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Amended Irs Return

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Amended Irs Return

Amended irs return Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). Amended irs return Low Income Taxpayer Clinics (LITCs). Amended irs return Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. Amended irs return All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. Amended irs return The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). Amended irs return After notice and hearing, the bankruptcy court may extend the period for another 30 days. Amended irs return Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. Amended irs return Note. Amended irs return Individual debtors should use their home address when filing Form 1040 with the IRS. Amended irs return Returns should not be filed “in care of” the trustee's address. Amended irs return Ordering tax transcripts and copies of returns. Amended irs return   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. Amended irs return The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. Amended irs return If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. Amended irs return Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. Amended irs return Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. Amended irs return A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. Amended irs return To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. Amended irs return It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. Amended irs return 00 per tax return for copies of the returns. Amended irs return Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. Amended irs return If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. Amended irs return Tax returns and payment of taxes in chapter 11 cases. Amended irs return   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. Amended irs return Disclosure of debtor's return information to trustee. Amended irs return   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. Amended irs return If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. Amended irs return    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. Amended irs return Material interest is generally defined as a financial or monetary interest. Amended irs return Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Amended irs return   However, the U. Amended irs return S. Amended irs return Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. Amended irs return Disclosure of bankruptcy estate's return information to debtor. Amended irs return    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. Amended irs return Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. Amended irs return Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. Amended irs return Chapter 13 relief is not available to corporations or partnerships. Amended irs return The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. Amended irs return In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. Amended irs return S. Amended irs return Individual Income Tax Return. Amended irs return On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. Amended irs return Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. Amended irs return To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. Amended irs return See Debt Cancellation, later. Amended irs return Interest on trust accounts in chapter 13 cases. Amended irs return   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. Amended irs return This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. Amended irs return S. Amended irs return Trustee system. Amended irs return The interest is also not taxable to the trustee as income. Amended irs return Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. Amended irs return The bankruptcy estate in a chapter 7 case is represented by a trustee. Amended irs return The trustee is appointed to administer the estate and liquidate any nonexempt assets. Amended irs return In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. Amended irs return However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. Amended irs return During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. Amended irs return The bankruptcy trustee files a Form 1041 for the bankruptcy estate. Amended irs return However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). Amended irs return Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. Amended irs return Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). Amended irs return For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Amended irs return Debtor's Election To End Tax Year – Form 1040 Short tax years. Amended irs return   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. Amended irs return If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. Amended irs return The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. Amended irs return   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. Amended irs return Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. Amended irs return    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. Amended irs return Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. Amended irs return Note. Amended irs return The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. Amended irs return Making the Election - Filing Requirements First short tax year. Amended irs return   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. Amended irs return The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. Amended irs return Second short tax year. Amended irs return   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. Amended irs return   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. Amended irs return To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. Amended irs return Example. Amended irs return Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. Amended irs return If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. Amended irs return Jane's second short year runs from May 8, 2012, through December 31, 2012. Amended irs return To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. Amended irs return To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. Amended irs return The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. Amended irs return S. Amended irs return Individual Tax Return. Amended irs return The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. Amended irs return The debtor must file Form 4868 by the due date of the return for the first short tax year. Amended irs return The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. Amended irs return Election by debtor's spouse. Amended irs return   If the debtor is married, the debtor's spouse may join in the election to end the tax year. Amended irs return If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. Amended irs return The debtor must elect by the due date for filing the return for the first short tax year. Amended irs return Once the election is made, it cannot be revoked for the first short tax year. Amended irs return However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. Amended irs return Later bankruptcy of spouse. Amended irs return    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. Amended irs return   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. Amended irs return If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. Amended irs return However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. Amended irs return The debtor and the spouse are precluded from this election because they have different tax years. Amended irs return This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. Amended irs return Example 1. Amended irs return Paul and Mary Harris are calendar-year taxpayers. Amended irs return Paul's voluntary chapter 7 bankruptcy case begins on March 4. Amended irs return If Paul does not make an election, his tax year does not end on March 3. Amended irs return If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. Amended irs return Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. Amended irs return They must make the election by July 15, the due date for filing the joint return. Amended irs return Example 2. Amended irs return Fred and Ethel Barnes are calendar-year taxpayers. Amended irs return Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. Amended irs return Ethel could elect to end her tax year on October 31. Amended irs return If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. Amended irs return Her first tax year is January 1–October 31, and her second year is November 1–December 31. Amended irs return If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. Amended irs return If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. Amended irs return Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. Amended irs return Example 3. Amended irs return Jack and Karen Thomas are calendar-year taxpayers. Amended irs return Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. Amended irs return Karen elected to close her tax year on April 9 and Jack joins in Karen's election. Amended irs return Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. Amended irs return The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. Amended irs return Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). Amended irs return If Karen does join in, she would have the same 3 short tax years as Jack. Amended irs return Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. Amended