1040x instructions dummies gov. 1040x instructions dummies Nonfilers can get refund of overpayments paid within 3-year period. 1040x instructions dummies   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. 1040x instructions dummies This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. 1040x instructions dummies The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. 1040x instructions dummies For more information, see Publication 3920. 1040x instructions dummies Claim for refund by estates electing the installment method of payment. 1040x instructions dummies   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. 1040x instructions dummies S. 1040x instructions dummies District Court or the U. 1040x instructions dummies S. 1040x instructions dummies Court of Federal Claims before all the installment payments have been made. 1040x instructions dummies However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. 1040x instructions dummies All installment payments due on or before the date the suit is filed have been made. 1040x instructions dummies No accelerated installment payments have been made. 1040x instructions dummies No Tax Court case is pending with respect to any estate tax liability. 1040x instructions dummies If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. 1040x instructions dummies No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. 1040x instructions dummies The executor has not included any previously litigated issues in the current suit for refund. 1040x instructions dummies The executor does not discontinue making installment payments timely, while the court considers the suit for refund. 1040x instructions dummies    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. 1040x instructions dummies This includes any part of the disallowed amount previously collected by the IRS. 1040x instructions dummies Protective claim for refund. 1040x instructions dummies   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. 1040x instructions dummies A protective claim can be either a formal claim or an amended return for credit or refund. 1040x instructions dummies Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. 1040x instructions dummies A protective claim preserves your right to claim a refund when the contingency is resolved. 1040x instructions dummies A protective claim does not have to state a particular dollar amount or demand an immediate refund. 1040x instructions dummies However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. 1040x instructions dummies   Generally, the IRS will delay action on the protective claim until the contingency is resolved. 1040x instructions dummies Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. 1040x instructions dummies   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. 1040x instructions dummies Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. 1040x instructions dummies Special refunds. 1040x instructions dummies   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. 1040x instructions dummies These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. 1040x instructions dummies   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. 1040x instructions dummies For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. 1040x instructions dummies Periods of financial disability. 1040x instructions dummies   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. 1040x instructions dummies    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. 1040x instructions dummies   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. 1040x instructions dummies Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. 1040x instructions dummies    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. 1040x instructions dummies Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi