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1040x irs 15. 1040x irs   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. 1040x irs More information. 1040x irs Special SituationsException for sales to related persons. 1040x irs Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. 1040x irs  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. 1040x irs See Mortgage ending early under Points in chapter 23. 1040x irs Introduction This chapter explains the tax rules that apply when you sell your main home. 1040x irs In most cases, your main home is the one in which you live most of the time. 1040x irs If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). 1040x irs See Excluding the Gain , later. 1040x irs Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. 1040x irs If you have gain that cannot be excluded, it is taxable. 1040x irs Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). 1040x irs You may also have to complete Form 4797, Sales of Business Property. 1040x irs See Reporting the Sale , later. 1040x irs If you have a loss on the sale, you generally cannot deduct it on your return. 1040x irs However, you may need to report it. 1040x irs See Reporting the Sale , later. 1040x irs The following are main topics in this chapter. 1040x irs Figuring gain or loss. 1040x irs Basis. 1040x irs Excluding the gain. 1040x irs Ownership and use tests. 1040x irs Reporting the sale. 1040x irs Other topics include the following. 1040x irs Business use or rental of home. 1040x irs Recapturing a federal mortgage subsidy. 1040x irs Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. 1040x irs ” Usually, the home you live in most of the time is your main home and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 1040x irs To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040x irs Land. 1040x irs   If you sell the land on which your main home is located, but not the house itself, you cannot exclude any gain you have from the sale of the land. 1040x irs However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. 1040x irs See Vacant land under Main Home in Publication 523 for more information. 1040x irs Example. 1040x irs You buy a piece of land and move your main home to it. 1040x irs Then you sell the land on which your main home was located. 1040x irs This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. 1040x irs More than one home. 1040x irs   If you have more than one home, you can exclude gain only from the sale of your main home. 1040x irs You must include in income gain from the sale of any other home. 1040x irs If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. 1040x irs Example 1. 1040x irs You own two homes, one in New York and one in Florida. 1040x irs From 2009 through 2013, you live in the New York home for 7 months and in the Florida residence for 5 months of each year. 1040x irs In the absence of facts and circumstances indicating otherwise, the New York home is your main home. 1040x irs You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. 1040x irs Example 2. 1040x irs You own a house, but you live in another house that you rent. 1040x irs The rented house is your main home. 1040x irs Example 3. 1040x irs You own two homes, one in Virginia and one in New Hampshire. 1040x irs In 2009 and 2010, you lived in the Virginia home. 1040x irs In 2011 and 2012, you lived in the New Hampshire home. 1040x irs In 2013, you lived again in the Virginia home. 1040x irs Your main home in 2009, 2010, and 2013 is the Virginia home. 1040x irs Your main home in 2011 and 2012 is the New Hampshire home. 1040x irs You would be eligible to exclude gain from the sale of either home (but not both) in 2013. 1040x irs Property used partly as your main home. 1040x irs   If you use only part of the property as your main home, the rules discussed in this publication apply only to the gain or loss on the sale of that part of the property. 1040x irs For details, see Business Use or Rental of Home , later. 1040x irs Figuring Gain or Loss To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. 1040x irs Subtract the adjusted basis from the amount realized to get your gain or loss. 1040x irs     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. 1040x irs It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale. 1040x irs Payment by employer. 1040x irs   You may have to sell your home because of a job transfer. 1040x irs If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. 1040x irs Your employer will include it as wages in box 1 of your Form W-2, and you will include it in your income on Form 1040, line 7. 1040x irs Option to buy. 1040x irs   If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. 1040x irs If the option is not exercised, you must report the amount as ordinary income in the year the option expires. 1040x irs Report this amount on Form 1040, line 21. 1040x irs Form 1099-S. 1040x irs   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. 1040x irs   However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. 1040x irs Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. 1040x irs Amount Realized The amount realized is the selling price minus selling expenses. 1040x irs Selling expenses. 1040x irs   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. 1040x irs ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. 1040x irs This adjusted basis must be determined before you can figure gain or loss on the sale of your home. 1040x irs For information on how to figure your home's adjusted basis, see Determining Basis , later. 1040x irs Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. 1040x irs Gain on sale. 1040x irs   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. 1040x irs Loss on sale. 1040x irs   If the amount realized is less than the adjusted basis, the difference is a loss. 1040x irs A loss on the sale of your main home cannot be deducted. 1040x irs Jointly owned home. 1040x irs   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. 1040x irs Separate returns. 1040x irs   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. 1040x irs Your ownership interest is generally determined by state law. 1040x irs Joint owners not married. 1040x irs   If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. 1040x irs Each of you applies the rules discussed in this chapter on an individual basis. 1040x irs Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. 1040x irs Foreclosure or repossession. 1040x irs   If your home was foreclosed on or repossessed, you have a disposition. 1040x irs See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. 1040x irs Abandonment. 1040x irs   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. 1040x irs Trading (exchanging) homes. 1040x irs   If you trade your old home for another home, treat the trade as a sale and a purchase. 1040x irs Example. 1040x irs You owned and lived in a home with an adjusted basis of $41,000. 1040x irs A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. 1040x irs This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). 1040x irs If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed). 1040x irs Transfer to spouse. 1040x irs   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss. 1040x irs This is true even if you receive cash or other consideration for the home. 1040x irs As a result, the rules in this chapter do not apply. 1040x irs More information. 1040x irs   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. 1040x irs Involuntary conversion. 1040x irs   You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. 1040x irs This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations . 1040x irs Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. 1040x irs Your basis in your home is determined by how you got the home. 1040x irs Generally, your basis is its cost if you bought it or built it. 1040x irs If you got it in some other way (inheritance, gift, etc. 1040x irs ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. 1040x irs While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. 1040x irs The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. 1040x irs See Adjusted Basis , later. 1040x irs You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. 1040x irs Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. 1040x irs Purchase. 1040x irs   If you bought your home, your basis is its cost to you. 1040x irs This includes the purchase price and certain settlement or closing costs. 1040x irs In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. 1040x irs If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. 1040x irs Settlement fees or closing costs. 1040x irs   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. 1040x irs You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. 1040x irs A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing). 1040x irs    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. 1040x irs It also lists some settlement costs that cannot be included in basis. 1040x irs   Also see Publication 523 for additional items and a discussion of basis other than cost. 1040x irs Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. 1040x irs To figure your adjusted basis, you can use Worksheet 1 in Publication 523. 1040x irs Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. 1040x irs Increases to basis. 1040x irs   These include the following. 1040x irs Additions and other improvements that have a useful life of more than 1 year. 1040x irs Special assessments for local improvements. 1040x irs Amounts you spent after a casualty to restore damaged property. 1040x irs Improvements. 1040x irs   These add to the value of your home, prolong its useful life, or adapt it to new uses. 1040x irs You add the cost of additions and other improvements to the basis of your property. 1040x irs   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. 1040x irs An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. 1040x irs Repairs. 1040x irs   These maintain your home in good condition but do not add to its value or prolong its life. 1040x irs You do not add their cost to the basis of your property. 1040x irs   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. 1040x irs Decreases to basis. 1040x irs   These include the following. 1040x irs Discharge of qualified principal residence indebtedness that was excluded from income. 1040x irs Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. 1040x irs For details, see Publication 4681. 1040x irs Gain you postponed from the sale of a previous home before May 7, 1997. 1040x irs Deductible casualty losses. 1040x irs Insurance payments you received or expect to receive for casualty losses. 1040x irs Payments you received for granting an easement or right-of-way. 1040x irs Depreciation allowed or allowable if you used your home for business or rental purposes. 1040x irs Energy-related credits allowed for expenditures made on the residence. 1040x irs (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. 1040x irs ) Adoption credit you claimed for improvements added to the basis of your home. 1040x irs Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. 1040x irs Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. 1040x irs An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home. 1040x irs District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). 1040x irs General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. 1040x irs Discharges of qualified principal residence indebtedness. 1040x irs   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. 1040x irs This exclusion applies to discharges made after 2006 and before 2014. 1040x irs If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. 1040x irs   File Form 982 with your tax return. 1040x irs See the form's instructions for detailed information. 1040x irs Recordkeeping. 1040x irs You should keep records to prove your home's adjusted basis. 1040x irs Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. 1040x irs But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. 1040x irs Keep records proving the basis of both homes as long as they are needed for tax purposes. 1040x irs The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. 1040x irs Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. 1040x irs This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion , next. 1040x irs To qualify, you must meet the ownership and use tests described later. 1040x irs You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 1040x irs You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. 1040x irs If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. 1040x irs See Publication 505, Tax Withholding and Estimated Tax. 1040x irs Maximum Exclusion You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 1040x irs You meet the ownership test. 1040x irs You meet the use test. 1040x irs During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 1040x irs For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. 1040x irs You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 1040x irs Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 1040x irs This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 1040x irs Exception. 1040x irs   If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. 1040x irs However, the maximum amount you may be able to exclude will be reduced. 1040x irs See Reduced Maximum Exclusion , later. 1040x irs Example 1—home owned and occupied for at least 2 years. 1040x irs Mya bought and moved into her main home in September 2011. 1040x irs She sold the home at a gain in October 2013. 1040x irs During the 5-year period ending on the date of sale in October 2013, she owned and lived in the home for more than 2 years. 1040x irs She meets the ownership and use tests. 1040x irs Example 2—ownership test met but use test not met. 1040x irs Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. 1040x irs He later sold the home for a gain. 1040x irs He owned the home during the entire 5-year period ending on the date of sale. 1040x irs He meets the ownership test but not the use test. 1040x irs He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). 1040x irs Period of Ownership and Use The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. 1040x irs You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale. 1040x irs Temporary absence. 1040x irs   Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. 1040x irs The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. 1040x irs Example 1. 1040x irs David Johnson, who is single, bought and moved into his home on February 1, 2011. 1040x irs Each year during 2011 and 2012, David left his home for a 2-month summer vacation. 1040x irs David sold the house on March 1, 2013. 1040x irs Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. 1040x irs The 2-month vacations are short temporary absences and are counted as periods of use in determining whether David used the home for the required 2 years. 1040x irs Example 2. 1040x irs Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. 1040x irs He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. 1040x irs On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. 1040x irs Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. 1040x irs He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. 1040x irs Ownership and use tests met at different times. 1040x irs   You can meet the ownership and use tests during different 2-year periods. 1040x irs However, you must meet both tests during the 5-year period ending on the date of the sale. 1040x irs Example. 1040x irs Beginning in 2002, Helen Jones lived in a rented apartment. 1040x irs The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. 1040x irs In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. 1040x irs On July 12, 2013, while still living in her daughter's home, she sold her condominium. 1040x irs Helen can exclude gain on the sale of her condominium because she met the ownership and use tests during the 5-year period from July 13, 2008, to July 12, 2013, the date she sold the condominium. 1040x irs She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). 1040x irs She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). 1040x irs The time Helen lived in her daughter's home during the 5-year period can be counted toward her period of ownership, and the time she lived in her rented apartment during the 5-year period can be counted toward her period of use. 1040x irs Cooperative apartment. 1040x irs   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. 1040x irs Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. 1040x irs Exception for individuals with a disability. 1040x irs   There is an exception to the use test if: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year during the 5-year period before the sale of your home. 1040x irs Under this exception, you are considered to live in your home during any time within the 5-year period that you own the home and live in a facility (including a nursing home) licensed by a state or political subdivision to care for persons in your condition. 1040x irs If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 1040x irs Previous home destroyed or condemned. 1040x irs   For the ownership and use tests, you add the time you owned and lived in a previous home that was destroyed or condemned to the time you owned and lived in the replacement home on whose sale you wish to exclude gain. 1040x irs This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. 1040x irs Otherwise, you must have owned and lived in the same home for 2 of the 5 years before the sale to qualify for the exclusion. 1040x irs Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 1040x irs   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. 1040x irs You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. 1040x irs This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. 1040x irs   If this helps you qualify to exclude gain, you can choose to have the 5-year test period suspended by filing a return for the year of sale that does not include the gain. 1040x irs For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. 1040x irs Married Persons If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. 1040x irs (But see Special rules for joint returns , next. 1040x irs ) Special rules for joint returns. 1040x irs   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 1040x irs You are married and file a joint return for the year. 1040x irs Either you or your spouse meets the ownership test. 1040x irs Both you and your spouse meet the use test. 1040x irs During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. 1040x irs If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. 1040x irs For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. 1040x irs Example 1—one spouse sells a home. 1040x irs Emily sells her home in June 2013 for a gain of $300,000. 1040x irs She marries Jamie later in the year. 1040x irs She meets the ownership and use tests, but Jamie does not. 1040x irs Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. 1040x irs The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. 1040x irs Example 2—each spouse sells a home. 1040x irs The facts are the same as in Example 1 except that Jamie also sells a home in 2013 for a gain of $200,000 before he marries Emily. 1040x irs He meets the ownership and use tests on his home, but Emily does not. 1040x irs Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. 1040x irs However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. 1040x irs Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. 1040x irs The $500,000 maximum exclusion for certain joint returns does not apply because Emily and Jamie do not both meet the use test for the same home. 1040x irs Sale of main home by surviving spouse. 1040x irs   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 1040x irs   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. 1040x irs The sale or exchange took place after 2008. 1040x irs The sale or exchange took place no more than 2 years after the date of death of your spouse. 1040x irs You have not remarried. 1040x irs You and your spouse met the use test at the time of your spouse's death. 1040x irs You or your spouse met the ownership test at the time of your spouse's death. 1040x irs Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 1040x irs Example. 1040x irs   Harry owned and used a house as his main home since 2009. 1040x irs Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. 1040x irs Harry died on August 15, 2013, and Wilma inherited the property. 1040x irs Wilma sold the property on September 3, 2013, at which time she had not remarried. 1040x irs Although Wilma owned and used the house for less than 2 years, Wilma is considered to have satisfied the ownership and use tests because her period of ownership and use includes the period that Harry owned and used the property before death. 1040x irs Home transferred from spouse. 1040x irs   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 1040x irs Use of home after divorce. 1040x irs   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 1040x irs Reduced Maximum Exclusion If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. 1040x irs This applies to those who: Fail to meet the ownership and use tests, or Have used the exclusion within 2 years of selling their current home. 1040x irs In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. 1040x irs A change in place of employment. 1040x irs Health. 1040x irs Unforeseen circumstances. 1040x irs Unforeseen circumstances. 1040x irs   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. 1040x irs   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. 1040x irs Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income. 1040x irs But you must meet the ownership and use tests. 1040x irs Periods of nonqualified use. 1040x irs   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. 1040x irs Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. 1040x irs Exceptions. 1040x irs   A period of nonqualified use does not include: Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home; Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty: As a member of the uniformed services; As a member of the Foreign Service of the United States; or As an employee of the intelligence community; and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS. 1040x irs The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. 1040x irs Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. 1040x irs Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. 1040x irs Calculation. 1040x irs   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. 1040x irs Example 1. 1040x irs On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. 1040x irs She moved in on that date and lived in it until May 31, 2009, when she moved out of the house and put it up for rent. 1040x irs The house was rented from June 1, 2009, to March 31, 2011. 1040x irs Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. 1040x irs Amy moved back into the house on April 1, 2011, and lived there until she sold it on January 31, 2013, for a gain of $200,000. 1040x irs During the 5-year period ending on the date of the sale (January 31, 2008-January 31, 2013), Amy owned and lived in the house for more than 2 years as shown in the following table. 1040x irs Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. 1040x irs Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. 1040x irs 321. 1040x irs To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. 1040x irs 321. 1040x irs Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. 1040x irs Example 2. 1040x irs William owned and used a house as his main home from 2007 through 2010. 1040x irs On January 1, 2011, he moved to another state. 1040x irs He rented his house from that date until April 30, 2013, when he sold it. 1040x irs During the 5-year period ending on the date of sale (May 1, 2008-April 30, 2013), William owned and lived in the house for more than 2 years. 1040x irs He must report the sale on Form 4797 because it was rental property at the time of sale. 1040x irs Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. 1040x irs Because he met the ownership and use tests, he can exclude gain up to $250,000. 1040x irs However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next. 1040x irs Depreciation after May 6, 1997. 1040x irs   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 1040x irs If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. 1040x irs See Publication 544 for more information. 1040x irs Property used partly for business or rental. 1040x irs   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. 1040x irs Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. 1040x irs If any of these conditions apply, report the entire gain or loss. 1040x irs For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. 1040x irs If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). 1040x irs See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. 1040x irs Installment sale. 1040x irs    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. 1040x irs These sales are called “installment sales. 1040x irs ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. 1040x irs You may be able to report the part of the gain you cannot exclude on the installment basis. 1040x irs    Use Form 6252, Installment Sale Income, to report the sale. 1040x irs Enter your exclusion on line 15 of Form 6252. 1040x irs Seller-financed mortgage. 1040x irs   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. 1040x irs You must separately report as interest income the interest you receive as part of each payment. 1040x irs If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). 1040x irs The buyer must give you his or her SSN, and you must give the buyer your SSN. 1040x irs Failure to meet these requirements may result in a $50 penalty for each failure. 1040x irs If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. 1040x irs More information. 1040x irs   For more information on installment sales, see Publication 537, Installment Sales. 1040x irs Special Situations The situations that follow may affect your exclusion. 1040x irs Sale of home acquired in a like-kind exchange. 1040x irs   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. 1040x irs Gain from a like-kind exchange is not taxable at the time of the exchange. 1040x irs This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. 1040x irs To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. 1040x irs For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. 1040x irs Home relinquished in a like-kind exchange. 1040x irs   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. 1040x irs Expatriates. 1040x irs   You cannot claim the exclusion if the expatriation tax applies to you. 1040x irs The expatriation tax applies to certain U. 1040x irs S. 1040x irs citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). 1040x irs For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. 1040x irs S. 1040x irs Tax Guide for Aliens. 1040x irs Home destroyed or condemned. 1040x irs   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. 1040x irs   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. 1040x irs Sale of remainder interest. 1040x irs   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. 1040x irs If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. 1040x irs Exception for sales to related persons. 1040x irs   You cannot exclude gain from the sale of a remainder interest in your home to a related person. 1040x irs Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. 1040x irs ), and lineal descendants (children, grandchildren, etc. 1040x irs ). 1040x irs Related persons also include certain corporations, partnerships, trusts, and exempt organizations. 1040x irs Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. 1040x irs You recapture the benefit by increasing your federal income tax for the year of the sale. 1040x irs You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. 1040x irs Loans subject to recapture rules. 1040x irs   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. 1040x irs The recapture also applies to assumptions of these loans. 1040x irs When recapture applies. 1040x irs   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. 1040x irs You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. 1040x irs Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). 1040x irs When recapture does not apply. 1040x irs   Recapture does not apply in any of the following situations. 1040x irs Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. 1040x irs Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. 1040x irs For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. 1040x irs Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 1040x irs The home is disposed of as a result of your death. 1040x irs You dispose of the home more than 9 years after the date you closed your mortgage loan. 1040x irs You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. 1040x irs You dispose of the home at a loss. 1040x irs Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. 1040x irs The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. 1040x irs For more information, see Replacement Period in Publication 547. 1040x irs You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). 1040x irs Notice of amounts. 1040x irs   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. 1040x irs How to figure and report the recapture. 1040x irs    The recapture tax is figured on Form 8828. 1040x irs If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. 1040x irs Attach Form 8828 to your Form 1040. 1040x irs For more information, see Form 8828 and its instructions. 1040x irs Prev  Up  Next   Home   More Online Publications