irs return Annualizing taxable income. Amended irs return   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. Amended irs return See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. Amended irs return Dismissal of bankruptcy case. Amended irs return   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. Amended irs return It is as if no bankruptcy estate was created for tax purposes. Amended irs return In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. Amended irs return Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. Amended irs return Attach a statement to the amended returns explaining why the debtor is filing an amended return. Amended irs return Taxes and the Bankruptcy Estate Property of the bankruptcy estate. Amended irs return   At the commencement of a bankruptcy case a bankruptcy estate is created. Amended irs return Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. Amended irs return This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. Amended irs return However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. Amended irs return Note. Amended irs return Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. Amended irs return Excluded property is never included in the estate. Amended irs return Transfer of assets between debtor and bankruptcy estate. Amended irs return   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. Amended irs return The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. Amended irs return For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. Amended irs return The estate assumes the same basis, holding period, and character of the transferred assets. Amended irs return Also, the estate generally accounts for the transferred assets in the same manner as debtor. Amended irs return   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. Amended irs return The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. Amended irs return Abandoned property. Amended irs return    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. Amended irs return If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. Amended irs return Separate taxable entity. Amended irs return   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. Amended irs return The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. Amended irs return S. Amended irs return Income Tax Return for Estates and Trusts, and paying its taxes. Amended irs return The debtor remains responsible for filing his or her own returns on Form 1040, U. Amended irs return S. Amended irs return Individual Income Tax Return, and paying taxes on income that does not belong to the estate. Amended irs return Employer identification number. Amended irs return   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Amended irs return The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Amended irs return See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. Amended irs return    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Amended irs return Income, deductions, and credits – Form 1040. Amended irs return   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). Amended irs return Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. Amended irs return The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. Amended irs return See Debt Cancellation, below. Amended irs return Note. Amended irs return The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. Amended irs return Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. Amended irs return However, other exclusions, such as the insolvency exclusion, may apply. Amended irs return Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. Amended irs return    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. Amended irs return Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. Amended irs return   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. Amended irs return Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. Amended irs return Income of the estate in individual chapter 11 cases. Amended irs return    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. Amended irs return Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. Amended irs return S. Amended irs return C. Amended irs return section 1115). Amended irs return Note. Amended irs return A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. Amended irs return Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). Amended irs return Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. Amended irs return See Administrative expenses, below. Amended irs return Conversion or dismissal of chapter 11 cases. Amended irs return   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. Amended irs return If the chapter 11 case is converted to a chapter 7 case, 11 U. Amended irs return S. Amended irs return C. Amended irs return section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. Amended irs return Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. Amended irs return If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. Amended irs return Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. Amended irs return Note. Amended irs return Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). Amended irs return Administrative expenses. Amended irs return   Allowable expenses include administrative expenses. Amended irs return    Administrative expenses can only be deducted by the estate, never by the debtor. Amended irs return   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. Amended irs return These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. Amended irs return See IRC section 67(e). Amended irs return Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. Amended irs return Note. Amended irs return The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. Amended irs return See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. Amended irs return Administrative expense loss. Amended irs return   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. Amended irs return The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. Amended irs return The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. Amended irs return For a discussion of NOLs, see Publication 536. Amended irs return Attribute carryovers. Amended irs return   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. Amended irs return These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. Amended irs return The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. Amended irs return   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. Amended irs return See Debt Cancellation, later. Amended irs return   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. Amended irs return The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. Amended irs return Note. Amended irs return The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. Amended irs return See Administrative expense loss, above. Amended irs return Passive and at-risk activities. Amended irs return   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. Amended irs return Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. Amended irs return These transfers include the return of exempt property and abandonment of estate property to the debtor. Amended irs return Carrybacks from the debtor's activities. Amended irs return   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. Amended irs return Carrybacks from the bankruptcy estate. Amended irs return   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. Amended irs return The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. Amended irs return Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. Amended irs return    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. Amended irs return The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. Amended irs return These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. Amended irs return The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. Amended irs return The same method must be used to allocate the income and the withheld tax. Amended irs return Example. Amended irs return If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. Amended irs return Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. Amended irs return See IRC section 31(a). Amended irs return   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. Amended irs return In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. Amended irs return    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. Amended irs return The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. Amended irs return Note. Amended irs return The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). Amended irs return   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. Amended irs return Self-employment taxes in individual chapter 11 cases. Amended irs return   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. Amended irs return Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. Amended irs return   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. Amended irs return Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. Amended irs return This schedule includes self-employment income earned post-petition and the attributable deductions. Amended irs return The debtor must pay any self-employment tax imposed by IRC section 1401. Amended irs return Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. Amended irs return   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. Amended irs return