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Back taxes help 11. Back taxes help   Casualties, Thefts, and Condemnations Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Casualties and TheftsDeductible losses. Back taxes help Nondeductible losses. Back taxes help Family pet. Back taxes help Progressive deterioration. Back taxes help Decline in market value of stock. Back taxes help Mislaid or lost property. Back taxes help Farming Losses How To Figure a Loss Deduction Limits on Losses of Personal-Use Property When Loss Is Deductible Proof of Loss Figuring a Gain Other Involuntary ConversionsCondemnation Irrigation Project Livestock Losses Tree Seedlings Postponing GainException. Back taxes help Related persons. Back taxes help Replacement Property Replacement Period How To Postpone Gain Disaster Area LossesWho is eligible. Back taxes help Covered disaster area. Back taxes help Reporting Gains and Losses Introduction This chapter explains the tax treatment of casualties, thefts, and condemnations. Back taxes help A casualty occurs when property is damaged, destroyed, or lost due to a sudden, unexpected, or unusual event. Back taxes help A theft occurs when property is stolen. Back taxes help A condemnation occurs when private property is legally taken for public use without the owner's consent. Back taxes help A casualty, theft, or condemnation may result in a deductible loss or taxable gain on your federal income tax return. Back taxes help You may have a deductible loss or a taxable gain even if only a portion of your property was affected by a casualty, theft, or condemnation. Back taxes help An involuntary conversion occurs when you receive money or other property as reimbursement for a casualty, theft, condemnation, disposition of property under threat of condemnation, or certain other events discussed in this chapter. Back taxes help If an involuntary conversion results in a gain and you buy qualified replacement property within the specified replacement period, you can postpone reporting the gain on your income tax return. Back taxes help For more information, see Postponing Gain , later. Back taxes help Topics - This chapter discusses: Casualties and thefts How to figure a loss or gain Other involuntary conversions Postponing gain Disaster area losses Reporting gains and losses Drought involving property connected with a trade or business or a transaction entered into for profit Useful Items - You may want to see: Publication 523 Selling Your Home 525 Taxable and Nontaxable Income 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 584 Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property) 584-B Business Casualty, Disaster, and Theft Loss Workbook Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch D (Form 1040) Capital Gains and Losses Sch F (Form 1040) Profit or Loss From Farming 4684 Casualties and Thefts 4797 Sales of Business Property See chapter 16 for information about getting publications and forms. Back taxes help Casualties and Thefts If your property is destroyed, damaged, or stolen, you may have a deductible loss. Back taxes help If the insurance or other reimbursement is more than the adjusted basis of the destroyed, damaged, or stolen property, you may have a taxable gain. Back taxes help Casualty. Back taxes help   A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Back taxes help A sudden event is one that is swift, not gradual or progressive. Back taxes help An unexpected event is one that is ordinarily unanticipated and unintended. Back taxes help An unusual event is one that is not a day-to-day occurrence and that is not typical of the activity in which you were engaged. Back taxes help Deductible losses. Back taxes help   Deductible casualty losses can result from a number of different causes, including the following. Back taxes help Airplane crashes. Back taxes help Car, truck, or farm equipment accidents not resulting from your willful act or willful negligence. Back taxes help Earthquakes. Back taxes help Fires (but see Nondeductible losses next for exceptions). Back taxes help Floods. Back taxes help Freezing. Back taxes help Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster as discussed under Disaster Area Losses, in Publication 547. Back taxes help Lightning. Back taxes help Storms, including hurricanes and tornadoes. Back taxes help Terrorist attacks. Back taxes help Vandalism. Back taxes help Volcanic eruptions. Back taxes help Nondeductible losses. Back taxes help   A casualty loss is not deductible if the damage or destruction is caused by the following. Back taxes help Accidentally breaking articles such as glassware or china under normal conditions. Back taxes help A family pet (explained below). Back taxes help A fire if you willfully set it, or pay someone else to set it. Back taxes help A car, truck, or farm equipment accident if your willful negligence or willful act caused it. Back taxes help The same is true if the willful act or willful negligence of someone acting for you caused the accident. Back taxes help Progressive deterioration (explained below). Back taxes help Family pet. Back taxes help   Loss of property due to damage by a family pet is not deductible as a casualty loss unless the requirements discussed above under Casualty are met. Back taxes help Example. Back taxes help You keep your horse in your yard. Back taxes help The ornamental fruit trees in your yard were damaged when your horse stripped the bark from them. Back taxes help Some of the trees were completely girdled and died. Back taxes help Because the damage was not unexpected or unusual, the loss is not deductible. Back taxes help Progressive deterioration. Back taxes help   Loss of property due to progressive deterioration is not deductible as a casualty loss. Back taxes help This is because the damage results from a steadily operating cause or a normal process, rather than from a sudden event. Back taxes help Examples of damage due to progressive deterioration include damage from rust, corrosion, or termites. Back taxes help However, weather-related conditions or disease may cause another type of involuntary conversion. Back taxes help See Other Involuntary Conversions , later. Back taxes help Theft. Back taxes help   A theft is the taking and removing of money or property with the intent to deprive the owner of it. Back taxes help The taking of property must be illegal under the law of the state where it occurred and it must have been done with criminal intent. Back taxes help You do not need to show a conviction for theft. Back taxes help   Theft includes the taking of money or property by the following means: Blackmail, Burglary, Embezzlement, Extortion, Kidnapping for ransom, Larceny, Robbery, or Threats. Back taxes help The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law. Back taxes help Decline in market value of stock. Back taxes help   You cannot deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. Back taxes help However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. Back taxes help You report a capital loss on Schedule D (Form 1040). Back taxes help For more information about stock sales, worthless stock, and capital losses, see chapter 4 of Publication 550. Back taxes help Mislaid or lost property. Back taxes help   The simple disappearance of money or property is not a theft. Back taxes help However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Back taxes help Example. Back taxes help A car door is accidentally slammed on your hand, breaking the setting of your diamond ring. Back taxes help The diamond falls from the ring and is never found. Back taxes help The loss of the diamond is a casualty. Back taxes help Farming Losses You can deduct certain casualty or theft losses that occur in the business of farming. Back taxes help The following is a discussion of some losses you can deduct and some you cannot deduct. Back taxes help Livestock or produce bought for resale. Back taxes help   Casualty or theft losses of livestock or produce bought for resale are deductible if you report your income on the cash method. Back taxes help If you report your income on an accrual method, take casualty and theft losses on property bought for resale by omitting the item from the closing inventory for the year of the loss. Back taxes help You cannot take a separate deduction. Back taxes help Livestock, plants, produce, and crops raised for sale. Back taxes help   Losses of livestock, plants, produce, and crops raised for sale are generally not deductible if you report your income on the cash method. Back taxes help You have already deducted the cost of raising these items as farm expenses, so their basis is equal to zero. Back taxes help   For plants with a preproductive period of more than 2 years, you may have a deductible loss if you have a tax basis in the plants. Back taxes help You usually have a tax basis if you capitalized the expenses associated with these plants under the uniform capitalization rules. Back taxes help The uniform capitalization rules are discussed in chapter 6. Back taxes help   If you report your income on an accrual method, casualty or theft losses are deductible only if you included the items in your inventory at the beginning of your tax year. Back taxes help You get the deduction by omitting the item from your inventory at the close of your tax year. Back taxes help You cannot take a separate casualty or theft deduction. Back taxes help Income loss. Back taxes help   A loss of future income is not deductible. Back taxes help Example. Back taxes help A severe flood destroyed your crops. Back taxes help Because you are a cash method taxpayer and already deducted the cost of raising the crops as farm expenses, this loss is not deductible, as explained above under Livestock, plants, produce, and crops raised for sale . Back taxes help You estimate that the crop loss will reduce your farm income by $25,000. Back taxes help This loss of future income is also not deductible. Back taxes help Loss of timber. Back taxes help   If you sell timber downed as a result of a casualty, treat the proceeds from the sale as a reimbursement. Back taxes help If you use the proceeds to buy qualified replacement property, you can postpone reporting the gain. Back taxes help See Postponing Gain , later. Back taxes help Property used in farming. Back taxes help   Casualty and theft losses of property used in your farm business usually result in deductible losses. Back taxes help If a fire or storm destroyed your barn, or you lose by casualty or theft an animal you bought for draft, breeding, dairy, or sport, you may have a deductible loss. Back taxes help See How To Figure a Loss , later. Back taxes help Raised draft, breeding, dairy, or sporting animals. Back taxes help   Generally, losses of raised draft, breeding, dairy, or sporting animals do not result in deductible casualty or theft losses because you have no basis in the animals. Back taxes help However, you may have a basis in the animal and therefore may be able to claim a deduction if either of the following situations applies to you. Back taxes help You use inventories to determine your income and you included the animals in your inventory. Back taxes help You capitalized the expenses associated with the animals under the uniform capitalization rules and therefore have a tax basis in the animals subject to a casualty or theft. Back taxes help When you include livestock in inventory, its last inventory value is its basis. Back taxes help When you lose an inventoried animal held for draft, breeding, dairy, or sport by casualty or theft during the year, decrease ending inventory by the amount you included in inventory for the animal. Back taxes help You cannot take a separate deduction. Back taxes help How To Figure a Loss How you figure a deductible casualty