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1040x irs 1. 1040x irs   Application, Approval, and Appeal Procedures Table of Contents Introduction Topics - This chapter discusses: Application ProceduresForms Required Required Inclusions Miscellaneous Procedures Rulings and Determination LettersEffective Date of Exemption Revocation or Modification of Exemption Appeal ProceduresAppeals Office Consideration EO Technical Consideration Administrative Remedies Appeal to Courts Group Exemption LetterCentral Organization Application Procedure Keeping the Group Exemption Letter in Force Events Causing Loss of Group Exemption Introduction If your organization is one of the organizations described in this publication and is seeking recognition of tax-exempt status from the IRS, you should follow the procedures described in this chapter and the instructions that accompany the appropriate application forms. 1040x irs For information on section 501(c)(3) organizations, go to Section 501(c)(3) Organizations chapter 3. 1040x irs If your organization is seeking exemption under one of the other paragraphs of section 501(c), see chapter 4. 1040x irs Topics - This chapter discusses: Application procedures that generally apply to all organizations discussed in this publication, including the application forms; Rulings and determination letters (approvals/disapprovals); Appeal procedures available if an adverse determination letter is proposed; and Group exemption letters. 1040x irs Application Procedures Oral requests for recognition of exemption will not be considered by the IRS. 1040x irs Your application for tax-exempt status must be in writing using the appropriate forms as discussed below. 1040x irs Forms Required If your organization is seeking recognition of exemption from federal income tax, it must use a specific application prescribed by the IRS in Revenue Procedure 2013–9, sec. 1040x irs 3. 1040x irs If your organization is a central organization with exempt status, see Group Exemption Letter , later. 1040x irs All applications must be signed by an authorized individual. 1040x irs Form 1023, Application for Recognition of Exemption. 1040x irs   File Form 1023 if you are seeking recognition of exemption under section: 501(c)(3) Corporations, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports, or prevention of cruelty for children or animals, 501(e) Cooperative hospital service organization, 501(f) Cooperative service organization of operating educational organizations, 501(k) Certain organizations providing child care, 501(n) Charitable risk pools, and 501(q) Credit counseling organizations. 1040x irs Form 1024, Application for Recognition of Exemption Under Section 501(a). 1040x irs    File Form 1024 if you are seeking recognition of exemption under section: 501(c)(2) Title holding corporations, 501(c)(4) Civic leagues, social welfare organizations, 501(c)(5) Labor, agricultural, or horticultural organizations, 501(c)(6) Business leagues, chambers of commerce, etc. 1040x irs , 501(c)(7) Social clubs, 501(c)(8) Fraternal beneficiary societies, orders, or associations, 501(c)(9) Voluntary employees’ beneficiary associations, 501(c)(10) Domestic fraternal societies, orders, etc. 1040x irs , 501(c)(12) Benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative telephone companies, 501(c)(13) Cemetery companies, 501(c)(15) Mutual insurance companies or associations, 501(c)(17) Trusts providing for the payment of supplemental unemployment compensation benefits, 501(c)(19) A post, organization, auxiliary unit, etc. 1040x irs of past or present members of the Armed Forces of the United States, and 501(c)(25) Title holding corporations or trusts. 1040x irs  Form 8718, User Fee for Exempt Organization Determination Letter Request, must also be sent along with Form 1024. 1040x irs Letter application. 1040x irs   If your organization is seeking recognition of exemption under section 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), or (29), submit a letter application with Form 8718. 1040x irs See Required Inclusions for the information to include with the letter application. 1040x irs Form 1028. 1040x irs   Use Form 1028 if your organization is a farmers’ cooperative seeking recognition of exemption under section 521. 1040x irs You must also submit Form 8718. 1040x irs Form 8871. 1040x irs    Use Form 8871 if you are a political party or campaign committee for a candidate for federal, state or local office seeking to be treated as tax-exempt under section 527. 1040x irs See Political Organization Income Tax Return , later. 1040x irs    Some organizations do not have to use specific application forms. 1040x irs The application your organization must use is specified in the chapter in this publication dealing with your kind of organization. 1040x irs It is also shown in the Organization Reference Chart, later. 1040x irs Power of attorney. 1040x irs   If your organization expects to be represented by an individual such as an attorney, CPA, officer or other person authorized to practice before the IRS, whether in person or by correspondence, you must file a Form 2848 with your exemption application. 1040x irs The power of attorney must specifically authorize an individual to represent your organization. 1040x irs You cannot name an organization, firm, etc. 1040x irs as your representative. 1040x irs Form 2848, Power of Attorney and Declaration of Representative, can be used for this purpose. 1040x irs The categories of individuals who can represent you before the IRS are listed on the form. 1040x irs Non-exemption for terrorist organizations. 1040x irs   An organization that is identified or designated as a terrorist organization within the meaning of section 501(p)(2) is not eligible to apply for recognition of exemption. 1040x irs User fee. 1040x irs   The law requires the payment of a user fee for determination letter requests such as your application for recognition of tax-exempt status. 1040x irs If you are filing Form 1023, user fee information is included in Part XI. 1040x irs If you are required to apply for recognition of exemption by submitting Form 1024, a letter application, etc. 1040x irs and you must pay a user fee, you should use Form 8718 to figure the amount of your user fee and to pay it. 1040x irs Your payment must accompany your request. 1040x irs The IRS will not process a request unless the fee has been paid. 1040x irs    For the current user fee amount and processing time for applications go to IRS. 1040x irs gov and select “Charities and Non-Profits” from the buttons near the top. 1040x irs Then select the underlined link “How to Apply To Be Tax-Exempt” for the latest user fees or I want to check the status of my application for more information. 1040x irs You can also call 1-877-829-5500. 1040x irs Required Inclusions Employer identification number (EIN). 1040x irs   Every exempt organization must have an EIN, whether or not it has any employees. 1040x irs An EIN is required before an exemption application is submitted. 1040x irs Information on how to apply for an EIN by using one of the following methods can be found at Employer ID Numbers (EIN): Online— This is the preferred method for requesting an EIN. 1040x irs The EIN is issued immediately once the application information is validated. 1040x irs By telephone at 1-800-829-4933, from 7:00 a. 1040x irs m. 1040x irs to 7:00 p. 1040x irs m. 1040x irs local time, Monday through Friday. 1040x irs The EIN is provided over the phone to an authorized individual. 1040x irs By mailing or faxing Form SS-4, Application for Employer Identification Number. 1040x irs If the faxed Form SS-4 includes the taxpayer's fax number, a fax will be sent back with the EIN within four (4) business days. 1040x irs    Use only one method for each entity so you do not receive more than one EIN for an entity. 1040x irs   If you previously applied for an EIN and have not yet received it, or you are unsure whether you have an EIN, please call our toll-free customer account services number, 1-877-829-5500, for assistance. 1040x irs Organizing documents. 1040x irs   Your application should include a copy of the organizing or enabling document that is signed by a principal officer or is accompanied by a written declaration signed by an authorized individual certifying that the document is a complete and accurate copy of the original or meets the requirements of a conformed copy. 1040x irs   If your organizing or enabling document are articles of incorporation, include evidence that it was filed and approved by a state official. 1040x irs (For example, a stamped “Filed” copy dated by the Secretary of State is prima facie evidence that it was filed and approved by a state official. 1040x irs ) A copy of the articles of incorporation can also be submitted with a written declaration signed by an authorized individual indicating the copy is complete and was filed and approved by the state, including the date filed. 1040x irs Bylaws. 1040x irs   Bylaws alone are not organizing documents. 1040x irs However, if your organization has adopted bylaws, include a current copy. 1040x irs The bylaws need not be signed if submitted as an attachment. 1040x irs   If your organization's name has been officially changed by an amendment to your organizing instruments, you should also attach a conformed copy of that amendment to your application. 1040x irs    Bylaws may be considered an organizing document only if they are properly structured (includes name, purpose, signatures, and intent to form an organization). 