However, section 1115 of the Bankruptcy Code (11 U. Amended irs return S. Amended irs return C. Amended irs return section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. Amended irs return See Notice 2006-83. Amended irs return   The reporting and withholding obligations of a debtor's employer also do not change. Amended irs return An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. Amended irs return Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. Amended irs return   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. Amended irs return See IRC section 6109(a)(2). Amended irs return As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). Amended irs return   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. Amended irs return See Notice 2006-83. Amended irs return An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. Amended irs return   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. Amended irs return However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. Amended irs return See Employment Tax Regulations section 31. Amended irs return 3402(f)(2)-1. Amended irs return Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. Amended irs return See IRC section 6654(a). Amended irs return Notice required in converted and dismissed cases. Amended irs return   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. Amended irs return The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. Amended irs return This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. Amended irs return   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. Amended irs return Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. Amended irs return However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. Amended irs return After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. Amended irs return Employment taxes. Amended irs return   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Amended irs return See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. Amended irs return   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Amended irs return For a further discussion of employment taxes, see Employment Taxes, later. Amended irs return Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . Amended irs return The bankruptcy court case number is . Amended irs return Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. Amended irs return   Year Taxpayer   Estate 1. Amended irs return Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. Amended irs return Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. Amended irs return Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. Amended irs return Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. Amended irs return   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. Amended irs return This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. Amended irs return   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). Amended irs return   These amounts are generally adjusted annually. Amended irs return See the present year Form 1041 Instructions at www. Amended irs return irs. Amended irs return gov/form1041 for the current dollar amounts. Amended irs return Accounting period. Amended irs return   A bankruptcy estate may have a fiscal year. Amended irs return However, this period cannot be longer than 12 months. Amended irs return Change of accounting period. Amended irs return   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. Amended irs return This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. Amended irs return The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. Amended irs return Employer identification number. Amended irs return   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. Amended irs return The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. Amended irs return    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. Amended irs return   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. Amended irs return irs. Amended irs return gov/businesses/small. Amended irs return The EIN is issued immediately once the application information is validated. Amended irs return By telephone at 1-800-829-4933 from 7:00 a. Amended irs return m. Amended irs return to 7:00 p. Amended irs return m. Amended irs return in the trustee's or debtor-in-possession's local time zone. Amended irs return Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. Amended irs return   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. Amended irs return For more details, see Pub. Amended irs return 583, Starting a Business and Keeping Records. Amended irs return   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. Amended irs return Figuring tax due. Amended irs return   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. Amended irs return However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. Amended irs return The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. Amended irs return The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. Amended irs return Tax rate schedule. Amended irs return The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. Amended irs return When to file. Amended irs return   Calendar year bankruptcy estates must file Form 1041 by April 15th. Amended irs return Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. Amended irs return For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. Amended irs return If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Amended irs return Note. Amended irs return The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Amended irs return Transmittal for Form 1040. Amended irs return   Form 1041 is used as a transmittal for Form 1040. Amended irs return If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. Amended irs return   Prepare the bankruptcy estate's return by completing Form 1040. Amended irs return In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. Amended irs return ” Then, attach Form 1040 to the Form 1041 transmittal. Amended irs return Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. Amended irs return An example of a bankruptcy estate's tax return is prepared below. Amended irs return Note. Amended irs return The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. Amended irs return Payment of Tax Due Payment methods. Amended irs return   Payment of tax due may be made by check or money order or by credit or debit card. Amended irs return For information on how to make payments electronically by credit or debit card, go to irs. Amended irs return gov/e-pay. Amended irs return      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. Amended irs return To enroll in EFTPS, go to eftps. Amended irs return gov or call 1-800-555-4477. Amended irs return For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. Amended irs return Payment voucher – Form 1041-V. Amended irs return   Form 1041-V accompanies payments made by check or money order for Form 1041. Amended irs return The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. Amended irs return Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. Amended irs return We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. Amended irs return Estimated tax – Form 1041-ES. Amended irs return   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. Amended irs return See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. Amended irs return Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. Amended irs return Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. Amended irs return If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. Amended irs return   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. Amended irs return Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. Amended irs return The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. Amended irs return If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Amended irs return , with their individual income tax returns. Amended irs return Tax Return Example – Form 1041 This publication is not revised annually. Amended irs return Future changes to the forms and their instructions may not be reflected in this example. Amended irs return Note. Amended irs return The following return was prepared for tax year 2011. Amended irs return In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). Amended irs return Facts and circumstances. Amended irs return   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. Amended irs return Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. Amended irs return   The estate received the following assets from Mr. Amended irs return Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. Amended irs return   Also, the estate received a $251,500 capital loss carryover. Amended irs return   Mr. Amended irs return Smith's bankruptcy case was closed on December 31, 2011. Amended irs return During 2011, Mr. Amended irs return Smith was relieved of $70,000 of debt by the bankruptcy court. Amended irs return The estate chose a calendar year as its tax year. Amended irs return Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. Amended irs return Schedule B (Form 1040). Amended irs return    The certificate of deposit earned $5,500 of interest during 2011. Amended irs return Joan reports this interest on Schedule B. Amended irs return She completes this schedule and enters the result on Form 1040. Amended irs return Form 4562. Amended irs return   Joan enters the depreciation allowed on Form 4562. Amended irs return She completes the form and enters