or theft loss depends on whether the loss was to farm or personal-use property and whether the property was stolen or partly or completely destroyed. Back taxes help Farm property. Back taxes help   Farm property is the property you use in your farming business. Back taxes help If your farm property was completely destroyed or stolen, your loss is figured as follows:      Your adjusted basis in the property     MINUS     Any salvage value     MINUS     Any insurance or other reimbursement you  receive or expect to receive      You can use the schedules in Publication 584-B to list your stolen, damaged, or destroyed business property and to figure your loss. Back taxes help   If your farm property was partially damaged, use the steps shown under Personal-use property next to figure your casualty loss. Back taxes help However, the deduction limits, discussed later, do not apply to farm property. Back taxes help Personal-use property. Back taxes help   Personal-use property is property used by you or your family members for personal purposes and not used in your farm business or for income-producing purposes. Back taxes help The following items are examples of personal-use property: Your main home. Back taxes help Furniture and electronics used in your main home and not used in a home office or for business purposes. Back taxes help Clothing and jewelry. Back taxes help An automobile used for nonbusiness purposes. Back taxes help You figure the casualty or theft loss on this property by taking the following steps. Back taxes help Determine your adjusted basis in the property before the casualty or theft. Back taxes help Determine the decrease in fair market value of the property as a result of the casualty or theft. Back taxes help From the smaller of the amounts you determined in (1) and (2), subtract any insurance or other reimbursement you receive or expect to receive. Back taxes help You must apply the deduction limits, discussed later, to determine your deductible loss. Back taxes help    You can use Publication 584 to list your stolen or damaged personal-use property and figure your loss. Back taxes help It includes schedules to help you figure the loss on your home, its contents, and your motor vehicles. Back taxes help Adjusted basis. Back taxes help   Adjusted basis is your basis (usually cost) increased or decreased by various events, such as improvements and casualty losses. Back taxes help For more information about adjusted basis, see chapter 6. Back taxes help Decrease in fair market value (FMV). Back taxes help   The decrease in FMV is the difference between the property's value immediately before the casualty or theft and its value immediately afterward. Back taxes help FMV is defined in chapter 10 under Payments Received or Considered Received . Back taxes help Appraisal. Back taxes help   To figure the decrease in FMV because of a casualty or theft, you generally need a competent appraisal. Back taxes help But other measures, such as the cost of cleaning up or making repairs (discussed next) can be used to establish decreases in FMV. Back taxes help   An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. Back taxes help The appraiser must recognize the effects of any general market decline that may occur along with the casualty. Back taxes help This information is needed to limit any deduction to the actual loss resulting from damage to the property. Back taxes help Cost of cleaning up or making repairs. Back taxes help   The cost of cleaning up after a casualty is not part of a casualty loss. Back taxes help Neither is the cost of repairing damaged property after a casualty. Back taxes help But you can use the cost of cleaning up or making repairs after a casualty as a measure of the decrease in FMV if you meet all the following conditions. Back taxes help The repairs are actually made. Back taxes help The repairs are necessary to bring the property back to its condition before the casualty. Back taxes help The amount spent for repairs is not excessive. Back taxes help The repairs fix the damage only. Back taxes help The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty. Back taxes help Related expenses. Back taxes help   The incidental expenses due to a casualty or theft, such as expenses for the treatment of personal injuries, temporary housing, or a rental car, are not part of your casualty or theft loss. Back taxes help However, they may be deductible as farm business expenses if the damaged or stolen property is farm property. Back taxes help Separate computations for more than one item of property. Back taxes help   Generally, if a single casualty or theft involves more than one item of property, you must figure your loss separately for each item of property. Back taxes help Then combine the losses to determine your total loss. Back taxes help    There is an exception to this rule for personal-use real property. Back taxes help See Exception for personal-use real property, later. Back taxes help Example. Back taxes help A fire on your farm damaged a tractor and the barn in which it was stored. Back taxes help The tractor had an adjusted basis of $3,300. Back taxes help Its FMV was $28,000 just before the fire and $10,000 immediately afterward. Back taxes help The barn had an adjusted basis of $28,000. Back taxes help Its FMV was $55,000 just before the fire and $25,000 immediately afterward. Back taxes help You received insurance reimbursements of $2,100 on the tractor and $26,000 on the barn. Back taxes help Figure your deductible casualty loss separately for the two items of property. Back taxes help     Tractor Barn 1) Adjusted basis $3,300 $28,000 2) FMV before fire $28,000 $55,000 3) FMV after fire 10,000 25,000 4) Decrease in FMV  (line 2 − line 3) $18,000 $30,000 5) Loss (lesser of line 1 or line 4) $3,300 $28,000 6) Minus: Insurance 2,100 26,000 7) Deductible casualty loss $1,200 $2,000 8) Total deductible casualty loss $3,200 Exception for personal-use real property. Back taxes help   In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Back taxes help Figure the loss using the smaller of the following. Back taxes help The decrease in FMV of the entire property. Back taxes help The adjusted basis of the entire property. Back taxes help Example. Back taxes help You bought a farm in 1990 for $160,000. Back taxes help The adjusted basis of the residential part is now $128,000. Back taxes help In 2013, a windstorm blew down shade trees and three ornamental trees planted at a cost of $7,500 on the residential part. Back taxes help The adjusted basis of the residential part includes the $7,500. Back taxes help The fair market value (FMV) of the residential part immediately before the storm was $400,000, and $385,000 immediately after the storm. Back taxes help The trees were not covered by insurance. Back taxes help 1) Adjusted basis $128,000 2) FMV before the storm $400,000 3) FMV after the storm 385,000 4) Decrease in FMV (line 2 − line 3) $15,000 5) Loss before insurance (lesser of line 1 or line 4) $15,000 6) Minus: Insurance -0- 7) Amount of loss $15,000 Insurance and other reimbursements. Back taxes help   If you receive an insurance or other type of reimbursement, you must subtract the reimbursement when you figure your loss. Back taxes help You do not have a casualty or theft loss to the extent you are reimbursed. Back taxes help   If you expect to be reimbursed for part or all of your loss, you must subtract the expected reimbursement when you figure your loss. Back taxes help You must reduce your loss even if you do not receive payment until a later tax year. Back taxes help    Do not subtract from your loss any insurance payments you receive for living expenses if you lose the use of your main home or are denied access to it because of a casualty. Back taxes help You may have to include a portion of these payments in your income. Back taxes help See Insurance payments for living expenses in Publication 547 for details. Back taxes help Disaster relief. Back taxes help   Food, medical supplies, and other forms of assistance you receive do not reduce your casualty loss, unless they are replacements for lost or destroyed property. Back taxes help Excludable cash gifts you receive also do not reduce your casualty loss if there are no limits on how you can use the money. Back taxes help   Generally, disaster relief grants received under the Robert T. Back taxes help Stafford Disaster Relief and Emergency Assistance Act are not included in your income. Back taxes help See Federal disaster relief grants , later, under Disaster Area Losses . Back taxes help   Qualified disaster relief payments for expenses you incurred as a result of a federally declared disaster are not taxable income to you. Back taxes help See Qualified disaster relief payments , later, under Disaster Area Losses . Back taxes help Reimbursement received after deducting loss. Back taxes help   If you figure your casualty or theft loss using your expected reimbursement, you may have to adjust your tax return for the tax year in which you get your actual reimbursement. Back taxes help Actual reimbursement less than expected. Back taxes help   If you later receive less reimbursement than you expected, include that difference as a loss with your other losses (if any) on your return for the year in which you can reasonably expect no more reimbursement. Back taxes help Actual reimbursement more than expected. Back taxes help   If you later receive more reimbursement than you expected after you have claimed a deduction for the loss, you may have to include the extra reimbursement in your income for the year you receive it. Back taxes help However, if any part of your original deduction did not reduce your tax for the earlier year, do not include that part of the reimbursement in your income. Back taxes help Do not refigure your tax for the year you claimed the deduction. Back taxes help See Recoveries in Publication 525 to find out how much extra reimbursement to include in income. Back taxes help If the total of all the reimbursements you receive is more than your adjusted basis in the destroyed or stolen property, you will have a gain on the casualty or theft. Back taxes help See Figuring a Gain in Publication 547 for information on how to treat a gain from the reimbursement you receive because of a casualty or theft. Back taxes help Actual reimbursement same as expected. Back taxes help   If you receive exactly the reimbursement you expected to receive, you do not have to include any of the reimbursement in your income and you cannot deduct any additional loss. Back taxes help Lump-sum reimbursement. Back taxes help   If you have a casualty or theft loss of several assets at the same time without an allocation of reimbursement to specific assets, divide the lump-sum reimbursement among the assets according to the fair market value of each asset at the time of the loss. Back taxes help Figure the gain or loss separately for each asset that has a separate basis. Back taxes help Adjustments to basis. Back taxes help   If you have a casualty or theft loss, you must decrease your basis in the property by any insurance or other reimbursement you receive and by any deductible loss. Back taxes help The result is your adjusted basis in the property. Back taxes help Amounts you spend on repairs to restore your property to its pre-casualty condition increase your adjusted basis. Back taxes help See Adjusted Basis in chapter 6 for more information. Back taxes help Example. Back taxes help You built a new silo for $25,000. Back taxes help This is the basis in your silo because that is the total cost you incurred to build it. Back taxes help During the year, a tornado damaged your silo and your allowable casualty loss deduction was $1,000. Back taxes help In addition, your insurance company reimbursed you $4,000 for the damage and you spent $6,000 to restore the silo to its pre-casualty condition. Back taxes help Your adjusted basis in the silo after the casualty is $26,000 ($25,000 - $1,000 - $4,000 + $6,000). Back taxes help Deduction Limits on Losses of Personal-Use Property Casualty and theft losses of property held for personal use may be deductible if you itemize deductions on Schedule A (Form 1040). Back taxes help There are two limits on the deduction for casualty or theft loss of personal-use property. Back taxes help You figure these limits on Form 4684. Back taxes help $100 rule. Back taxes help   You must reduce each casualty or theft loss on personal-use property by $100. Back taxes help This rule applies after you have subtracted any reimbursement. Back taxes help 10% rule. Back taxes help   You must further reduce the total of all your casualty or theft losses on personal-use property by 10% of your adjusted gross income. Back taxes help Apply this rule after you reduce each loss by $100. Back taxes help Adjusted gross income is on line 38 of Form 1040. Back taxes help Example. Back taxes help In June, you discovered that your house had been burglarized. Back taxes help Your loss after insurance reimbursement was $2,000. Back taxes help Your adjusted gross income for the year you discovered the burglary is $57,000. Back taxes help Figure your theft loss deduction as follows: 1. Back taxes help Loss after insurance $2,000 2. Back taxes help Subtract $100 100 3. Back taxes help Loss after $100 rule $1,900 4. Back taxes help Subtract 10% (. Back taxes help 10) × $57,000 AGI $5,700 5. Back taxes help Theft loss deduction -0- You do not have a theft loss deduction because your loss ($1,900) is less than 10% of your adjusted gross income ($5,700). Back taxes help    If you have a casualty or theft gain in addition to a loss, you will have to make a special computation before you figure your 10% limit. Back taxes help See 10% Rule in Publication 547. Back taxes help When Loss Is Deductible Generally, you can deduct casualty losses that are not reimbursable only in the tax year in which they occur. Back taxes help You generally can deduct theft losses that are not reimbursable only in the year you discover your property was stolen. Back taxes help However, losses in federally declared disaster areas are subject to different rules. Back taxes help See Disaster Area Losses , later, for an exception. Back taxes help If you are not sure whether part of your casualty or theft loss will be reimbursed, do not deduct that part until the tax year when you become reasonably certain that it will not be reimbursed. Back taxes help Leased property. Back taxes help   If you lease property from someone else, you can deduct a loss on the property in the year your liability for the loss is fixed. Back taxes help This is true even if the loss occurred or the liability was paid in a different year. Back taxes help You are not entitled to a deduction until your liability under the lease can be determined with reasonable accuracy. Back taxes help Your liability can be determined when a claim for recovery is settled, adjudicated, or abandoned. Back taxes help Example. Back taxes help Robert leased a tractor from First Implement, Inc. Back taxes help , for use in his farm business. Back taxes help The tractor was destroyed by a tornado in June 2012. Back taxes help The loss was not insured. Back taxes help First Implement billed Robert for the fair market value of the tractor on the date of the loss. Back taxes help Robert disagreed with the bill and refused to pay it. Back taxes help First Implement later filed suit in court against Robert. Back taxes help In 2013, Robert and First Implement agreed to settle the suit for $20,000, and the court entered a judgment in favor of First Implement. Back taxes help Robert paid $20,000 in June 2013. Back taxes help He can claim the $20,000 as a loss on his 2013 tax return. Back taxes help Net operating loss (NOL). Back taxes help   If your deductions, including casualty or theft loss deductions, are more than your income for the year, you may have an NOL. Back taxes help An NOL can be carried back or carried forward and deducted from income in other years. Back taxes help See Publication 536 for more information on NOLs. Back taxes help Proof of Loss To deduct a casualty or theft loss, you must be able to prove that there was a casualty or theft. Back taxes help You must have records to support the amount you claim for the loss. Back taxes help Casualty loss proof. Back taxes help   For a casualty loss, your records should show all the following information. Back taxes help The type of casualty (car accident, fire, storm, etc. Back taxes help ) and when it occurred. Back taxes help That the loss was a direct result of the casualty. Back taxes help That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage. Back taxes help Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Back taxes help Theft loss proof. Back taxes help   For a theft loss, your records should show all the following information. Back taxes help When you discovered your property was missing. Back taxes help That your property was stolen. Back taxes help That you were the owner of the property. Back taxes help Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery. Back taxes help Figuring a Gain A casualty or theft may result in a taxable gain. Back taxes help If you receive an insurance payment or other reimbursement that is more than your adjusted basis in the destroyed, damaged, or stolen property, you have a gain from the casualty or theft. Back taxes help You generally report your gain as income in the year you receive the reimbursement. Back taxes help However, depending on the type of property you receive, you may not have to report your gain. Back taxes help See Postponing Gain , later. Back taxes help Your gain is figured as follows: The amount you receive, minus Your adjusted basis in the property at the time of the casualty or theft. Back taxes help Even if the decrease in FMV of your property is smaller than the adjusted basis of your property, use your adjusted basis to figure the gain. Back taxes help Amount you receive. Back taxes help   The amount you receive includes any money plus the value of any property you receive, minus any expenses you have in obtaining reimbursement. Back taxes help It also includes any reimbursement used to pay off a mortgage or other lien on the damaged, destroyed, or stolen property. Back taxes help Example. Back taxes help A tornado severely damaged your barn. Back taxes help The adjusted basis of the barn was $25,000. Back taxes help Your insurance company reimbursed you $40,000 for the damaged barn. Back taxes help However, you had legal expenses of $2,000 to collect that insurance. Back taxes help Your insurance minus your expenses to collect the insurance is more than your adjusted basis in the barn, so you have a gain. Back taxes help 1) Insurance reimbursement $40,000 2) Legal expenses 2,000 3) Amount received  (line 1 − line 2) $38,000 4) Adjusted basis 25,000 5) Gain on casualty (line 3 − line 4) $13,000 Other Involuntary Conversions In addition to casualties and thefts, other events cause involuntary conversions of property. Back taxes help Some of these are discussed in the following paragraphs. Back taxes help Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes. Back taxes help You report the gain or deduct the loss on your tax return for the year you realize it. Back taxes help However, depending on the type of property you receive, you may not have to report your gain on the involuntary conversion. Back taxes help See Postponing Gain , later. Back taxes help Condemnation Condemnation is the process by which private property is legally taken for public use without the owner's consent. Back taxes help The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take property. Back taxes help The owner receives a condemnation award (money or property) in exchange for the property taken. Back taxes help A condemnation is a forced sale, the owner being the seller and the condemning authority being the buyer. Back taxes help Threat of condemnation. Back taxes help   Treat the sale of your property under threat of condemnation as a condemnation, provided you have reasonable grounds to believe that your property will be condemned. Back taxes help Main home condemned. Back taxes help   If you have a gain because your main home is condemned, you generally can exclude the gain from your income as if you had sold or exchanged your home. Back taxes help For information on this exclusion, see Publication 523. Back taxes help If your gain is more than the amount you can exclude, but you buy replacement property, you may be able to postpone reporting the excess gain. Back taxes help See Postponing Gain , later. Back taxes help (You cannot deduct a loss from the condemnation of your main home. Back taxes help ) More information. Back taxes help   For information on how to figure the gain or loss on condemned property, see chapter 1 in Publication 544. Back taxes help Also see Postponing Gain , later, to find out if you can postpone reporting the gain. Back taxes help Irrigation Project The sale or other disposition of property located within an irrigation project to conform to the acreage limits of federal reclamation laws is an involuntary conversion. Back taxes help Livestock Losses Diseased livestock. Back taxes help   If your livestock die from disease, or are destroyed, sold, or exchanged because of disease, even though the disease is not of epidemic proportions, treat these occurrences as involuntary conversions. Back taxes help If the livestock were raised or purchased for resale, follow the rules for livestock discussed earlier under Farming Losses . Back taxes help Otherwise, figure the gain or loss from these conversions using the rules discussed under Determining Gain or Loss in chapter 8. Back taxes help If you replace the livestock, you may be able to postpone reporting the gain. Back taxes help See Postponing Gain below. Back taxes help Reporting dispositions of diseased livestock. Back taxes help   If you choose to postpone reporting gain on the disposition of diseased livestock, you must attach a statement to your return explaining that the livestock were disposed of because of disease. Back taxes help You must also include other information on this statement. Back taxes help See How To Postpone Gain , later, under Postponing Gain . Back taxes help Weather-related sales of livestock. Back taxes help   If you sell or exchange livestock (other than poultry) held for draft, breeding, or dairy purposes solely because of drought, flood, or other weather-related conditions, treat the sale or exchange as an involuntary conversion. Back taxes help Only livestock sold in excess of the number you normally would sell under usual business practice, in the absence of weather-related conditions, are considered involuntary conversions. Back taxes help Figure the gain or loss using the rules discussed under Determining Gain or Loss in chapter 8. Back taxes help If you replace the livestock, you may be able to postpone reporting the gain. Back taxes help See Postponing Gain below. Back taxes help Example. Back taxes help It is your usual business practice to sell five of your dairy animals during the year. Back taxes help This year you sold 20 dairy animals because of drought. Back taxes help The sale of 15 animals is treated as an involuntary conversion. Back taxes help    If you do not replace the livestock, you may be able to report the gain in the following year's income. Back taxes help This rule also applies to other livestock (including poultry). Back taxes help See Sales Caused by Weather-Related Conditions in chapter 3. Back taxes help Tree Seedlings