1040x irs Conformed copy. 1040x irs   A conformed copy is a copy that agrees with the original and all amendments to it. 1040x irs If the original document required a signature, the copy should either be signed by a principal officer or, if not signed, be accompanied by a written declaration signed by an authorized officer of the organization. 1040x irs With either option, the officer must certify that the document is a complete and accurate copy of the original. 1040x irs A certificate of incorporation should be approved and dated by an appropriate state official. 1040x irs Attachments. 1040x irs    When submitting attachments, every attachment should show your organization's name and EIN. 1040x irs It should also state that it is an attachment to your application form and identify the part and line item number to which it applies. 1040x irs Original documents. 1040x irs   Do not submit original documents because they become part of the IRS file and cannot be returned. 1040x irs Description of activities. 1040x irs   Your application must include a full description of the proposed activities of your organization, including each of the fundraising activities of a section 501(c)(3) organization and a narrative description of anticipated receipts and contemplated expenditures. 1040x irs When describing the activities in which your organization expects to engage, you must include the standards, criteria, procedures, or other means that your organization adopted or planned for carrying out those activities. 1040x irs   To determine the information you need to provide, you should study the part of this publication that applies to your organization. 1040x irs The appropriate chapter will describe the purposes and activities that your organization must pursue, engage in, and include in your application in order to achieve exempt status. 1040x irs   Often, your organization's articles of organization (or other organizing instruments) contain descriptions of your organization's purposes and activities. 1040x irs   Your application should describe completely and in detail your past, present, and planned activities. 1040x irs Financial data. 1040x irs   You must include in your application financial statements showing your receipts and expenditures and a balance sheet for the current year and the 3 preceding years (or for the number of years your organization was in existence, if less than 4 years). 1040x irs For each accounting period, you must describe the sources of your receipts and the nature of your expenditures. 1040x irs   If you have not yet begun operations, or have operated for less than 1 year, a proposed budget for 2 full accounting periods and a current statement of assets and liabilities will be acceptable. 1040x irs Exempt status established in application. 1040x irs   If your application and its supporting documents show that your organization meets the requirements for tax-exempt status under the Code section you applied, the IRS will issue a favorable determination letter or ruling. 1040x irs Miscellaneous Procedures To help in processing your application, be sure to attach all schedules, statements, and other documents required by the application form. 1040x irs If you do not attach them, you may have to resubmit your application or you may otherwise encounter a delay in processing your application. 1040x irs Incomplete application. 1040x irs   If an application is not complete and does not contain all the required attachments found under Required Inclusions, the IRS may return it to you for completion. 1040x irs The IRS may keep the application and send a letter requesting the missing information if most of the information has been received. 1040x irs   If the IRS returns the application or requests additional information from you, that application will be considered filed on the date the substantially completed application is postmarked, or if no postmark, received at the IRS. 1040x irs   Generally, the user fee will not be refunded if an incomplete application is filed. 1040x irs   Additional information may be requested if necessary to clarify the nature of your organization. 1040x irs Application made under wrong paragraph of section 501(c). 1040x irs   Occasionally, an organization appears to qualify for exemption under a paragraph of section 501(c) that is different from the one for which the organization applied. 1040x irs If the application was made on Form 1024, which applies to more than one paragraph of section 501(c), the organization can be recognized as exempt under any paragraph to which the form applies if the organization has agreed to have its application considered under that paragraph. 1040x irs It must also supply any additional information required for the application under the new paragraph. 1040x irs Different application form needed. 1040x irs   If a different application form is required for your organization, the IRS will so advise your organization and will provide the appropriate application form for your convenience in reapplying under that paragraph, if you wish to do so. 1040x irs Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application. 1040x irs If your reply is not received within a limited time, your application will be processed only for the paragraph under which you originally applied. 1040x irs   When a specific application form is needed for the paragraph under which your organization qualifies, that form is required before a letter recognizing exemption can be issued. 1040x irs This includes cases in which a determination letter is modified to recognize an organization's exempt status under a paragraph other than the paragraph under which it originally established exemption. 1040x irs IRS responses. 1040x irs   Organizations that submit a complete application will receive an acknowledgment from the IRS. 1040x irs Others will receive a letter requesting more information or returning an incomplete application. 1040x irs Applicants also will be notified if the application is forwarded to EO Technical Office for consideration. 1040x irs These letters will be sent out as soon as possible after receipt of the organization's application. 1040x irs Withdrawal of application. 1040x irs   An application may be withdrawn at any time before the issuance of a ruling or determination letter upon the written request of a principal officer or authorized representative of your organization. 1040x irs However, the withdrawal will not prevent the information contained in the application from being used by the IRS in any subsequent examination of your organization's returns. 1040x irs The information forwarded with an application will not be returned to your organization and, generally, when an application is withdrawn, the user fee paid will not be refunded. 1040x irs Requests for withholding of information from the public. 1040x irs   The law requires many exempt organizations and private foundations to make their application forms and annual information returns available for public inspection. 1040x irs The law also requires the IRS to make available for public inspection, in accordance with section 6104 and the related regulations, your approved application for recognition of exemption (including any papers submitted in support of the application) and the ruling or determination letter (discussed later, under Rulings and Determination Letters . 1040x irs )   Any information submitted in the application or in support of it that relates to any trade secret, patent, process, style of work, or apparatus, upon request, can be withheld from public inspection if the IRS determines that the disclosure of such information would adversely affect the organization. 1040x irs Your request must: Identify the material to be withheld (the document, page, paragraph, and line) by clearly marking it “Not Subject To Public Inspection. 1040x irs ” Include the reasons for your organization's position that the information is of the type that can be withheld from public inspection. 1040x irs Be filed with the office where your organization files the documents in which the material to be withheld is contained. 1040x irs Where to file. 1040x irs   Send your application for exempt status and Form 8718, (if required) to: Internal Revenue Service PO Box 12192 Covington, KY 41012-0192   Your application will be considered by EO Determinations, who will either issue a favorable determination letter to your organization, issue an adverse determination letter denying the exempt status claimed in the application, or refer the case to the Exempt Organizations Technical Office (EO Technical). 1040x irs    Form 8940, Request for Miscellaneous Determination. 1040x irs You can request miscellaneous determinations under sections 507, 509(a), 4940, 4942, 4945, and 6033 with Form 8940. 1040x irs Nonexempt charitable trusts also file Form 8940 for an initial determination of section 509(a)(3) status or change to their type. 1040x irs See Form 8940 and instructions for more information. 1040x irs Requests other than applications. 1040x irs Requests other than applications for recognition of exemption or Form 8940 (for example, requests for rulings involving feeder organizations, application of excise taxes to activities of private foundations, taxation of unrelated business income, etc. 1040x irs ) should be sent to: Internal Revenue Service  Attention: EO Letter Rulings PO Box 27720 McPherson Station Washington, DC 20038 These requests, similar to applications for recognition of exemption previously discussed, must be accompanied by the appropriate user fee. 1040x irs The schedule for user fees, including those for requests other than applications, can be found in Revenue Procedure 2013-8, 2013-1 I. 1040x irs R. 1040x irs B. 1040x irs 237. 1040x irs Referral to EO Technical. 