the result on Schedule E. Amended irs return Schedule E (Form 1040). Amended irs return   The commercial real estate was rented through the date of sale. Amended irs return Joan reports the income and expenses on Schedule E. Amended irs return She enters the net income on Form 1040. Amended irs return Form 4797. Amended irs return   The commercial real estate was sold on July 1, 2011, for $280,000. Amended irs return The property was purchased in 2001 at a cost of $250,000. Amended irs return The total depreciation allowable as of the date of sale was $120,000. Amended irs return Additionally, $25,000 of selling expenses were incurred. Amended irs return Joan reports the gain or loss from the sale on Form 4797. Amended irs return She completes the form and enters the gain on Schedule D (Form 1040). Amended irs return   Mr. Amended irs return Smith's former residence was sold on September 30, 2011. Amended irs return The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. Amended irs return This sale is excluded from gross income under IRC section 121. Amended irs return Note. Amended irs return Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). Amended irs return Bankruptcy estates succeed to this exclusion at the commencement of the case. Amended irs return See Regulation section 1. Amended irs return 1398-3. Amended irs return Schedule D (Form 1040). Amended irs return   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). Amended irs return She enters the results on Form 1040. Amended irs return Form 1040, page 1. Amended irs return   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. Amended irs return Schedule A (Form 1040). Amended irs return   During 2011, the estate paid mortgage interest and real property tax on Mr. Amended irs return Smith's former residence. Amended irs return It also paid income tax to the state. Amended irs return Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. Amended irs return Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. Amended irs return She completes the Schedule A and enters the result on page 2 of Form 1040. Amended irs return Form 1040, page 2. Amended irs return   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. Amended irs return She then enters the estate's estimated tax payments and figures the amount the estate still owes. Amended irs return Form 982. Amended irs return   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. Amended irs return Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. Amended irs return See Debt Cancellation, later. Amended irs return After the bankruptcy case ends, Mr. Amended irs return Smith will assume the estate's tax attributes. Amended irs return Mr. Amended irs return Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). Amended irs return Note. Amended irs return If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. Amended irs return Form 1041. Amended irs return   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. Amended irs return She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. Amended irs return This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Schedule A This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Schedule B This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Schedule D This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Schedule E This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 2119 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 4562 This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. Amended irs return Please click the link to view the image. Amended irs return Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. Amended irs return Otherwise, you do not have any carryovers. Amended irs return 1. Amended irs return Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. Amended irs return If a loss, enclose the amount in parentheses 1. Amended irs return 19,880   2. Amended irs return Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. Amended irs return 1,500   3. Amended irs return Combine lines 1 and 2. Amended irs return If zero or less, enter -0- 3. Amended irs return 21,380   4. Amended irs return Enter the smaller of line 2 or line 3 4. Amended irs return 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. Amended irs return       5. Amended irs return Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. Amended irs return 0   6. Amended irs return Enter any gain from your 2010 Schedule D, line 15. Amended irs return If a loss, enter -0- 6. Amended irs return         7. Amended irs return Add lines 4 and 6 7. Amended irs return 1,500   8. Amended irs return Short-term capital loss carryover for 2011. Amended irs return Subtract line 7 from line 5. Amended irs return If zero or less, enter -0-. Amended irs return If more than zero, also enter this amount on Schedule D, line 6 8. Amended irs return 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. Amended irs return       9. Amended irs return Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. Amended irs return 251,500   10. Amended irs return Enter any gain from your 2010 Schedule D, line 7. Amended irs return If a loss, enter -0- 10. Amended irs return 0       11. Amended irs return Subtract line 5 from line 4. Amended irs return If zero or less, enter -0- 11. Amended irs return 1,500       12. Amended irs return Add lines 10 and 11 12. Amended irs return 1,500   13. Amended irs return Long-term capital loss carryover for 2011. Amended irs return Subtract line 12 from line 9. Amended irs return If zero or less, enter -0-. Amended irs return If more than zero, also enter this amount on Schedule D, line 14 13. Amended irs return 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. Amended irs return The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. Amended irs return In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. Amended irs return The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. Amended irs return Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. Amended irs return However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. Amended irs return A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. Amended irs return However, It may or may not be included in the individual partners' income. Amended irs return See Partnerships, below under Debt Cancellation. Amended irs return Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. Amended irs return A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. Amended irs return The following discussion only highlights bankruptcy tax rules applying to corporations. Amended irs return The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. Amended irs return Therefore, you may wish to seek the help of a professional tax advisor. Amended irs return See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. Amended irs return Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. Amended irs return However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. Amended irs return A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. Amended irs return In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. Amended irs return In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. Amended irs return Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. Amended irs return In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. Amended irs return IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. Amended irs return IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. Amended irs return In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. Amended irs return No loss is recognized in this situation. Amended irs return Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. Amended irs return To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. Amended irs return The exemption request must be submitted to the local IRS Insolvency Office handling the case. Amended irs return The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. Amended irs return The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. Amended irs return ” The statement must be signed by the trustee, receiver or assignee. Amended irs return The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). Amended irs return The IRS will act on your request within 90 days. Amended irs return Disclosure of return information to trustee. Amended irs return   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. Amended irs return However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. Amended irs return Material interest is generally defined as a financial or monetary interest. Amended irs return Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. Amended irs return Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. Amended irs return Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. Amended irs return QSFs are required to file an annual income tax return, Form 1120-SF, U. Amended irs return S. Amended irs return Income Tax Return for Settlement Funds. Amended irs return More information about QSFs may be found in Treasury Regulation sections 1. Amended irs return 468B-1 through -5. Amended irs return Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. Amended irs return After a return is filed, the IRS will either accept the return as filed or select the return for examination. Amended irs return Under examination the IRS may redetermine the tax liability shown on the return. Amended irs return If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. Amended irs return See Court Jurisdiction over Tax