If, because of an abnormal drought, the failure of planted tree seedlings is greater than normally anticipated, you may have a deductible loss. Back taxes help Treat the loss as a loss from an involuntary conversion. Back taxes help The loss equals the previously capitalized reforestation costs you had to duplicate on replanting. Back taxes help You deduct the loss on the return for the year the seedlings died. Back taxes help Postponing Gain Do not report a gain if you receive reimbursement in the form of property similar or related in service or use to the destroyed, stolen, or other involuntarily converted property. Back taxes help Your basis in the new property is generally the same as your adjusted basis in the property it replaces. Back taxes help You must ordinarily report the gain on your stolen, destroyed, or other involuntarily converted property if you receive money or unlike property as reimbursement. Back taxes help However, you can choose to postpone reporting the gain if you purchase replacement property similar or related in service or use to your destroyed, stolen, or other involuntarily converted property within a specific replacement period. Back taxes help If you have a gain on damaged property, you can postpone reporting the gain if you spend the reimbursement to restore the property. Back taxes help To postpone reporting all the gain, the cost of your replacement property must be at least as much as the reimbursement you receive. Back taxes help If the cost of the replacement property is less than the reimbursement, you must include the gain in your income up to the amount of the unspent reimbursement. Back taxes help Example 1. Back taxes help In 1985, you constructed a barn to store farm equipment at a cost of $20,000. Back taxes help In 1987, you added a silo to the barn at a cost of $15,000 to store grain. Back taxes help In May of this year, the property was worth $100,000. Back taxes help In June the barn and silo were destroyed by a tornado. Back taxes help At the time of the tornado, you had an adjusted basis of $0 in the property. Back taxes help You received $85,000 from the insurance company. Back taxes help You had a gain of $85,000 ($85,000 – $0). Back taxes help You spent $80,000 to rebuild the barn and silo. Back taxes help Since this is less than the insurance proceeds received, you must include $5,000 ($85,000 – $80,000) in your income. Back taxes help Example 2. Back taxes help In 1970, you bought a cabin in the mountains for your personal use at a cost of $18,000. Back taxes help You made no further improvements or additions to it. Back taxes help When a storm destroyed the cabin this January, the cabin was worth $250,000. Back taxes help You received $146,000 from the insurance company in March. Back taxes help You had a gain of $128,000 ($146,000 − $18,000). Back taxes help You spent $144,000 to rebuild the cabin. Back taxes help Since this is less than the insurance proceeds received, you must include $2,000 ($146,000 − $144,000) in your income. Back taxes help Buying replacement property from a related person. Back taxes help   You cannot postpone reporting a gain from a casualty, theft, or other involuntary conversion if you buy the replacement property from a related person (discussed later). Back taxes help This rule applies to the following taxpayers. Back taxes help C corporations. Back taxes help Partnerships in which more than 50% of the capital or profits interest is owned by C corporations. Back taxes help Individuals, partnerships (other than those in (2) above), and S corporations if the total realized gain for the tax year on all involuntarily converted properties on which there are realized gains is more than $100,000. Back taxes help For involuntary conversions described in (3) above, gains cannot be offset by any losses when determining whether the total gain is more than $100,000. Back taxes help If the property is owned by a partnership, the $100,000 limit applies to the partnership and each partner. Back taxes help If the property is owned by an S corporation, the $100,000 limit applies to the S corporation and each shareholder. Back taxes help Exception. Back taxes help   This rule does not apply if the related person acquired the property from an unrelated person within the period of time allowed for replacing the involuntarily converted property. Back taxes help Related persons. Back taxes help   Under this rule, related persons include, for example, a parent and child, a brother and sister, a corporation and an individual who owns more than 50% of its outstanding stock, and two partnerships in which the same C corporations own more than 50% of the capital or profits interests. Back taxes help For more information on related persons, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Back taxes help Death of a taxpayer. Back taxes help   If a taxpayer dies after having a gain, but before buying replacement property, the gain must be reported for the year in which the decedent realized the gain. Back taxes help The executor of the estate or the person succeeding to the funds from the involuntary conversion cannot postpone reporting the gain by buying replacement property. Back taxes help Replacement Property You must buy replacement property for the specific purpose of replacing your property. Back taxes help Your replacement property must be similar or related in service or use to the property it replaces. Back taxes help You do not have to use the same funds you receive as reimbursement for your old property to acquire the replacement property. Back taxes help If you spend the money you receive for other purposes, and borrow money to buy replacement property, you can still choose to postpone reporting the gain if you meet the other requirements. Back taxes help Property you acquire by gift or inheritance does not qualify as replacement property. Back taxes help Owner-user. Back taxes help   If you are an owner-user, similar or related in service or use means that replacement property must function in the same way as the property it replaces. Back taxes help Examples of property that functions in the same way as the property it replaces are a home that replaces another home, a dairy cow that replaces another dairy cow, and farm land that replaces other farm land. Back taxes help A grinding mill that replaces a tractor does not qualify. Back taxes help Neither does a breeding or draft animal that replaces a dairy cow. Back taxes help Soil or other environmental contamination. Back taxes help   If, because of soil or other environmental contamination, it is not feasible for you to reinvest your insurance money or other proceeds from destroyed or damaged livestock in property similar or related in service or use to the livestock, you can treat other property (including real property) used for farming purposes, as property similar or related in service or use to the destroyed or damaged livestock. Back taxes help Weather-related conditions. Back taxes help   If, because of drought, flood, or other weather-related conditions, it is not feasible for you to reinvest the insurance money or other proceeds in property similar or related in service or use to the livestock, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the livestock you disposed of. Back taxes help Example. Back taxes help Each year you normally sell 25 cows from your beef herd. Back taxes help However, this year you had to sell 50 cows. Back taxes help This is because a severe drought significantly reduced the amount of hay and pasture yield needed to feed your herd for the rest of the year. Back taxes help Because, as a result of the severe drought, it is not feasible for you to use the proceeds from selling the extra cows to buy new cows, you can treat other property (excluding real property) used for farming purposes, as property similar or related in service or use to the cows you sold. Back taxes help Standing crop destroyed by casualty. Back taxes help   If a storm or other casualty destroyed your standing crop and you use the insurance money to acquire either another standing crop or a harvested crop, this purchase qualifies as replacement property. Back taxes help The costs of planting and raising a new crop qualify as replacement costs for the destroyed crop only if you use the crop method of accounting (discussed in chapter 2). Back taxes help In that case, the costs of bringing the new crop to the same level of maturity as the destroyed crop qualify as replacement costs to the extent they are incurred during the replacement period. Back taxes help Timber loss. Back taxes help   Standing timber you bought with the proceeds from the sale of timber downed as a result of a casualty, such as high winds, earthquakes, or volcanic eruptions, qualifies as replacement property. Back taxes help If you bought the standing timber within the replacement period, you can postpone reporting the gain. Back taxes help Business or income-producing property located in a federally declared disaster area. Back taxes help   If your destroyed business or income-producing property was located in a federally declared disaster area, any tangible replacement property you acquire for use in any business is treated as similar or related in service or use to the destroyed property. Back taxes help For more information, see Disaster Area Losses in Publication 547. Back taxes help Substituting replacement property. Back taxes help   Once you have acquired qualified replacement property that you designate as replacement property in a statement attached to your tax return, you cannot substitute other qualified replacement property. Back taxes help This is true even if you acquire the other property within the replacement period. Back taxes help However, if you discover that the original replacement property was not qualified replacement property, you can, within the replacement period, substitute the new qualified replacement property. Back taxes help Basis of replacement property. Back taxes help   You must reduce the basis of your replacement property (its cost) by the amount of postponed gain. Back taxes help In this way, tax on the gain is postponed until you dispose of the replacement property. Back taxes help Replacement Period To postpone reporting your gain, you must buy replacement property within a specified period of time. Back taxes help This is the replacement period. Back taxes help The replacement period begins on the date your property was damaged, destroyed, stolen, sold, or exchanged. Back taxes help The replacement period generally ends 2 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Back taxes help Example. Back taxes help You are a calendar year taxpayer. Back taxes help While you were on vacation, farm equipment that cost $2,200 was stolen from your farm. Back taxes help You discovered the theft when you returned to your farm on November 11, 2012. Back taxes help Your insurance company investigated the theft and did not settle your claim until January 5, 2013, when they paid you $3,000. Back taxes help You first realized a gain from the reimbursement for the theft during 2013, so you have until December 31, 2015, to replace the property. Back taxes help Main home in disaster area. Back taxes help   For your main home (or its contents) located in a federally declared disaster area, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the involuntary conversion. Back taxes help See Disaster Area Losses , later. Back taxes help Property in the Midwestern disaster areas. Back taxes help   For property located in the Midwestern disaster areas (defined in Table 4 in the 2008 Publication 547) that was destroyed, damaged, stolen, or condemned, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Back taxes help This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Midwestern