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Cheapest State Tax Return

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Cheapest State Tax Return

Cheapest state tax return 2. Cheapest state tax return   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. Cheapest state tax return ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. Cheapest state tax return In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. Cheapest state tax return Those cases are called “abusive tax shelters. Cheapest state tax return ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. Cheapest state tax return Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . Cheapest state tax return Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. Cheapest state tax return Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. Cheapest state tax return They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. Cheapest state tax return Despite appearances to the contrary, the taxpayer generally risks little. Cheapest state tax return Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. Cheapest state tax return Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. Cheapest state tax return (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. Cheapest state tax return ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. Cheapest state tax return This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. Cheapest state tax return Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. Cheapest state tax return However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. Cheapest state tax return Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. Cheapest state tax return These provisions include the following. Cheapest state tax return Disclosure of reportable transactions. Cheapest state tax return   You must disclose information for each reportable transaction in which you participate. Cheapest state tax return See Reportable Transaction Disclosure Statement , later. Cheapest state tax return   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. Cheapest state tax return To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. Cheapest state tax return   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. Cheapest state tax return They must provide this number to all persons to whom they acted as a material advisor. Cheapest state tax return They must provide the number at the time the transaction is entered into. Cheapest state tax return If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. Cheapest state tax return For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. Cheapest state tax return Requirement to maintain list. Cheapest state tax return   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. Cheapest state tax return The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. Cheapest state tax return See Regulations section 301. Cheapest state tax return 6112-1 for more information (including what information is required to be included on the list). Cheapest state tax return Confidentiality privilege. Cheapest state tax return   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. Cheapest state tax return Appraisal requirement for donated property. Cheapest state tax return   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. Cheapest state tax return If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. Cheapest state tax return If you file electronically, see Form 8453, U. Cheapest state tax return S. Cheapest state tax return Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. Cheapest state tax return For more information about appraisals, including exceptions, see Publication 561. Cheapest state tax return Passive activity loss and credit limits. Cheapest state tax return   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. Cheapest state tax return For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. Cheapest state tax return Interest on penalties. Cheapest state tax return   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. Cheapest state tax return Accounting method restriction. Cheapest state tax return   Tax shelters generally cannot use the cash method of accounting. Cheapest state tax return Uniform capitalization rules. Cheapest state tax return   The uniform capitalization rules generally apply to producing property or acquiring it for resale. Cheapest state tax return Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. Cheapest state tax return For more information, see Publication 538. Cheapest state tax return Denial of deduction for interest on an underpayment due to a reportable transaction. Cheapest state tax return   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. Cheapest state tax return This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. Cheapest state tax return Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. Cheapest state tax return The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. Cheapest state tax return Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. Cheapest state tax return So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. Cheapest state tax return In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. Cheapest state tax return The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. Cheapest state tax return Investor Reporting You may be required to file a reportable transaction disclosure statement. Cheapest state tax return Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. Cheapest state tax return Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. Cheapest state tax return Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). Cheapest state tax return In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. Cheapest state tax return  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. Cheapest state tax return If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. Cheapest state tax return If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. Cheapest state tax return See Penalty for failure to disclose a reportable transaction , later under Penalties. Cheapest state tax return The following discussion briefly describes reportable transactions. Cheapest state tax return For more details, see the Instructions for Form 8886. Cheapest state tax return Reportable transaction. Cheapest state tax return   A reportable transaction is any of the following. Cheapest state tax return A listed transaction. Cheapest state tax return A confidential transaction. Cheapest state tax return A transaction with contractual protection. Cheapest state tax return A loss transaction. Cheapest state tax return A transaction of interest entered into after November 1, 2006. Cheapest state tax return Note. Cheapest state tax return Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. Cheapest state tax return Listed transaction. Cheapest state tax return   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. Cheapest state tax return These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. Cheapest state tax return For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2009-31_IRB/ar07. Cheapest state tax return html. Cheapest state tax return Confidential transaction. Cheapest state tax return   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. Cheapest state tax return A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. Cheapest state tax return The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. Cheapest state tax return Transaction with contractual protection. Cheapest state tax return   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. Cheapest state tax return For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2007-07_IRB/ar15. Cheapest state tax return html. Cheapest state tax return Loss transaction. Cheapest state tax return   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. Cheapest state tax return A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. Cheapest state tax return   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. Cheapest state tax return For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2004-50_IRB/ar11. Cheapest state tax return html. Cheapest state tax return Transaction of interest. Cheapest state tax return   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. Cheapest state tax return The IRS has identified the following transactions of interest. Cheapest state tax return “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 545, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2007-36_IRB/ar20. Cheapest state tax return html. Cheapest state tax return Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 544, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2007-36_IRB/ar19. Cheapest state tax return html. Cheapest state tax return Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 1194, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2008-47_IRB/ar11. Cheapest state tax return html. Cheapest state tax return Certain transactions involving a U. Cheapest state tax return S. Cheapest state tax return taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 312, available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2009-03_IRB/ar10. Cheapest state tax return html. Cheapest state tax return   For updates to this list, go to www. Cheapest state tax return irs. Cheapest state tax return gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. Cheapest state tax return Penalties Investing in an abusive tax shelter may lead to substantial expenses. Cheapest state tax return First, the promoter generally charges a substantial fee. Cheapest state tax return If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. Cheapest state tax return You may also be subject to the penalty for failure to pay tax. Cheapest state tax return These penalties are explained in the following paragraphs. Cheapest state tax return Accuracy-related penalties. Cheapest state tax return   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). Cheapest state tax return Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. Cheapest state tax return Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. Cheapest state tax return   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. Cheapest state tax return   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). Cheapest state tax return Negligence or disregard of rules or regulations. Cheapest state tax return   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. Cheapest state tax return The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. Cheapest state tax return    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. Cheapest state tax return It also includes any failure to keep adequate books and records. Cheapest state tax return A return position that has a reasonable basis is not negligence. Cheapest state tax return   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. Cheapest state tax return   The penalty for disregard of rules and regulations can be avoided if all the following are true. Cheapest state tax return You keep adequate books and records. Cheapest state tax return You have a reasonable basis for your position on the tax issue. Cheapest state tax return You make an adequate disclosure of your position. Cheapest state tax return Use Form 8275 to make your disclosure and attach it to your return. Cheapest state tax return To disclose a position contrary to a regulation, use Form 8275-R. Cheapest state tax return Use Form 8886 to disclose a reportable transaction (discussed earlier). Cheapest state tax return Substantial understatement of tax. Cheapest state tax return   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. Cheapest state tax return An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. Cheapest state tax return The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. Cheapest state tax return   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. Cheapest state tax return In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. Cheapest state tax return Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. Cheapest state tax return   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. Cheapest state tax return An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. Cheapest state tax return Substantial valuation misstatement. Cheapest state tax return   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. Cheapest state tax return The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. Cheapest state tax return You underpaid your tax by more than $5,000 because of the misstatement. Cheapest state tax return You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. Cheapest state tax return   You may be assessed a penalty of 40% for a gross valuation misstatement. Cheapest state tax return If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. Cheapest state tax return The penalty rate is also 40% if the property's correct value or adjusted basis is zero. Cheapest state tax return Transaction lacking economic substance. Cheapest state tax return   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. Cheapest state tax return For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. Cheapest state tax return   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. Cheapest state tax return   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. Cheapest state tax return   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. Cheapest state tax return Relevant facts include any facts affecting the tax treatment of the transaction. Cheapest state tax return    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. Cheapest state tax return Undisclosed foreign financial asset understatement. Cheapest state tax return   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. Cheapest state tax return An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. Cheapest state tax return The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. Cheapest state tax return Any foreign business you control, reportable on Form 5471, Information Return of U. Cheapest state tax return S. Cheapest state tax return Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. Cheapest state tax return S. Cheapest state tax return Persons With Respect to Certain Foreign Partnerships. Cheapest state tax return Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. Cheapest state tax return S. Cheapest state tax return Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. Cheapest state tax return Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. Cheapest state tax return    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. Cheapest state tax return See the Instructions for Form 8938 for details. Cheapest state tax return    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. Cheapest state tax return Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Cheapest state tax return Penalty for incorrect appraisals. Cheapest state tax return   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. Cheapest state tax return For details on the penalty amount and exceptions, see Publication 561. Cheapest state tax return Penalty for failure to disclose a reportable transaction. Cheapest state tax return   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). Cheapest state tax return For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). Cheapest state tax return This penalty is in addition to any other penalty that may be imposed. Cheapest state tax return   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. Cheapest state tax return For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. Cheapest state tax return irs. Cheapest state tax return gov/irb/2007-09_IRB/ar12. Cheapest state tax return html. Cheapest state tax return Accuracy-related penalty for a reportable transaction understatement. Cheapest state tax return   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. Cheapest state tax return This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. Cheapest state tax return The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. Cheapest state tax return You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. Cheapest state tax return The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. Cheapest state tax return   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. Cheapest state tax return Civil fraud penalty. Cheapest state tax return   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. Cheapest state tax return Joint return. Cheapest state tax return   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. Cheapest state tax return Failure to pay tax. Cheapest state tax return   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. Cheapest state tax return Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. Cheapest state tax return Prev  Up  Next   Home   More Online Publications
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Understanding Your CP102 Notice