Matters, later. Amended irs return Prompt Determination Requests Pursuant to Rev. Amended irs return Proc. Amended irs return 2006-24, 2006-22 I. Amended irs return R. Amended irs return B. Amended irs return 943, www. Amended irs return irs. Amended irs return gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. Amended irs return irs. Amended irs return gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. Amended irs return Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). Amended irs return Making the request for determination. Amended irs return   As detailed in Rev. Amended irs return Proc. Amended irs return 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. Amended irs return O. Amended irs return Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). Amended irs return   The request must be submitted in duplicate and must be executed under penalties of perjury. Amended irs return In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. Amended irs return The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. Amended irs return The name and location of the office where the return was filed. Amended irs return The name of the debtor. Amended irs return Debtor's social security number, TIN, or EIN. Amended irs return Type of bankruptcy estate. Amended irs return Bankruptcy case number. Amended irs return Court where the bankruptcy case is pending. Amended irs return   The copy of the return(s) submitted with the request must be an exact copy of a valid return. Amended irs return A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. Amended irs return    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. Amended irs return A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. Amended irs return Examination of return. Amended irs return   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. Amended irs return If the return is selected for examination, it will be examined as soon as possible. Amended irs return The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. Amended irs return   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. Amended irs return   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. Amended irs return   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. Amended irs return Note. Amended irs return An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. Amended irs return   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei
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The Amended Irs Return

Amended irs return 8. Amended irs return   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Amended irs return Cash method. Amended irs return Car and Truck ExpensesOffice in the home. Amended irs return Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Amended irs return InsuranceHow to figure the deduction. Amended irs return Interest Legal and Professional FeesTax preparation fees. Amended irs return Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Amended irs return Taxi, commuter bus, and limousine. Amended irs return Baggage and shipping. Amended irs return Car or truck. Amended irs return Meals and lodging. Amended irs return Cleaning. Amended irs return Telephone. Amended irs return Tips. Amended irs return More information. Amended irs return Business Use of Your HomeExceptions to exclusive use. Amended irs return Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Amended irs return These costs are known as business expenses. Amended irs return These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Amended irs return To be deductible, a business expense must be both ordinary and necessary. Amended irs return An ordinary expense is one that is common and accepted in your field of business. Amended irs return A necessary expense is one that is helpful and appropriate for your business. Amended irs return An expense does not have to be indispensable to be considered necessary. Amended irs return For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Amended irs return If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Amended irs return The personal part is not deductible. Amended irs return Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. Amended irs return Bad Debts If someone owes you money you cannot collect, you have a bad debt. Amended irs return There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Amended irs return A business bad debt is generally one that comes from operating your trade or business. Amended irs return You may be able to deduct business bad debts as an expense on your business tax return. Amended irs return Business bad debt. Amended irs return   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Amended irs return Created or acquired in your business. Amended irs return Closely related to your business when it became partly or totally worthless. Amended irs return A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Amended irs return   Business bad debts are mainly the result of credit sales to customers. Amended irs return They can also be the result of loans to suppliers, clients, employees, or distributors. Amended irs return Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Amended irs return If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Amended irs return    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. Amended irs return Accrual method. Amended irs return   If you use an accrual method of accounting, you normally report income as you earn it. Amended irs return You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Amended irs return Cash method. Amended irs return   If you use the cash method of accounting, you normally report income when you receive payment. Amended irs return You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. Amended irs return More information. Amended irs return   For more information about business bad debts, see chapter 10 in Publication 535. Amended irs return Nonbusiness bad debts. Amended irs return   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Amended irs return For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Amended irs return Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. Amended irs return You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Amended irs return You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. Amended irs return See Form 8936 and Form 8910 for more information. Amended irs return Local transportation expenses. Amended irs return   Local transportation expenses include the ordinary and necessary costs of all the following. Amended irs return Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Amended irs return Tax home is defined later. Amended irs return Visiting clients or customers. Amended irs return Going to a business meeting away from your regular workplace. Amended irs return Getting from your home to a temporary workplace when you have one or more regular places of work. Amended irs return These temporary workplaces can be either within the area of your tax home or outside that area. Amended irs return Local business transportation does not include expenses you have while traveling away from home overnight. Amended irs return Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Amended irs return However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Amended irs return   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Amended irs return It includes the entire city or general area in which your business or work is located. Amended irs return Example. Amended irs return You operate a printing business out of rented office space. Amended irs return You use your van to deliver completed jobs to your customers. Amended irs return You can deduct the cost of round-trip transportation between your customers and your print shop. Amended irs return    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Amended irs return These costs are personal commuting expenses. Amended irs return Office in the home. Amended irs return   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Amended irs return For more information, see Business Use of Your Home, later. Amended irs return Example. Amended irs return You are a graphics designer. Amended irs return You operate your business out of your home. Amended irs return Your home qualifies as your principal place of business. Amended irs return You occasionally have to drive to your clients to deliver your completed work. Amended irs return You can deduct the cost of the round-trip transportation between your home and your clients. Amended irs return Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. Amended irs return Standard mileage rate. Amended irs return Actual expenses. Amended irs return Standard mileage rate. Amended irs return   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Amended irs return For 2013, the standard mileage rate is 56. Amended irs return 5 cents per mile. Amended irs return    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. Amended irs return Choosing the standard mileage rate. Amended irs return   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. Amended irs return In later years, you can choose to use either the standard mileage rate or actual expenses. Amended irs return   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Amended irs return Standard mileage rate not allowed. Amended irs return   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Amended irs return Parking fees and tolls. Amended irs return   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Amended irs return (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Amended irs return ) Actual expenses. Amended irs return   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Amended irs return    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Amended irs return   Actual car expenses include the costs of the following items. Amended irs return Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Amended irs return You can divide your expenses based on the miles driven for each purpose. Amended irs return Example. Amended irs return You are the sole proprietor of a flower shop. Amended irs return You drove your van 20,000 miles during the year. Amended irs return 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Amended irs return You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Amended irs return More information. Amended irs return   For more information about the rules for claiming car and truck expenses, see Publication 463. Amended irs return Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Amended irs return The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Amended irs return For details, see chapter 11 in Publication 535. Amended irs return That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Amended irs return Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Amended irs return You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Amended irs return This method of deducting the cost of business property is called depreciation. Amended irs return The discussion here is brief. Amended irs return You will find more information about depreciation in Publication 946. Amended irs return What property can be depreciated?   You can depreciate property if it meets all the following requirements. Amended irs return It must be property you own. Amended irs return It must be used in business or held to produce income. Amended irs return You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Amended irs return It must have a useful life that extends substantially beyond the year it is placed in service. Amended irs return It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Amended irs return You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Amended irs return It must not be excepted property. Amended irs return This includes property placed in service and disposed of in the same year. Amended irs return Repairs. Amended irs return    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Amended irs return You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Amended irs return Depreciation method. Amended irs return   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Amended irs return MACRS is discussed in detail in Publication 946. Amended irs return Section 179 deduction. Amended irs return   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Amended irs return This deduction is known as the “section 179 deduction. Amended irs return ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Amended irs return See IRC 179(e). Amended irs return   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Amended irs return The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). Amended irs return Special rules apply to trucks and vans. Amended irs return For more information, see Publication 946. Amended irs return It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Amended irs return    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Amended irs return For more information, see the Instructions for Form 4562 or Publication 946. Amended irs return Listed property. Amended irs return   You must follow special rules and recordkeeping requirements when depreciating listed property. Amended irs return Listed property is any of the following. Amended irs return Most passenger automobiles. Amended irs return Most other property used for transportation. Amended irs return Any property of a type generally used for entertainment, recreation, or amusement. Amended irs return Certain computers and related peripheral equipment. Amended irs return   For more information about listed property, see Publication 946. Amended irs return Form 4562. Amended irs return   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Amended irs return Depreciation on property placed in service during the current tax year. Amended irs return A section 179 deduction. Amended irs return Depreciation on any listed property (regardless of when it was placed in service). Amended irs return    If you have to use Form 4562, you must file Schedule C. Amended irs return You cannot use Schedule C-EZ. Amended irs return   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Amended irs return The pay may be in cash, property, or services. Amended irs return To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Amended irs return In addition, the pay must meet both the following tests. Amended irs return The pay must be reasonable. Amended irs return The pay must be for services performed. Amended irs return Chapter 2 in Publication 535 explains and defines these requirements. Amended irs return You cannot deduct your own salary or any personal withdrawals you make from your business. Amended irs return As a sole proprietor, you are not an employee of the business. Amended irs return If you had employees during the year, you must use Schedule C. Amended irs return You cannot use Schedule C-EZ. Amended irs return Kinds of pay. Amended irs return   Some of the ways you may provide pay to your employees are listed below. Amended irs return For an explanation of each of these items, see chapter 2 in Publication 535. Amended irs return Awards. Amended irs return Bonuses. Amended irs return Education expenses. Amended irs return Fringe benefits (discussed later). Amended irs return Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Amended irs return Property you transfer to an employee as payment for services. Amended irs return Reimbursements for employee business expenses. Amended irs return Sick pay. Amended irs return Vacation pay. Amended irs return Fringe benefits. Amended irs return   A fringe benefit is a form of pay for the performance of services. Amended irs return The following are examples of fringe benefits. Amended irs return Benefits under qualified employee benefit programs. Amended irs return Meals and lodging. Amended irs return The use of a car. Amended irs return Flights on airplanes. Amended irs return Discounts on property or services. Amended irs return Memberships in country clubs or other social clubs. Amended irs return Tickets to entertainment or sporting events. Amended irs return   Employee benefit programs include the following. Amended irs return Accident and health plans. Amended irs return Adoption assistance. Amended irs return Cafeteria plans. Amended irs return Dependent care assistance. Amended irs return Educational assistance. Amended irs return Group-term life insurance coverage. Amended irs return Welfare benefit funds. Amended irs return   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Amended irs return For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. Amended irs return If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Amended irs return    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Amended irs return For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Amended irs return Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Amended irs return Fire, theft, flood, or similar insurance. Amended irs return Credit insurance that covers losses from business bad debts. Amended irs return Group hospitalization and medical insurance for employees, including long-term care insurance. Amended irs return Liability insurance. Amended irs return Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Amended irs return Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Amended irs return Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Amended irs return Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Amended irs return Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Amended irs return If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Amended irs return If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Amended irs return Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Amended irs return Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Amended irs return Nondeductible premiums. Amended irs return   You cannot deduct premiums on the following kinds of insurance. Amended irs return Self-insurance reserve funds. Amended irs return You cannot deduct amounts credited to a reserve set up for self-insurance. Amended irs return This applies even if you cannot get business insurance coverage for certain business risks. Amended irs return However, your actual losses may be deductible. Amended irs return For more information, see Publication 547, Casualties, Disasters, and Thefts. Amended irs return Loss of earnings. Amended irs return You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Amended irs return However, see item (8) in the previous list. Amended irs return Certain life insurance and annuities. Amended irs return For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Amended irs return You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Amended irs return A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Amended irs return For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Amended irs return The disallowance applies without regard to whom the policy covers. Amended irs return Insurance to secure a loan. Amended irs return