disaster areas. Back taxes help Property in the Kansas disaster area. Back taxes help   For property located in the Kansas disaster area that was destroyed, damaged, stolen, or condemned after May 3, 2007, as a result of the Kansas storms and tornadoes, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Back taxes help This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Kansas disaster area. Back taxes help Property in the Hurricane Katrina disaster area. Back taxes help   For property located in the Hurricane Katrina disaster area that was destroyed, damaged, stolen, or condemned after August 24, 2005, as a result of Hurricane Katrina, the replacement period ends 5 years after the close of the first tax year in which any part of your gain is realized. Back taxes help This 5-year replacement period applies only if substantially all of the use of the replacement property is in the Hurricane Katrina disaster area. Back taxes help Weather-related sales of livestock in an area eligible for federal assistance. Back taxes help   For the sale or exchange of livestock due to drought, flood, or other weather-related conditions in an area eligible for federal assistance, the replacement period ends 4 years after the close of the first tax year in which you realize any part of your gain from the sale or exchange. Back taxes help The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for longer than 3 years. Back taxes help   For information on extensions of the replacement period because of persistent drought, see Notice 2006-82, 2006-39 I. Back taxes help R. Back taxes help B. Back taxes help 529, available at  www. Back taxes help irs. Back taxes help gov/irb/2006-39_IRB/ar11. Back taxes help html. Back taxes help For a list of counties for which exceptional, extreme, or severe drought was reported during the 12 months ending August 31, 2013, see Notice 2013-62, available at IRS. Back taxes help gov. Back taxes help Condemnation. Back taxes help   The replacement period for a condemnation begins on the earlier of the following dates. Back taxes help The date on which you disposed of the condemned property. Back taxes help The date on which the threat of condemnation began. Back taxes help The replacement period generally ends 2 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Back taxes help But see Main home in disaster area , Property in the Midwestern disaster areas , Property in the Kansas disaster area , and Property in the Hurricane Katrina disaster area , earlier, for exceptions. Back taxes help Business or investment real property. Back taxes help   If real property held for use in a trade or business or for investment (not including property held primarily for sale) is condemned, the replacement period ends 3 years after the close of the first tax year in which any part of the gain on the condemnation is realized. Back taxes help Extension. Back taxes help   You can apply for an extension of the replacement period. Back taxes help Send your written application to the Internal Revenue Service Center where you file your tax return. Back taxes help See your tax return instructions for the address. Back taxes help Include all the details about your need for an extension. Back taxes help Make your application before the end of the replacement period. Back taxes help However, you can file an application within a reasonable time after the replacement period ends if you can show a good reason for the delay. Back taxes help You will get an extension of the replacement period if you can show reasonable cause for not making the replacement within the regular period. Back taxes help How To Postpone Gain You postpone reporting your gain by reporting your choice on your tax return for the year you have the gain. Back taxes help You have the gain in the year you receive insurance proceeds or other reimbursements that result in a gain. Back taxes help Required statement. Back taxes help   You should attach a statement to your return for the year you have the gain. Back taxes help This statement should include all the following information. Back taxes help The date and details of the casualty, theft, or other involuntary conversion. Back taxes help The insurance or other reimbursement you received. Back taxes help How you figured the gain. Back taxes help Replacement property acquired before return filed. Back taxes help   If you acquire replacement property before you file your return for the year you have the gain, your statement should also include detailed information about all the following items. Back taxes help The replacement property. Back taxes help The postponed gain. Back taxes help The basis adjustment that reflects the postponed gain. Back taxes help Any gain you are reporting as income. Back taxes help Replacement property acquired after return filed. Back taxes help   If you intend to buy replacement property after you file your return for the year you realize gain, your statement should also say that you are choosing to replace the property within the required replacement period. Back taxes help   You should then attach another statement to your return for the year in which you buy the replacement property. Back taxes help This statement should contain detailed information on the replacement property. Back taxes help If you acquire part of your replacement property in one year and part in another year, you must attach a statement to each year's return. Back taxes help Include in the statement detailed information on the replacement property bought in that year. Back taxes help Reporting weather-related sales of livestock. Back taxes help   If you choose to postpone reporting the gain on weather-related sales or exchanges of livestock, show all the following information on a statement attached to your return for the tax year in which you first realize any of the gain. Back taxes help Evidence of the weather-related conditions that forced the sale or exchange of the livestock. Back taxes help The gain realized on the sale or exchange. Back taxes help The number and kind of livestock sold or exchanged. Back taxes help The number of livestock of each kind you would have sold or exchanged under your usual business practice. Back taxes help   Show all the following information and the preceding information on the return for the year in which you replace the livestock. Back taxes help The dates you bought the replacement property. Back taxes help The cost of the replacement property. Back taxes help Description of the replacement property (for example, the number and kind of the replacement livestock). Back taxes help Amended return. Back taxes help   You must file an amended return (Form 1040X) for the tax year of the gain in either of the following situations. Back taxes help You do not acquire replacement property within the replacement period, plus extensions. Back taxes help On this amended return, you must report the gain and pay any additional tax due. Back taxes help You acquire replacement property within the required replacement period, plus extensions, but at a cost less than the amount you receive from the casualty, theft, or other involuntary conversion. Back taxes help On this amended return, you must report the part of the gain that cannot be postponed and pay any additional tax due. Back taxes help Disaster Area Losses Special rules apply to federally declared disaster area losses. Back taxes help A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Robert T. Back taxes help Stafford Disaster Relief and Emergency Assistance Act. Back taxes help It includes a major disaster or emergency declaration under the act. Back taxes help A list of the areas warranting public or individual assistance (or both) under the Act is available at the Federal Emergency Management Agency (FEMA) web site at www. Back taxes help fema. Back taxes help gov. Back taxes help This part discusses the special rules for when to deduct a disaster area loss and what tax deadlines may be postponed. Back taxes help For other special rules, see Disaster Area Losses in Publication 547. Back taxes help When to deduct the loss. Back taxes help   You generally must deduct a casualty loss in the year it occurred. Back taxes help However, if you have a deductible loss from a disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. Back taxes help If you make this choice, the loss is treated as having occurred in the preceding year. Back taxes help    Claiming a qualifying disaster loss on the previous year's return may result in a lower tax for that year, often producing or increasing a cash refund. Back taxes help   You must make the choice to take your casualty loss for the disaster in the preceding year by the later of the following dates. Back taxes help The due date (without extensions) for filing your tax return for the tax year in which the disaster actually occurred. Back taxes help The due date (with extensions) for the return for the preceding tax year. Back taxes help Federal disaster relief grants. Back taxes help   Do not include post-disaster relief grants received under the Robert T. Back taxes help Stafford Disaster Relief and Emergency Assistance Act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses. Back taxes help Do not deduct casualty losses or medical expenses to the extent they are specifically reimbursed by these disaster relief grants. Back taxes help If the casualty loss was specifically reimbursed by the grant and you received the grant after the year in which you deducted the casualty loss, see Reimbursement received after deducting loss , earlier. Back taxes help Unemployment assistance payments under the Act are taxable unemployment compensation. Back taxes help Qualified disaster relief payments. Back taxes help   Qualified disaster relief payments are not included in the income of individuals to the extent any expenses compensated by these payments are not otherwise compensated for by insurance or other reimbursement. Back taxes help These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). Back taxes help No withholding applies to these payments. Back taxes help   Qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses. Back taxes help Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a federally declared disaster. Back taxes help Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a federally declared disaster. Back taxes help (A personal residence can be a rented residence or one you own. Back taxes help ) Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a federally declared disaster. Back taxes help   Qualified disaster relief payments include amounts paid by a federal, state, or local government in connection with a federally declared disaster to individuals affected by the disaster. Back taxes help    Qualified disaster relief payments do not include: Payments for expenses otherwise paid for by insurance or other reimbursements, or Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation. Back taxes help Qualified disaster mitigation payments. Back taxes help   Qualified disaster mitigation payments made under the Robert T. Back taxes help Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) are not included in income. Back taxes help These are payments you, as a property owner, receive to reduce the risk of future damage to your property. Back taxes help You cannot increase your basis in property, or take a deduction or credit, for expenditures made with respect to those payments. Back taxes help Sale of property under hazard mitigation program. Back taxes help   Generally, if you sell or otherwise transfer property, you must recognize any gain or loss for tax purposes unless the property is your main home. Back taxes help You report the gain or deduct the loss on your tax return for the year you realize it. Back taxes help (You cannot deduct a loss on