1040x irs   EO Determinations will refer to EO Technical any exempt organization issue concerning qualification for exemption or foundation status for which there is no published precedent or for which there is reason to believe that nonuniformity exists. 1040x irs EO Determinations can request technical advice on any technical or procedural question that cannot be resolved on the basis of law, regulations, or a clearly applicable revenue ruling or other published precedent. 1040x irs An organization can request that an issue be referred to EO Technical for technical advice if it feels that a lack of uniformity exists as to the disposition of the issue or if an issue is so unusual or complex as to warrant consideration by EO Technical. 1040x irs If a determination letter is issued based on technical advice from EO Technical regarding qualification for exemption or foundation status, no further administrative appeal is available on the issue that was the subject of technical advice. 1040x irs Reminder. 1040x irs   The law requires payment of a user fee for determination letter requests. 1040x irs Go to IRS. 1040x irs gov/Charities and select Current User Fees-Exempt Organizations to find the required payment. 1040x irs Payment must accompany each request. 1040x irs Rulings and Determination Letters Elimination of the advance public charity status. 1040x irs   New regulations eliminate the advance ruling process for a section 501(c)(3) organization. 1040x irs Under the new regulations, a new section 501(c)(3) organization will be classified as a publicly supported organization and not a private foundation if it can show when it applies for tax-exempt status that it reasonably can be expected to be publicly supported. 1040x irs The new rules no longer require the organization to file Form 8734, Support Schedule for Advance Ruling Period, after completing its first 5 tax years. 1040x irs See Elimination of the Advance Ruling Process . 1040x irs An organization must describe fully the activities in which it expects to engage. 1040x irs This includes standards, procedures, or other means adopted or planned by the organization for carrying out its activities, expected sources of funds, and the nature of its contemplated expenses. 1040x irs When an organization does not supply the information previously mentioned under Application Procedures , or fails to furnish a sufficiently detailed description of its proposed activities to permit a conclusion that it will clearly be exempt, a proposed adverse determination letter or ruling may be issued. 1040x irs Adverse determination. 1040x irs   A proposed adverse ruling or determination letter will be issued to an organization that has not provided sufficiently detailed information to establish that it qualifies for exemption or if the information provided establishes that it does not qualify for exemption. 1040x irs An organization can appeal a proposed adverse ruling or determination letter. 1040x irs See Appeal Procedures , later. 1040x irs Effective Date of Exemption A ruling or determination letter recognizing exemption is usually effective as of the date of formation of an organization if, during the period before the date of the ruling or determination letter, its purposes and activities were those required by the law. 1040x irs (See Application for Recognition of Exemption in chapter 3 for the special rule for organizations applying for recognition of exemption under section 501(c)(3). 1040x irs ) Upon obtaining recognition of exemption, the organization can file a claim for a refund of income taxes paid for the period for which its exempt status is recognized. 1040x irs If an organization is required to alter its activities or substantially amend its charter to qualify, the ruling or determination letter recognizing exemption will be effective as of the date specified in the letter. 1040x irs If a nonsubstantive amendment is made, such as correction of a clerical error in the enabling instrument or the addition of a dissolution clause, exemption will ordinarily be recognized as of the date of formation if the activities of the organization before the ruling or determination are consistent with the exemption requirements. 1040x irs A ruling or determination letter recognizing exemption cannot be relied on if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization. 1040x irs Also, a ruling or determination letter cannot be relied on if it is based on any inaccurate material factual representations. 1040x irs Revocation or Modification of Exemption A ruling or determination letter recognizing exemption may be revoked or modified by: A notice to the organization to which the ruling or determination letter originally was issued, Enactment of legislation or ratification of a tax treaty, A decision of the United States Supreme Court, Issuance of temporary or final regulations, or Issuance of a revenue ruling, a revenue procedure, or other statement published in the Internal Revenue Bulletin or Cumulative Bulletin. 1040x irs When revocation takes effect. 1040x irs   If the organization omitted or misstated a material fact, operated in a manner materially different from that originally represented, or, with regard to organizations to which section 503 applies, engaged in a prohibited transaction (such as diverting corpus or income from its exempt purpose), the revocation or modification may be retroactive. 1040x irs Material change in organization. 1040x irs   If there is a material change, inconsistent with exemption, in the character, purpose, or method of operation of the organization, revocation or modification will ordinarily take effect as of the date of that material change. 1040x irs Relief from retroactivity. 1040x irs   If a ruling or determination letter was issued in error or the IRS changed its position after issuing a letter or ruling, and if section 7805(b) relief is granted, retroactivity of the revocation or modification ordinarily will be limited to a date not earlier than that on which the original ruling or determination letter was modified or revoked. 1040x irs For more information on requesting section 7805(b) relief, see Revenue Procedure 2013-4, 2013-1 I. 1040x irs R. 1040x irs B. 1040x irs 126, sec. 1040x irs 13 (or later update). 1040x irs Foundations. 1040x irs   The determination of the effective date is the same for the revocation or modification of foundation status or operating foundation status unless the effective date is expressly covered by statute or regulations. 1040x irs Written notice. 1040x irs   If an EO area manager concludes, as a result of examining an information return or considering information from any other source, that a ruling or determination letter should be revoked or modified, the organization will be advised in writing of the proposed action and the reasons for it. 1040x irs   The organization will also be advised of its right to protest the proposed action by requesting Appeals Office consideration. 1040x irs The appeal procedures are discussed next. 1040x irs Appeal Procedures If your organization applies for tax-exempt status and EO Determination decides your organization does not qualify, your organization will be advised of its rights to protest the determination by requesting Appeals Office consideration. 1040x irs This process does not apply to determinations issued by EO Technical. 1040x irs Your organization must submit a statement of its views fully explaining its reasoning. 1040x irs The statement must be submitted within 30 days from the date of the adverse determination letter and must state whether it wishes Appeals Office consideration. 1040x irs Representation. 1040x irs   A principal officer or trustee can represent an organization at any level of appeal within the IRS. 1040x irs Also, an attorney, certified public accountant, or individual enrolled to practice before the IRS can represent the organization. 1040x irs   If the organization's representative attends a conference without a principal officer or trustee, the representative must file a proper power of attorney or a tax information authorization before receiving or inspecting confidential information. 1040x irs Form 2848 or Form 8821, Tax Information Authorization, as appropriate (or any other properly written power of attorney or authorization), can be used for this purpose. 1040x irs These forms can be obtained from the IRS. 1040x irs For more information, see Publication 947, Practice Before the IRS and Power of Attorney. 1040x irs Appeals Office Consideration EO Determinations will consider the statement protesting and appealing (hereinafter appealing) the adverse determination and decide if the information affects its determination. 1040x irs If the appeal does not provide a basis to reconsider its adverse determination, it will forward the appeal and case file to the Appeals Office. 1040x irs For more information about the role of the Appeals Office, see Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues. 1040x irs The appeal should include the following information. 1040x irs The organization's name, address, daytime telephone number, and employer identification number. 1040x irs A statement that the organization wants to protest the determination. 1040x irs A copy of the letter showing the determination you disagree with, or the date and symbols on the determination letter. 1040x irs A statement of facts supporting the organization's position in any contested factual issue. 1040x irs A statement outlining the law or other authority the organization is relying on. 1040x irs A statement as to whether a conference at the Appeals Office is desired. 1040x irs The statement of facts in item 4 must be declared true under penalties of perjury. 1040x irs This may be done by adding to the protest the following signed declaration:   “Under penalties of perjury, I declare that I have examined the statement of facts presented in this protest and in any accompanying schedules and statements and, to the best of my knowledge and belief, it is true, correct, and complete. 