If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Amended irs return Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Amended irs return In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Amended irs return Self-employed health insurance deduction. Amended irs return   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. Amended irs return How to figure the deduction. Amended irs return   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Amended irs return However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Amended irs return You have more than one source of income subject to self-employment tax. Amended irs return You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Amended irs return You are using amounts paid for qualified long-term care insurance to figure the deduction. Amended irs return Prepayment. Amended irs return   You cannot deduct expenses in advance, even if you pay them in advance. Amended irs return This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Amended irs return Example. Amended irs return In 2013, you signed a 3-year insurance contract. Amended irs return Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Amended irs return You can deduct in 2014 and 2015 the premium allocable to those years. Amended irs return More information. Amended irs return   For more information about deducting insurance, see chapter 6 in Publication 535. Amended irs return Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. Amended irs return Interest relates to your business if you use the proceeds of the loan for a business expense. Amended irs return It does not matter what type of property secures the loan. Amended irs return You can deduct interest on a debt only if you meet all of the following requirements. Amended irs return You are legally liable for that debt. Amended irs return Both you and the lender intend that the debt be repaid. Amended irs return You and the lender have a true debtor-creditor relationship. Amended irs return You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Amended irs return If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Amended irs return Example. Amended irs return In 2013, you paid $600 interest on a car loan. Amended irs return During 2013, you used the car 60% for business and 40% for personal purposes. Amended irs return You are claiming actual expenses on the car. Amended irs return You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Amended irs return The remaining interest of $240 is a nondeductible personal expense. Amended irs return More information. Amended irs return   For more information about deducting interest, see chapter 4 in Publication 535. Amended irs return That chapter explains the following items. Amended irs return Interest you can deduct. Amended irs return Interest you cannot deduct. Amended irs return How to allocate interest between personal and business use. Amended irs return When to deduct interest. Amended irs return The rules for a below-market interest rate loan. Amended irs return (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Amended irs return ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. Amended irs return However, you usually cannot deduct legal fees you pay to acquire business assets. Amended irs return Add them to the basis of the property. Amended irs return If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. Amended irs return The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. Amended irs return For more information, see Publication 529, Miscellaneous Deductions. Amended irs return Tax preparation fees. Amended irs return   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. Amended irs return You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Amended irs return   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. Amended irs return Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Amended irs return SEP (Simplified Employee Pension) plans. Amended irs return SIMPLE (Savings Incentive Match Plan for Employees) plans. Amended irs return Qualified plans (including Keogh or H. Amended irs return R. Amended irs return 10 plans). Amended irs return SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Amended irs return You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Amended irs return If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Amended irs return You can also deduct trustees' fees if contributions to the plan do not cover them. Amended irs return Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Amended irs return You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. Amended irs return Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Amended irs return These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Amended irs return For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Amended irs return Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Amended irs return Rent Expense Rent is any amount you pay for the use of property you do not own. Amended irs return In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Amended irs return If you have or will receive equity in or title to the property, you cannot deduct the rent. Amended irs return Unreasonable rent. Amended irs return   You cannot take a rental deduction for unreasonable rents. Amended irs return Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Amended irs return Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Amended irs return Rent is not unreasonable just because it is figured as a percentage of gross receipts. Amended irs return   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Amended irs return For a list of the other related persons, see section 267 of the Internal Revenue Code. Amended irs return Rent on your home. Amended irs return   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Amended irs return You must meet the requirements for business use of your home. Amended irs return For more information, see Business Use of Your Home , later. Amended irs return Rent paid in advance. Amended irs return   Generally, rent paid in your business is deductible in the year paid or accrued. Amended irs return If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Amended irs return You can deduct the rest of your payment only over the period to which it applies. Amended irs return More information. Amended irs return   For more information about rent, see chapter 3 in Publication 535. Amended irs return Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Amended irs return Income taxes. Amended irs return   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. Amended irs return You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Amended irs return Do not deduct federal income tax. Amended irs return Employment taxes. Amended irs return   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Amended irs return Employment taxes are discussed briefly in chapter 1. Amended irs return You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Amended irs return Deduct these payments as taxes. Amended irs return Self-employment tax. Amended irs return   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Amended irs return Self-employment tax is discussed in chapters 1 and 10. Amended irs return Personal property tax. Amended irs return   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. Amended irs return   You can also deduct registration fees for the right to use property within a state or local area. Amended irs return Example. Amended irs return May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Amended irs return They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Amended irs return They also paid $235 in city personal property tax on the car, for a total of $280. Amended irs return They are claiming their actual car expenses. Amended irs return Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Amended irs return Real estate taxes. Amended irs return   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Amended irs return Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Amended irs return The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Amended irs return   For more information about real estate taxes, see chapter 5 in Publication 535. Amended irs return That chapter explains special rules for deducting the following items. Amended irs return Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Amended irs return Real estate taxes when you buy or sell property during the year. Amended irs return Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. Amended irs return Sales tax. Amended irs return   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Amended irs return If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Amended irs return If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Amended irs return If the property is depreciable, add the sales tax to the basis for depreciation. Amended irs return For information on the basis of property, see Publication 551, Basis of Assets. Amended irs return    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Amended irs return Do not include these taxes in gross receipts or sales. Amended irs return Excise taxes. Amended irs return   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Amended irs return Excise taxes are discussed briefly in chapter 1. Amended irs return Fuel taxes. Amended irs return   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. Amended irs return Do not deduct these taxes as a separate item. Amended irs return   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Amended