We made changes to your return because we believe there’s a miscalculation. You owe money on your taxes as a result of these changes.


What you need to do

  • Read your notice carefully—it will explain why you owe.
  • Compare the figures on the notice with your tax return.
  • Pay the amount owed by the date on the notice’s payment coupon.
  • Make payment arrangements if you can’t pay the full amount you owe.
  • Contact us within 60 days of the date of your notice if you disagree with the change(s) we made.
  • If you agree with our change(s), correct the copy of your tax return that you kept for your records.

You may want to...


  • Answers to common questions

    How can I find out what caused my tax return to change?
    Please contact us at the number listed on your notice for specific information about your tax return.

    What should I do if I disagree with the changes you made?
    If you disagree, contact us at the toll free number listed on the top right corner of your notice. If you contact us in writing within 60 days of the date of this notice, we’ll reverse the change we made to your account. However, if you’re unable to provide us additional information that justifies the reversal and we believe the reversal is in error, we’ll forward your case for audit. This step gives you formal appeal rights, including the right to appeal our decision in court before you have to pay the additional tax. After we forward your case, the audit staff will contact you within five to six weeks to fully explain the audit process and your rights. If you don’t contact us within the 60-day period, you’ll lose your right to appeal our decision before payment of tax. If you don’t contact us within 60 days, the change won’t be reversed and you must pay the additional tax. You may then file a claim for refund. You must submit the claim within three years of the date you filed the tax return, or within two years of the date of your last payment for this tax.

    What happens if I can’t pay the full amount I owe?
    You can arrange to make a payment plan with us if you can’t pay the full amount you owe.

    Am I charged interest on the money I owe?
    Not if you pay the full amount you owe by the date on the payment coupon. However interest accrues on the unpaid balance after that date.

    Will I receive a penalty if I can’t pay the full amount?
    Yes, you will receive a late payment penalty. You can contact us at the number given on your notice if you’re unable to pay the full amount shown in your specific notice because of circumstances beyond your control. Contact us by the due date of your payment and, depending on your situation, we may be able to remove the penalty.


    Tips for next year

    Consider filing your taxes electronically. Filing online can help you to avoid mistakes and to find credits and deductions for which you may qualify. In many cases you can file electronically for free. Learn more about e-file.