1040x irs ”           Signature. 1040x irs   If the organization's representative submits the appeal, a substitute declaration must be included, stating: That the representative prepared the appeal and accompanying documents, and Whether the representative knows personally that the statements of fact contained in the appeal and accompanying documents are true and correct. 1040x irs Be sure the appeal contains all of the information requested. 1040x irs Incomplete appeals will be returned for completion. 1040x irs If a conference is requested, it will be held at the Appeals Office, unless the organization requests that the meeting be held at a field office convenient to both parties. 1040x irs The Appeals Office, after considering the organization's appeal as well as information presented in any conference held, will notify the organization of its decision and issue an appropriate determination letter. 1040x irs An adverse decision can be appealed to the courts (discussed later). 1040x irs The Appeals Office must request technical advice from EO Technical on any exempt organization issue concerning qualification for exemption or foundation status for which there is no published precedent or for which there is reason to believe that nonuniformity exists. 1040x irs If an organization believes that its case involves such an issue, it should ask the Appeals Office to request technical advice. 1040x irs Any determination letter issued on the basis of technical advice from EO Technical cannot be appealed to the Appeals Office for those issues that were the subject of the technical advice from EO Technical. 1040x irs EO Technical Consideration If an application is referred to EO Technical for issuance of a ruling and an adverse ruling is issued, the organization will be informed of the basis for the conclusion, its right to file a protest within 30 days, and its right to have a conference with EO Technical. 1040x irs Administrative Remedies In the case of an application under section 501(c)(3), all of the following actions, called administrative remedies, must be completed by your organization before an unfavorable ruling or determination letter from the IRS can be appealed to the courts. 1040x irs The filing of a substantially completed application Form 1023 or group exemption request under section 501(c)(3) (described earlier in this chapter) or the filing of a request for a determination of foundation status (see Private Foundations and Public Charities in chapter 3). 1040x irs In the case of a late-filed application, requesting relief under Regulations section 301. 1040x irs 9100 regarding applications for extensions of time for making an election or application for relief from tax (see Application for Recognition of Exemption in chapter 3). 1040x irs The timely submission of all additional information requested to perfect an exemption application or request for determination of private foundation status. 1040x irs Exhaustion of all administrative appeals available within the IRS, including protest of an adverse ruling issued by EO Technical in the case of an exemption application. 1040x irs The actions just described will not be considered completed until the IRS has had a reasonable time to act upon the appeal or protest, as the case may be. 1040x irs An organization will not be considered to have exhausted its administrative remedies before the earlier of: The completion of the steps just listed and the sending by certified or registered mail of a notice of final determination, or The expiration of the 270-day period in which the IRS has not issued a notice of final determination and the organization has taken, in a timely manner, all reasonable steps to secure a ruling or determination. 1040x irs 270-day period. 1040x irs   The 270-day period will be considered by the IRS to begin on the date a substantially completed Form 1023 or group exemption request is sent to the IRS. 1040x irs See Application Procedures , earlier, for information needed to complete Form 1023. 1040x irs   If the application does not contain all of the required items, it will not be further processed and may be returned to the applicant for completion. 1040x irs The 270-day period, in this event, will not be considered as starting until the date the application is remailed to the IRS with the requested information, or, if a postmark is not evident, on the date the IRS receives a substantially completed application. 1040x irs Appeal to Courts If the IRS issues an unfavorable determination letter or ruling to your organization and you have exhausted all the administrative remedies just discussed, your organization can seek judicial remedies. 1040x irs For example, if your organization has paid the tax resulting from the adverse determination and met all other statutory prerequisites, it can file suit for a refund in a U. 1040x irs S. 1040x irs District Court or the U. 1040x irs S. 1040x irs Court of Federal Claims. 1040x irs Or, if your organization elected not to pay the tax deficiency resulting from the adverse determination and met all other statutory prerequisites, it can file suit for a redetermination of the tax deficiencies in the United States Tax Court. 1040x irs For more information on these types of suits, get Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund. 1040x irs In certain situations, your organization can file suit for a declaratory judgment in the U. 1040x irs S. 1040x irs District Court for the District of Columbia, the U. 1040x irs S. 1040x irs Court of Federal Claims, or the U. 1040x irs S. 1040x irs Tax Court. 1040x irs This remedy is available if your organization received an adverse notice of final determination, or if the IRS failed to make a timely determination on your initial or continuing qualification or classification as an exempt organization. 1040x irs However, your exempt status claim must be as: An organization qualifying under section 501(c)(3), An organization to which a deduction for a contribution is allowed under section 170(c)(2), An organization that is a private foundation under section 509(a), A private operating foundation under section 4942(j)(3), or A cooperative organization that is exempt from tax under section 521. 1040x irs Adverse notice of final determination. 1040x irs   The adverse notice of final determination referred to above is a ruling or determination letter sent by certified or registered mail holding that your organization: Is not described in section 501(c)(3) or section 170(c)(2), Is a private foundation as defined in section 4942(j)(3), or Is a public charity described in a part of section 509(a) or section 170(b)(1)(A) other than the part under which your organization requested classification. 1040x irs Favorable court rulings - IRS procedure. 1040x irs   If a suit results in a final determination that your organization is exempt from tax, the IRS will issue a favorable ruling or determination letter, provided your organization has filed an application for exemption and submitted a statement that the underlying facts and applicable law are the same as in the period considered by the court. 1040x irs Group Exemption Letter A group exemption letter is a ruling or determination letter issued to a central organization recognizing on a group basis the exemption under section 501(c) of subordinate organizations on whose behalf the central organization has applied for recognition of exemption. 1040x irs A central organization is an organization that has one or more subordinates under its general supervision or control. 1040x irs A subordinate organization is a chapter, local, post, or unit of a central organization. 1040x irs A central organization may be a subordinate itself, such as a state organization that has subordinate units and is itself affiliated with a national (central) organization. 1040x irs A subordinate organization may or may not be incorporated, but it must have an organizing document. 1040x irs A subordinate that is organized and operated in a foreign country cannot be included in a group exemption letter. 1040x irs A subordinate described in section 501(c)(3) cannot be included in a group exemption letter if it is a private foundation described in section 509(a). 1040x irs If your organization is a subordinate controlled by a central organization (for example, a church, a veterans' organization, or a fraternal organization), you should check with the central organization to see if it has been issued a group exemption letter that covers your organization. 1040x irs If it has, you do not have to file a separate application unless your organization no longer wants to be included in the group exemption letter. 1040x irs If the group exemption letter does not cover your organization, ask your central organization about being included in the next annual group ruling update that it submits to the IRS. 1040x irs Central Organization Application Procedure If your organization is a central organization with affiliated subordinates under its control, it can apply for a group exemption letter for its subordinates, provided it has obtained recognition of its own exemption before or concurrently with the group exemption. 1040x irs You should make the application for such subordinates by letter instead of submitting either Form 1023 or 1024. 1040x irs This procedure relieves each of the subordinates covered by a group exemption letter from filing its own application. 1040x irs A central organization obtains its own recognition of exemption by sending its application to the IRS address shown on Form 8718 or Form 1023. 1040x irs If the central organization has previously obtained recognition of its own exemption, it must indicate its employer identification number and the date of the letter recognizing its exemption. 