personal-use property unless the loss resulted from a casualty, as discussed earlier. Back taxes help ) However, if you sell or otherwise transfer property to the Federal Government, a state or local government, or an Indian tribal government under a hazard mitigation program, you can choose to postpone reporting the gain if you buy qualifying replacement property within a certain period of time. Back taxes help See Postponing Gain , earlier, for the rules that apply. Back taxes help Other federal assistance programs. Back taxes help    For more information about other federal assistance programs, see Crop Insurance and Crop Disaster Payments and Feed Assistance and Payments in chapter 3 earlier. Back taxes help Postponed tax deadlines. Back taxes help   The IRS may postpone for up to 1 year certain tax deadlines of taxpayers who are affected by a federally declared disaster. Back taxes help The tax deadlines the IRS may postpone include those for filing income, excise, and employment tax returns, paying income, excise, and employment taxes, and making contributions to a traditional IRA or Roth IRA. Back taxes help   If any tax deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin (IRB). Back taxes help Go to http://www. Back taxes help irs. Back taxes help gov/uac/Tax-Relief-in-Disaster-Situations to find out if a tax deadline has been postponed for your area. Back taxes help Who is eligible. Back taxes help   If the IRS postpones a tax deadline, the following taxpayers are eligible for the postponement. Back taxes help Any individual whose main home is located in a covered disaster area (defined next). Back taxes help Any business entity or sole proprietor whose principal place of business is located in a covered disaster area. Back taxes help Any individual who is a relief worker affiliated with a recognized government or philanthropic organization and who is assisting in a covered disaster area. Back taxes help Any individual, business entity, or sole proprietorship whose records are needed to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Back taxes help The main home or principal place of business does not have to be located in the covered disaster area. Back taxes help Any estate or trust that has tax records necessary to meet a postponed tax deadline, provided those records are maintained in a covered disaster area. Back taxes help The spouse on a joint return with a taxpayer who is eligible for postponements. Back taxes help Any individual, business entity, or sole proprietorship not located in a covered disaster area, but whose necessary records to meet a postponed tax deadline are located in the covered disaster area. Back taxes help Any individual visiting the covered disaster area who was killed or injured as a result of the disaster. Back taxes help Any other person determined by the IRS to be affected by a federally declared disaster. Back taxes help Covered disaster area. Back taxes help   This is an area of a federally declared disaster area in which the IRS has decided to postpone tax deadlines for up to 1 year. Back taxes help Abatement of interest and penalties. Back taxes help   The IRS may abate the interest and penalties on the underpaid income tax for the length of any postponement of tax deadlines. Back taxes help Reporting Gains and Losses You will have to file one or more of the following forms to report your gains or losses from involuntary conversions. Back taxes help Form 4684. Back taxes help   Use this form to report your gains and losses from casualties and thefts. Back taxes help Form 4797. Back taxes help   Use this form to report involuntary conversions (other than from casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Back taxes help Also use this form if you have a gain from a casualty or theft on trade, business or income-producing property held for more than 1 year and you have to recapture some or all of your gain as ordinary income. Back taxes help Form 8949. Back taxes help   Use this form to report gain from an involuntary conversion (other than from casualty or theft) of personal-use property. Back taxes help Schedule A (Form 1040). Back taxes help   Use this form to deduct your losses from casualties and thefts of personal-use property and income-producing property, that you reported on Form 4684. Back taxes help Schedule D (Form 1040). Back taxes help   Use this form to carry over the following gains. Back taxes help Net gain shown on Form 4797 from an involuntary conversion of business property held for more than 1 year. Back taxes help Net gain shown on Form 4684 from the casualty or theft of personal-use property. Back taxes help    Also use this form to figure the overall gain or loss from transactions reported on Form 8949. Back taxes help Schedule F (Form 1040). Back taxes help   Use this form to deduct your losses from casualty or theft of livestock or produce bought for sale under Other expenses in Part II, line 32, if you use the cash method of accounting and have not otherwise deducted these losses. Back taxes help Prev  Up  Next   Home   More Online Publications
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Back taxes help Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. Back taxes help Proc. Back taxes help 2009-37 Table of Contents SECTION 1. Back taxes help PURPOSE SECTION 2. Back taxes help BACKGROUND SECTION 3. Back taxes help SCOPE SECTION 4. Back taxes help ELECTION PROCEDURES SECTION 5. Back taxes help REQUIRED INFORMATION STATEMENT SECTION 6. Back taxes help EFFECTIVE DATE SECTION 7. Back taxes help TRANSITION RULE SECTION 8. Back taxes help PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. Back taxes help PURPOSE . Back taxes help 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. Back taxes help . Back taxes help 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. Back taxes help This revenue procedure describes the time and manner of providing this additional information. Back taxes help . Back taxes help 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. Back taxes help Taxpayers should be aware that these regulations may be retroactive. Back taxes help See § 7805(b)(2). Back taxes help This revenue procedure may be modified to provide procedures consistent with additional guidance. Back taxes help SECTION 2. Back taxes help BACKGROUND . Back taxes help 01 Section 108(i), Generally. Back taxes help Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. Back taxes help L. Back taxes help No. Back taxes help 111-5, 123 Stat. Back taxes help 338. Back taxes help In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. Back taxes help Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). Back taxes help The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. Back taxes help 1273-1(d) of the Income Tax Regulations. Back taxes help The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. Back taxes help For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). Back taxes help A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). Back taxes help See § 108(i)(5)(D). Back taxes help The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. Back taxes help Section 108(i)(5)(D)(ii). Back taxes help For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. Back taxes help . Back taxes help 02 Applicable Debt Instrument. Back taxes help Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. Back taxes help The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). Back taxes help Section 108(i)(3)(B). Back taxes help For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. Back taxes help 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. Back taxes help 1502-13(g)(5). Back taxes help . Back taxes help 03 Reacquisition. Back taxes help Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). Back taxes help The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. Back taxes help See § 108(i)(4)(B). Back taxes help The term “acquisition” also includes an indirect acquisition within the meaning of § 1. Back taxes help 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). Back taxes help For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. Back taxes help . Back taxes help 04 General Requirements for the Section 108(i) Election. Back taxes help Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. Back taxes help (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. Back taxes help ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. Back taxes help Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. Back taxes help . Back taxes help 05 Section 108(i) Elections Made by Pass-through Entities. Back taxes help In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. Back taxes help Section 108(i)(5)(B)(iii). Back taxes help . Back taxes help 06 Additional Information on Subsequent Years’ Returns. Back taxes help Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. Back taxes help . Back taxes help 07 Exclusivity. Back taxes help Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). Back taxes help . Back taxes help 08 Allocation of Deferred COD Income on Partnership Indebtedness. Back taxes help Section 4. Back taxes help 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. Back taxes help If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Back taxes help 704-1(b)(2)(iii). Back taxes help Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). Back taxes help The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). Back taxes help The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). Back taxes help . Back taxes help 09 Partner’s Deferred § 752 Amount. Back taxes help A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). Back taxes help A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). Back taxes help To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. Back taxes help 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). Back taxes help See Rev. Back taxes help Rul. Back taxes help 92-97, 1992-2 C. Back taxes help B. Back taxes help 124, and Rev. Back taxes help Rul. Back taxes help 94-4, 1994-1 C. Back taxes help B. Back taxes help 195. Back taxes help A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). Back taxes help . Back taxes help 10 Allocation of Deferred COD Income on S Corporation Indebtedness. Back taxes help For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. Back taxes help . Back taxes help 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. Back taxes help (1) In general. Back taxes help The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). Back taxes help These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. Back taxes help OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). Back taxes help COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. Back taxes help See § 1. Back taxes help 56(g)-1(c)(1). Back taxes help (2) Exceptions for certain special status corporations. Back taxes help The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. Back taxes help OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. Back taxes help . Back taxes help 12 Extension of Time to Make Election. Back taxes help Under § 301. Back taxes help 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. Back taxes help An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. Back taxes help Section 301. Back taxes help 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. Back taxes help SECTION 3. Back taxes help SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). Back taxes help SECTION 4. Back taxes help ELECTION PROCEDURES . Back taxes help 01 In General. Back taxes help (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. Back taxes help 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. Back taxes help 07, 4. Back taxes help 08, 4. Back taxes help 09, or 4. Back taxes help 10 of this revenue procedure. Back