Page Last Reviewed or Updated: 24-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Cheapest State Tax Return

Cheapest state tax return Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. Cheapest state tax return Proc. Cheapest state tax return 2013-16 Table of Contents SECTION 1. Cheapest state tax return PURPOSE SECTION 2. Cheapest state tax return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. Cheapest state tax return BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. Cheapest state tax return FEDERAL INCOME TAX TREATMENT SECTION 5. Cheapest state tax return INFORMATION-REPORTING OBLIGATIONS SECTION 6. Cheapest state tax return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. Cheapest state tax return PENALTY RELIEF FOR 2012 SECTION 8. Cheapest state tax return SCOPE AND EFFECTIVE DATE SECTION 9. Cheapest state tax return DRAFTING INFORMATION SECTION 1. Cheapest state tax return PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). Cheapest state tax return Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). Cheapest state tax return In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. Cheapest state tax return Current plans call for HAMP to continue accepting new borrowers through the end of 2013. Cheapest state tax return The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. Cheapest state tax return SECTION 2. Cheapest state tax return BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . Cheapest state tax return 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Cheapest state tax return A description of the program can be found at www. Cheapest state tax return makinghomeaffordable. Cheapest state tax return gov. Cheapest state tax return . Cheapest state tax return 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. Cheapest state tax return These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. Cheapest state tax return . Cheapest state tax return 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. Cheapest state tax return The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. Cheapest state tax return However, as noted in section 2. Cheapest state tax return 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. Cheapest state tax return (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. Cheapest state tax return ”) . Cheapest state tax return 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. Cheapest state tax return . Cheapest state tax return 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. Cheapest state tax return The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. Cheapest state tax return (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. Cheapest state tax return ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). Cheapest state tax return Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. Cheapest state tax return Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. Cheapest state tax return . Cheapest state tax return 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. Cheapest state tax return (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. Cheapest state tax return ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. Cheapest state tax return . Cheapest state tax return 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). Cheapest state tax return If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. Cheapest state tax return These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. Cheapest state tax return The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. Cheapest state tax return The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. Cheapest state tax return For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. Cheapest state tax return ” . Cheapest state tax return 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). Cheapest state tax return . Cheapest state tax return 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. Cheapest state tax return 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. Cheapest state tax return . Cheapest state tax return 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. Cheapest state tax return SECTION 3. Cheapest state tax return BACKGROUND—APPLICABLE PROVISIONS OF LAW . Cheapest state tax return 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. Cheapest state tax return See § 61(a)(12). Cheapest state tax return . Cheapest state tax return 02 Under § 1. Cheapest state tax return 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. Cheapest state tax return In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. Cheapest state tax return However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. Cheapest state tax return See § 1. Cheapest state tax return 1001-3(c)(6). Cheapest state tax return . Cheapest state tax return 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. Cheapest state tax return 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. Cheapest state tax return If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. Cheapest state tax return See also § 1. Cheapest state tax return 61-12(c). Cheapest state tax return . Cheapest state tax return 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. Cheapest state tax return If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. Cheapest state tax return See, e. Cheapest state tax return g. Cheapest state tax return , §§ 1. Cheapest state tax return 1272-1(c)(5) and 1. Cheapest state tax return 1274-2(d). Cheapest state tax return . Cheapest state tax return 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. Cheapest state tax return Section 108(a)(1)(E) and 108(a)(1)(B). Cheapest state tax return (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. Cheapest state tax return ) . Cheapest state tax return 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. Cheapest state tax return . Cheapest state tax return 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. Cheapest state tax return See §§ 108(h) and 163(h)(3)(B)(i). Cheapest state tax return . Cheapest state tax return 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). Cheapest state tax return Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. Cheapest state tax return . Cheapest state tax return 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. Cheapest state tax return . Cheapest state tax return 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. Cheapest state tax return Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. Cheapest state tax return . Cheapest state tax return 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. Cheapest state tax return See § 108(h)(1). Cheapest state tax return If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). Cheapest state tax return See § 108(b). Cheapest state tax return For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). Cheapest state tax return . Cheapest state tax return 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). Cheapest state tax return See Form 982 instructions and Publication 4681. Cheapest