1040x irs It need not forward documents already submitted. 1040x irs However, if it has not already done so, the central organization must submit a copy of any amendment to its governing instruments or internal regulations as well as any information about changes in its character, purposes, or method of operation. 1040x irs Employer identification number. 1040x irs   The central organization must have an EIN before it submits a completed exemption or group exemption application. 1040x irs Each subordinate must have its own EIN, even if it has no employees. 1040x irs When submitting its group exemption application, the central organization must provide an EIN for each subordinate organization. 1040x irs Information required for subordinate organizations. 1040x irs   In addition to the information required to obtain recognition of its own exemption, the central organization must submit information for those subordinates to be included in the group exemption letter. 1040x irs The information should be forwarded in a letter signed by a principal officer of the central organization setting forth or including as attachments the following. 1040x irs Information verifying that the subordinates: Are affiliated with the central organization at the close of its annual accounting period; Are subject to its general supervision or control; Are all eligible to qualify for exemption under the same paragraph of section 501(c), though not necessarily the paragraph under which the central organization itself is exempt; Are not private foundations if the application for a group exemption letter involves section 501(c)(3); Are all on the same accounting period as the central organization if they are to be included in group returns; and Are organizations that have been formed within the 15-month period preceding the date of submission of the group exemption application if they are claiming section 501(c)(3) status and are subject to the requirements of section 508(a) and wish to be recognized as exempt from their dates of creation (a group exemption letter may be issued covering subordinates, one or more of which have not been organized within the 15-month period preceding the date of submission, if all subordinates are willing to be recognized as exempt only from the date of application). 1040x irs A detailed description of the purposes and activities of the subordinates, including the sources of receipts and the nature of expenditures. 1040x irs A sample copy of a uniform governing instrument (such as a charter or articles of association) adopted by the subordinates, or, in its absence, copies of representative instruments. 1040x irs An affirmation to the effect that, to the best of the officer's knowledge, the purposes and activities of the subordinates are as stated in (2) and (3), above. 1040x irs A statement that each of the subordinates has provided a written authorization to the central organization, signed by an authorized officer of the subordinate, agreeing to be included in the group exemption (see also New 501(c)(3) organizations that want to be included , later in this section). 1040x irs A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or determination letter relating to exemption. 1040x irs If the application for a group exemption letter involves section 501(c)(3) and is subject to the provisions of the Code requiring that it give timely notice that it is not a private foundation (see Private Foundations in chapter 3), an affirmation to the effect that, to the best of the officer's knowledge and belief, no subordinate to be included in the group exemption letter is a private foundation as defined in section 509(a). 1040x irs For each subordinate that is a school claiming exemption under section 501(c)(3), the information required by Revenue Ruling 71-447, 1971-2 C. 1040x irs B. 1040x irs 230 and Revenue Procedure 75-50, 1975-2 C. 1040x irs B. 1040x irs 587 (these requirements are fully described in chapter 3, under Private Schools ; see also Schedule B, Form 1023). 1040x irs For any school affiliated with a church, the information to show that the provisions of Revenue Ruling 75-231, 1975-1 C. 1040x irs B. 1040x irs 158, have been met. 1040x irs A list of the names, mailing addresses, actual addresses if different, and EINs of subordinates to be included in the group exemption letter. 1040x irs A current directory of subordinates may be furnished instead of the list if it includes the required information and if the subordinates not to be included in the group exemption letter are identified. 1040x irs New 501(c)(3) organizations that want to be included. 1040x irs   A new organization, described in section 501(c)(3), that wants to be included in a group exemption letter must submit its authorization (as explained in item number 5, earlier, under Information required for subordinate organizations ) to the central organization before the end of the 15th month after it was formed in order to satisfy the requirement of section 508(a). 1040x irs The central organization must also include this subordinate in its next annual submission of information, as discussed later, under Information Required Annually . 1040x irs Keeping the Group Exemption Letter in Force Continued effectiveness of a group exemption letter is based on the following conditions. 1040x irs The continued existence of the central organization. 1040x irs The continued qualification of the central organization for exemption under section 501(c). 1040x irs The submission by the central organization of the information regarding its subordinate organizations that is required annually (described under Information Required Annually). 1040x irs The annual filing of an information return (Form 990, for example) by the central organization if required. 1040x irs The continued effectiveness of a group exemption letter as to a particular subordinate is based on these four conditions, as well as on the continued conformity by the subordinate to the requirements for inclusion in a group exemption letter, the authorization for inclusion, and the annual filing of any required information return for the subordinate. 1040x irs Information Required Annually To maintain a group exemption letter, the central organization must submit annually, at least 90 days before the close of its annual accounting period, all of the following information. 1040x irs Information about all changes in the purposes, character, or method of operation of the subordinates included in the group exemption letter. 1040x irs A separate list (that includes the names, mailing addresses, actual addresses if different, and EINs of the affected subordinates) for each of the three following categories. 1040x irs Subordinates that have changed their names or addresses during the year. 1040x irs Subordinates no longer to be included in the group exemption letter because they no longer exist or have disaffiliated from or withdrawn their authorization to the central organization. 1040x irs Subordinates to be added to the group exemption letter because they are newly organized or affiliated or because they have recently authorized the central organization to include them. 1040x irs An annotated directory of subordinates will not be accepted for this purpose. 1040x irs If there were none of the above changes, the central organization must submit a statement to that effect. 1040x irs The same information about new subordinates that was required in the initial application for group exemption. 1040x irs (This information is listed in items 1 through 10, under Information required for subordinate organizations. 1040x irs , earlier. 1040x irs ) If a new subordinate does not differ in any material respects from the subordinates included in the application for group exemption, however, a statement to this effect may be submitted in lieu of detailed information. 1040x irs The organization should send this information to:   Ogden Service Center  Mail Stop 6271 Ogden, UT 84404-4749 Submitting the required information annually does not relieve the central organization or any of its subordinates of the duty to submit any other information that may be required by an EO area manager to determine whether the conditions for continued exemption are being met. 1040x irs Events Causing Loss of Group Exemption A group exemption letter no longer has effect, for either a particular subordinate or the group as a whole, when: The central organization notifies the IRS that it is going out of existence, The central organization notifies the IRS, by its annual submission or otherwise, that any of its subordinates will no longer fulfill the conditions for continued effectiveness, explained earlier, or The IRS notifies the central organization or the affected subordinate that the group exemption letter will no longer have effect for some or all of the group because the conditions for continued effectiveness of a group exemption letter have not been fulfilled. 1040x irs When notice is given under any of these three conditions, the IRS will no longer recognize the exempt status of the affected subordinates until they file separate applications on their own behalf or the central organization files complete supporting information for their reinclusion in the group exemption at the time of its annual submission. 1040x irs However, when the notice is given by the IRS and the withdrawal of recognition is based on the failure of the organization to comply with the requirements for recognition of tax-exempt status under the particular subsection of section 501(c), the revocation will ordinarily take effect as of the date of that failure. 1040x irs The notice, however, will be given only after the appeal procedures described earlier in this chapter are completed. 1040x irs Prev  Up  Next   Home   More Online Publications