taxes help (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. Back taxes help 01(1)(a) of this revenue procedure for making the § 108(i) election. Back taxes help The rules that apply to an automatic extension under § 301. Back taxes help 9100-2(a) apply to this automatic extension. Back taxes help . Back taxes help 02 Section 108(i) Elections Made by Members of Consolidated Groups. Back taxes help The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. Back taxes help See § 1. Back taxes help 1502-77(a). Back taxes help . Back taxes help 03 Aggregation Rule. Back taxes help A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. Back taxes help A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. Back taxes help 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. Back taxes help . Back taxes help 04 Partial Elections. Back taxes help (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. Back taxes help Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. Back taxes help The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. Back taxes help (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). Back taxes help Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. Back taxes help (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Back taxes help Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). Back taxes help A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. Back taxes help The provisions of this section 4. Back taxes help 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. Back taxes help . Back taxes help 05 Contents of Election Statement. Back taxes help A statement meets the requirements of this section 4. Back taxes help 05 if the statement— (1) Label. Back taxes help States “Section 108(i) Election” across the top. Back taxes help (2) Required information. Back taxes help Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. Back taxes help 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. Back taxes help . Back taxes help 06 Supplemental information. Back taxes help The statement described in section 4. Back taxes help 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. Back taxes help 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. Back taxes help 05(2)(d) of this revenue procedure. Back taxes help This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. Back taxes help If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. Back taxes help If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. Back taxes help In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. Back taxes help 08, 2. Back taxes help 10 and, if applicable, 4. Back taxes help 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. Back taxes help . Back taxes help 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. Back taxes help The rules of this section 4. Back taxes help 07 apply to partnerships other than partnerships described in section 4. Back taxes help 10 of this revenue procedure. Back taxes help (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). Back taxes help For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. Back taxes help , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Back taxes help Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). Back taxes help (2) Election information statement provided to partners. Back taxes help The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. Back taxes help 07(2). Back taxes help The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Back taxes help A statement meets the requirements of this section 4. Back taxes help 07(2) if the statement— (a) Label. Back taxes help States “Section 108(i) Election Information Statement for Partners” across the top. Back taxes help (b) Required information. Back taxes help Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. Back taxes help 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. Back taxes help 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. Back taxes help 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. Back taxes help (c) If a partner fails to provide the written statement required by section 4. Back taxes help 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. Back taxes help 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. Back taxes help (3) Partner reporting requirements. Back taxes help The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. Back taxes help 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. Back taxes help Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. Back taxes help A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. Back taxes help If a partner provides its written statement under this section 4. Back taxes help 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. Back taxes help 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. Back taxes help . Back taxes help 08 Additional Requirements for an S Corporation Making a § 108(i) Election. Back taxes help (1) Information filing on Schedule K-1 (Form 1120S). Back taxes help For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. Back taxes help , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. Back taxes help S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. Back taxes help (2) Election information statement provided to shareholders. Back taxes help The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. Back taxes help 08(2). Back taxes help The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Back taxes help A statement meets the requirements of this section 4. Back taxes help 08(2) if the statement— (a) Label. Back taxes help States “Section 108(i) Election Information Statement for Shareholders” across the top. Back taxes help (b) Required information. Back taxes help Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. Back taxes help 06 of this revenue procedure. Back taxes help . Back taxes help 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. Back taxes help The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. Back taxes help 964-1(c)(3). Back taxes help Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. Back taxes help 05 of this revenue procedure and, if applicable, section 4. Back taxes help 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. Back taxes help . Back taxes help 10 Section 108(i) Elections Made By Certain Foreign Partnerships. Back taxes help The rules of this section 4. Back taxes help 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). Back taxes help See § 1. Back taxes help 6031(a)-1(b). Back taxes help (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. Back taxes help 05 of this revenue procedure and, if applicable, section 4. Back taxes help 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. Back taxes help 6031(a)-1(b)(5) it files with the Service. Back taxes help In addition, a nonfiling foreign partnership must include in the information required in section 4. Back taxes help 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. Back taxes help S. Back taxes help persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). Back taxes help (2) The nonfiling foreign partnership must make the election, in accordance with § 1. Back taxes help 6031(a)-1(b)(5), by the date provided in section 4. Back taxes help 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. Back taxes help (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. Back taxes help 07(1) of this revenue procedure. Back taxes help Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Back taxes help The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. Back taxes help 07(2) of this revenue procedure by the date provided in section 4. Back taxes help 01(1)(a) of this revenue procedure. Back taxes help The partnership should not attach any statement described in section 4. Back taxes help 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. Back taxes help However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. Back taxes help (4) The partnership and each affected partner must satisfy the requirements of section 4. Back taxes help 07(3) of this revenue procedure. Back taxes help . Back taxes help 11 Protective § 108(i) Election. Back taxes help (1) In general. Back taxes help A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. Back taxes help If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). Back taxes help Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. Back taxes help A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. Back taxes help 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. Back taxes help 01(1)(a) of this revenue procedure. Back taxes help The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. Back taxes help A statement meets the requirements of this section 4. Back taxes help 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. Back taxes help 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. Back taxes help 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. Back taxes help 06 of this revenue procedure. Back taxes help (2) Statements provided to shareholders and partners. Back taxes help (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. Back taxes help 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. Back taxes help 11(1)(d) of this revenue procedure. Back taxes help (b) The partnership or S corporation should not attach the statements described in this section 4. Back taxes help 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Back taxes help . Back taxes help 12 Election-Year Reporting by Tiered Pass-Through Entities. Back taxes help (1) A partnership required to file a U. Back taxes help S. Back taxes help partnership return other than under § 1. Back taxes help 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. Back taxes help 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Back taxes help 07(1)(a) through (d) of this revenue procedure). Back taxes help (2) If a partnership described in section 4. Back taxes help 12(1) of this revenue procedure receives a statement described in sections 4. Back taxes help 07(2) or 4. Back taxes help 10(3) of this revenue procedure or this section 4. Back taxes help 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. Back taxes help 07(2)(b)(x) of this revenue procedure. Back taxes help If an S corporation receives a statement described in sections 4. Back taxes help 07(2) or 4. Back taxes help 10(3) of this revenue procedure or this section 4. Back taxes help 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. Back taxes help 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. Back taxes help The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Back taxes help The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Back taxes help (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. Back taxes help 704-1(b)(2)(iii). Back taxes help The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. Back taxes help No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. Back taxes help The partnership allocates amounts described in section 4. Back taxes help 06 of this revenue procedure under this section 4. Back taxes help 12(3) as if the additional COD income was realized. Back taxes help (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. Back taxes help No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. Back taxes help (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. Back taxes help (6) This paragraph 4. Back taxes help 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. Back taxes help S. Back taxes help Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. Back taxes help 07(1) of this revenue procedure, or a statement described in sections 4. Back taxes help 07(2) or 4. Back taxes help 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Back taxes help (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Back