state tax return This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. Cheapest state tax return . Cheapest state tax return 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. Cheapest state tax return See Notice 2003-18, 2003-1 C. Cheapest state tax return B. Cheapest state tax return 699, and Rev. Cheapest state tax return Rul. Cheapest state tax return 79-356, 1979-2 C. Cheapest state tax return B. Cheapest state tax return 28. Cheapest state tax return However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). Cheapest state tax return See Rev. Cheapest state tax return Rul. Cheapest state tax return 2005-46, 2005-2 C. Cheapest state tax return B. Cheapest state tax return 120, and Rev. Cheapest state tax return Rul. Cheapest state tax return 75-246, 1975-1 C. Cheapest state tax return B. Cheapest state tax return 24. Cheapest state tax return . Cheapest state tax return 14 Under § 451 and § 1. Cheapest state tax return 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. Cheapest state tax return . Cheapest state tax return 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. Cheapest state tax return See § 6041(a) and (d) and § 1. Cheapest state tax return 6041-1(a)(1) and (b). Cheapest state tax return . Cheapest state tax return 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. Cheapest state tax return See § 6050P(a)-(c) and §§ 1. Cheapest state tax return 6050P-1(a) and 1. Cheapest state tax return 6050P-2(a) and (d). Cheapest state tax return . Cheapest state tax return 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. Cheapest state tax return These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. Cheapest state tax return Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. Cheapest state tax return ” . Cheapest state tax return 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. Cheapest state tax return These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. Cheapest state tax return Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. Cheapest state tax return SECTION 4. Cheapest state tax return FEDERAL INCOME TAX TREATMENT . Cheapest state tax return 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. Cheapest state tax return See § 1. Cheapest state tax return 1001-3. Cheapest state tax return At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. Cheapest state tax return See also § 61(a)(12) and § 1. Cheapest state tax return 61-12(c). Cheapest state tax return . Cheapest state tax return 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. Cheapest state tax return Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. Cheapest state tax return Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. Cheapest state tax return . Cheapest state tax return 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. Cheapest state tax return Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. Cheapest state tax return . Cheapest state tax return 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. Cheapest state tax return Therefore, for purposes of § 1. Cheapest state tax return 1001-3, the date of the modification is the date of the permanent modification. Cheapest state tax return . Cheapest state tax return 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. Cheapest state tax return 01 of this revenue procedure for the taxable year in which the permanent modification occurs. Cheapest state tax return Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. Cheapest state tax return The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. Cheapest state tax return . Cheapest state tax return 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. Cheapest state tax return . Cheapest state tax return 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. Cheapest state tax return This is consistent with Rev. Cheapest state tax return Rul. Cheapest state tax return 2009-19, 2009-28 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 111, which addressed the treatment of Pay-for-Performance Success Payments. Cheapest state tax return . Cheapest state tax return 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. Cheapest state tax return If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. Cheapest state tax return . Cheapest state tax return 09 As described in section 2. Cheapest state tax return 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. Cheapest state tax return To the extent that the HAMP-PRA borrower is described in section 4. Cheapest state tax return 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. Cheapest state tax return To the extent that the HAMP-PRA borrower is described in section 4. Cheapest state tax return 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. Cheapest state tax return SECTION 5. Cheapest state tax return INFORMATION-REPORTING OBLIGATIONS . Cheapest state tax return 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. Cheapest state tax return A copy of this form is required to be furnished to the borrower. Cheapest state tax return . Cheapest state tax return 02 As stated in sections 4. Cheapest state tax return 01 and 4. Cheapest state tax return 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. Cheapest state tax return . Cheapest state tax return 03 An investor is an applicable entity that is required under § 1. Cheapest state tax return 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. Cheapest state tax return Under § 1. Cheapest state tax return 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. Cheapest state tax return Identifiable events determine when Forms 1099-C have to be issued. Cheapest state tax return Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. Cheapest state tax return This rule under § 1. Cheapest state tax return 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. Cheapest state tax return . Cheapest state tax return 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. Cheapest state tax return That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). Cheapest state tax return . Cheapest state tax return 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Cheapest state tax return 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. Cheapest state tax return Under § 6041, these payments are not subject to information reporting. Cheapest state tax return See Notice 2011-14, 2011-11 I. Cheapest state tax return R. Cheapest state tax return B. Cheapest state tax return 544, 546. Cheapest state tax return . Cheapest state tax return 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. Cheapest state tax return 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. Cheapest state tax return The payment is subject to the information reporting requirements of § 6041, as described in section 3. Cheapest state tax return 15 of this revenue procedure. Cheapest state tax return Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. Cheapest state tax return SECTION 6. Cheapest state tax return HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . Cheapest