irs return For more information, see Publication 510, Excise Taxes. Amended irs return Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Amended irs return Table 8-1. Amended irs return When Are Entertainment Expenses Deductible? (Note. Amended irs return The following is a summary of the rules for deducting entertainment expenses. Amended irs return For more details about these rules, see Publication 463. Amended irs return ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Amended irs return Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Amended irs return An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Amended irs return A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Amended irs return Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Amended irs return   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Amended irs return Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Amended irs return You cannot deduct expenses that are lavish or extravagant under the circumstances. Amended irs return You generally can deduct only 50% of your unreimbursed entertainment expenses. Amended irs return Travel expenses. Amended irs return   These are the ordinary and necessary expenses of traveling away from home for your business. Amended irs return You are traveling away from home if both the following conditions are met. Amended irs return Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. Amended irs return You need to get sleep or rest to meet the demands of your work while away from home. Amended irs return Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Amended irs return It includes the entire city or general area in which your business is located. Amended irs return See Publication 463 for more information. Amended irs return   The following is a brief discussion of the expenses you can deduct. Amended irs return Transportation. Amended irs return   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Amended irs return Taxi, commuter bus, and limousine. Amended irs return   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. Amended irs return Baggage and shipping. Amended irs return   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Amended irs return Car or truck. Amended irs return   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Amended irs return You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. Amended irs return If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Amended irs return Meals and lodging. Amended irs return   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Amended irs return In most cases, you can deduct only 50% of your meal expenses. Amended irs return Cleaning. Amended irs return   You can deduct the costs of dry cleaning and laundry while on your business trip. Amended irs return Telephone. Amended irs return   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Amended irs return Tips. Amended irs return   You can deduct the tips you pay for any expense in this list. Amended irs return More information. Amended irs return   For more information about travel expenses, see Publication 463. Amended irs return Entertainment expenses. Amended irs return   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Amended irs return In most cases, you can deduct only 50% of these expenses. Amended irs return   The following are examples of entertainment expenses. Amended irs return Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Amended irs return Providing meals, a hotel suite, or a car to business customers or their families. Amended irs return To be deductible, the expenses must meet the rules listed in Table 8-1. Amended irs return For details about these rules, see Publication 463. Amended irs return Reimbursing your employees for expenses. Amended irs return   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Amended irs return The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Amended irs return For details, see chapter 11 in Publication 535. Amended irs return That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Amended irs return Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Amended irs return Even then, your deduction may be limited. Amended irs return To qualify to claim expenses for business use of your home, you must meet the following tests. Amended irs return Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. Amended irs return Exclusive use. Amended irs return   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Amended irs return The area used for business can be a room or other separately identifiable space. Amended irs return The space does not need to be marked off by a permanent partition. Amended irs return   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Amended irs return Example. Amended irs return You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Amended irs return Your family also uses the den for recreation. Amended irs return The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Amended irs return Exceptions to exclusive use. Amended irs return   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Amended irs return For the storage of inventory or product samples. Amended irs return As a daycare facility. Amended irs return For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Amended irs return Regular use. Amended irs return   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Amended irs return You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. Amended irs return Principal place of business. Amended irs return   You can have more than one business location, including your home, for a single trade or business. Amended irs return To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. Amended irs return To determine your principal place of business, you must consider all the facts and circumstances. Amended irs return   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Amended irs return You use it exclusively and regularly for administrative or management activities of your business. Amended irs return You have no other fixed location where you conduct substantial administrative or management activities of your business. Amended irs return   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Amended irs return The relative importance of the activities performed at each location. Amended irs return If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Amended irs return   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Amended irs return However, for other ways to qualify to deduct home office expenses, see Publication 587. Amended irs return Deduction limit. Amended irs return   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Amended irs return If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Amended irs return   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. Amended irs return The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Amended irs return The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Amended irs return Do not include in (2) above your deduction for one-half of your self-employment tax. Amended irs return   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Amended irs return New simplified method. Amended irs return    The IRS now provides a simplified method to determine your expenses for business use of your home. Amended irs return The simplified method is an alternative to calculating and substantiating actual expenses. Amended irs return In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Amended irs return The area you use to figure your deduction is limited to 300 square feet. Amended irs return For more information, see the Instructions for Schedule C. Amended irs return More information. Amended irs return   For more information on deducting expenses for the business use of your home, see Publication 587. Amended irs return Other Expenses You Can Deduct You may also be able to deduct the following expenses. Amended irs return See Publication 535 to find out whether you can deduct them. Amended irs return Advertising. Amended irs return Bank fees. Amended irs return Donations to business organizations. Amended irs return Education expenses. Amended irs return Energy efficient commercial buildings deduction expenses. Amended irs return Impairment-related expenses. Amended irs return Interview expense allowances. Amended irs return Licenses and regulatory fees. Amended irs return Moving machinery. Amended irs return Outplacement services. Amended irs return Penalties and fines you pay for late performance or nonperformance of a contract. Amended irs return Repairs that keep your property in a normal efficient operating condition. Amended irs return Repayments of income. Amended irs return Subscriptions to trade or professional publications. Amended irs return Supplies and materials. Amended irs return Utilities. Amended irs return Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Amended irs return For more information, see Publication 535. Amended irs return Bribes and kickbacks. Amended irs return Charitable contributions. Amended irs return Demolition expenses or losses. Amended irs return Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Amended irs return Lobbying expenses. Amended irs return Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Amended irs return Personal, living, and family expenses. Amended irs return Political contributions. Amended irs return Repairs that add to the value of your property or significantly increase its life. 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