taxes help 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. Back taxes help 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Back taxes help (b) A Category 2 filer must include its share of the information described in section 4. Back taxes help 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Back taxes help Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Back taxes help (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. Back taxes help 12(6)(a)(ii) and 4. Back taxes help 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Back taxes help However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Back taxes help (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. Back taxes help 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. Back taxes help 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. Back taxes help 12(1) and (2) of this revenue procedure. Back taxes help Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Back taxes help 12(6) of this revenue procedure. Back taxes help (8) The provisions of section 4. Back taxes help 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. Back taxes help 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. Back taxes help 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. Back taxes help 11(1)(d) of this revenue procedure. Back taxes help SECTION 5. Back taxes help REQUIRED INFORMATION STATEMENT . Back taxes help 01 Annual Information Statements. Back taxes help Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. Back taxes help 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. Back taxes help 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. Back taxes help . Back taxes help 02 Contents of Statement. Back taxes help A statement meets the requirements of this section 5. Back taxes help 02 if the statement— (1) Label. Back taxes help States “Section 108(i) Information Statement” across the top; (2) Required information. Back taxes help Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Back taxes help (3) Election attached. Back taxes help Includes a copy of the election statement described in section 4. Back taxes help 05 of this revenue procedure. Back taxes help . Back taxes help 03 Additional Annual Reporting Requirements for Certain Partnerships. Back taxes help The rules of this section 5. Back taxes help 03 apply to partnerships other than partnerships described in section 5. Back taxes help 05 of this revenue procedure. Back taxes help (1) In general. Back taxes help A partnership that makes an election under § 108(i) (except for a protective election under section 4. Back taxes help 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Back taxes help 01 of this revenue procedure. Back taxes help In addition, for each taxable year in which a statement is required under section 5. Back taxes help 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. Back taxes help 07(1) of this revenue procedure. Back taxes help (2) Annual information statements provided to partners. Back taxes help The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. Back taxes help 01 of this revenue procedure, a statement meeting the requirements of this section 5. Back taxes help 03(2). Back taxes help The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. Back taxes help A statement meets the requirements of this section 5. Back taxes help 03(2) if the statement— (a) Label. Back taxes help States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. Back taxes help (b) Required information. Back taxes help Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. Back taxes help If a partner fails to provide the written statement required by section 4. Back taxes help 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. Back taxes help 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. Back taxes help . Back taxes help 04 Additional Annual Reporting Requirements for an S Corporation. Back taxes help (1) In general. Back taxes help An S corporation that makes an election under § 108(i) (except for a protective election under section 4. Back taxes help 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. Back taxes help 01 of this revenue procedure. Back taxes help In addition, for each taxable year in which a statement is required under section 5. Back taxes help 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. Back taxes help 08(1) of this revenue procedure. Back taxes help (2) Annual information statements provided to shareholders. Back taxes help The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. Back taxes help 01 of this revenue procedure a statement meeting the requirements of this section 5. Back taxes help 04(2). Back taxes help The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. Back taxes help A statement meets the requirements of this section 5. Back taxes help 04(2) if the statement— (a) Label. Back taxes help States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. Back taxes help Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. Back taxes help . Back taxes help 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. Back taxes help (1) The rules of this section 5. Back taxes help 05 apply to nonfiling foreign partnerships. Back taxes help (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. Back taxes help 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. Back taxes help 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. Back taxes help 01 of this revenue procedure. Back taxes help (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. Back taxes help 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. Back taxes help (4) For each taxable year in which a statement is required under section 5. Back taxes help 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. Back taxes help 07(1) of this revenue procedure. Back taxes help Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). Back taxes help The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. Back taxes help 6031(b)-1T(b). Back taxes help The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. Back taxes help 05(2) of this revenue procedure. Back taxes help (5) For each taxable year for which a statement is required under section 5. Back taxes help 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. Back taxes help 03(2) of this revenue procedure. Back taxes help The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. Back taxes help . Back taxes help 06 Information Statements Made on Behalf of Certain Foreign Corporations. Back taxes help Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. Back taxes help 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. Back taxes help 01 of this revenue procedure. Back taxes help . Back taxes help 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. Back taxes help (1) A partnership required to file a U. Back taxes help S. Back taxes help partnership return other than under § 1. Back taxes help 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. Back taxes help 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. Back taxes help 07(1)(a) through (d) of this revenue procedure). Back taxes help (2) If a partnership described in section 5. Back taxes help 07(1) of this revenue procedure receives a statement described in sections 5. Back taxes help 03(2) or 5. Back taxes help 05(5) of this revenue procedure or this section 5. Back taxes help 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. Back taxes help If an S corporation receives a statement described in sections 5. Back taxes help 03(2) or 5. Back taxes help 05(5) of this revenue procedure or this section 5. Back taxes help 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. Back taxes help 03(2)(b)(i) through (viii) of this revenue procedure. Back taxes help The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. Back taxes help The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. Back taxes help (3) This paragraph 5. Back taxes help 07(3) provides the rules for persons described in section 4. Back taxes help 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. Back taxes help 03(1) of this revenue procedure, or a statement described in sections 5. Back taxes help 03(2) or 5. Back taxes help 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). Back taxes help (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. Back taxes help 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. Back taxes help 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. Back taxes help (b) A Category 2 filer must include its share of the information described in section 4. Back taxes help 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. Back taxes help Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. Back taxes help (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. Back taxes help 07(3)(a)(ii) and 5. Back taxes help 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. Back taxes help However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. Back taxes help (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. Back taxes help 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. Back taxes help 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. Back taxes help 07(1) and (2) of this revenue procedure. Back taxes help Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. Back taxes help 12(6) of this revenue procedure. Back taxes help SECTION 6. Back taxes help EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. Back taxes help SECTION 7. Back taxes help TRANSITION RULE . Back taxes help 01 Noncomplying Election. Back taxes help Except as otherwise provided in this section 7. Back taxes help 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. Back taxes help However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. Back taxes help . Back taxes help 02 Modification of Election. Back taxes help A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). Back taxes help To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. Back taxes help . Back taxes help 03 Notations. Back taxes help A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. Back taxes help A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. Back taxes help See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. Back taxes help SECTION 8. Back taxes help PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. Back taxes help S. Back taxes help C. Back taxes help 3507) under control number 1545-2147. Back taxes help An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Back taxes help The collection of information in this revenue procedure is in sections 4, 5 and 7. Back taxes help This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. Back taxes help This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. Back taxes help The collection of information is required to obtain a benefit. Back taxes help The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. Back taxes help The estimated total annual reporting burden is 300,000 hours. Back taxes help The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. Back taxes help The estimated number of respondents is 50,000. Back taxes help Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Back taxes help Generally, tax returns and return information are confidential, as required by § 6103. Back taxes help DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. Back taxes help Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). Back taxes help For further information regarding this revenue procedure, contact Megan A. Back taxes help Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. Back taxes help Blanchard at (202) 622-3950 for questions involving OID, Ronald M. Back taxes help Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). Back taxes help Prev  Up  Next   Home   More Internal Revenue Bulletins