state tax return 01 In general. Cheapest state tax return The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). Cheapest state tax return As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. Cheapest state tax return Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. Cheapest state tax return A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. Cheapest state tax return 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. Cheapest state tax return Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. Cheapest state tax return 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. Cheapest state tax return . Cheapest state tax return 02 HAMP-PRA borrower options. Cheapest state tax return A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. Cheapest state tax return 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. Cheapest state tax return If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. Cheapest state tax return 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. Cheapest state tax return . Cheapest state tax return 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. Cheapest state tax return (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. Cheapest state tax return (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. Cheapest state tax return 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. Cheapest state tax return This section 6. Cheapest state tax return 03(2) applies only if the change to reporting the discharge using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. Cheapest state tax return To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. Cheapest state tax return (3) Example. Cheapest state tax return The following example illustrates the application of section 6. Cheapest state tax return 03(2) of this revenue procedure. Cheapest state tax return In 2010, B’s basis in B’s principal residence was $330,000. Cheapest state tax return In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. Cheapest state tax return B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). Cheapest state tax return The trial period plan effective date also fell in 2010. Cheapest state tax return B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. Cheapest state tax return 02(2) of this revenue procedure. Cheapest state tax return That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. Cheapest state tax return The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. Cheapest state tax return For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure. Cheapest state tax return Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). Cheapest state tax return (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. Cheapest state tax return 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. Cheapest state tax return Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. Cheapest state tax return 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. Cheapest state tax return Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. Cheapest state tax return (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. Cheapest state tax return 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. Cheapest state tax return The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. Cheapest state tax return (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. Cheapest state tax return The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). Cheapest state tax return The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. Cheapest state tax return . Cheapest state tax return 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. Cheapest state tax return (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. Cheapest state tax return Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. Cheapest state tax return Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. Cheapest state tax return If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. Cheapest state tax return (2) A HAMP-PRA borrower who has been using the method described in section 6. Cheapest state tax return 02(1) of this revenue procedure may change to the method described in section 6. Cheapest state tax return 02(2) but must comply with the consistency and open-year requirements described in section 6. Cheapest state tax return 01 of this revenue procedure. Cheapest state tax return SECTION 7. Cheapest state tax return PENALTY RELIEF FOR 2012 . Cheapest state tax return 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. Cheapest state tax return 03 through 5. Cheapest state tax return 04 and section 8. Cheapest state tax return 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. Cheapest state tax return 01 through 4. Cheapest state tax return 04 of this revenue procedure) that is required to be reported for 2012. Cheapest state tax return (2) Not later than March 28, 2013, a statement is sent to the Service. Cheapest state tax return It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. Cheapest state tax return 01(1) of this revenue procedure. Cheapest state tax return The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . Cheapest state tax return 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. Cheapest state tax return 06 and 8. Cheapest state tax return 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. Cheapest state tax return . Cheapest state tax return 03 Section 8. Cheapest state tax return 03 and 8. Cheapest state tax return 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. Cheapest state tax return SECTION 8. Cheapest state tax return SCOPE AND EFFECTIVE DATE . Cheapest state tax return 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. Cheapest state tax return . Cheapest state tax return 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. Cheapest state tax return . Cheapest state tax return 03 Because of the effective date in section 8. Cheapest state tax return 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. Cheapest state tax return 03 through 5. Cheapest state tax return 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. Cheapest state tax return 03 through 5. Cheapest state tax return 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. Cheapest state tax return . Cheapest state tax return 04 Because of the effective date in section 8. Cheapest state tax return 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. Cheapest state tax return 06 of this revenue procedure. Cheapest state tax return SECTION 9. Cheapest state tax return DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. Cheapest state tax return Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. Cheapest state tax return Pflanz and Sheldon A. Cheapest state tax return Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. Cheapest state tax return Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). Cheapest state tax return For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). Cheapest state tax return Prev  Up  Next   Home   More Internal Revenue Bulletins