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Ez Forms

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Ez Forms

Ez forms 17. Ez forms   Individual Retirement Arrangements (IRAs) Table of Contents What's New Reminders Introduction Useful Items - You may want to see: Traditional IRAsWho Can Open a Traditional IRA? When and How Can a Traditional IRA Be Opened? How Much Can Be Contributed? When Can Contributions Be Made? How Much Can You Deduct? Nondeductible Contributions Inherited IRAs Can You Move Retirement Plan Assets? When Can You Withdraw or Use IRA Assets? When Must You Withdraw IRA Assets? (Required Minimum Distributions) Are Distributions Taxable? What Acts Result in Penalties or Additional Taxes? Roth IRAsWhat Is a Roth IRA? When Can a Roth IRA Be Opened? Can You Contribute to a Roth IRA? Can You Move Amounts Into a Roth IRA? Are Distributions Taxable? What's New Traditional IRA contribution and deduction limit. Ez forms  The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts: $5,500, or Your taxable compensation for the year. Ez forms If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts: $6,500, or Your taxable compensation for the year. Ez forms For more information, see How Much Can Be Contributed? later. Ez forms Roth IRA contribution limit. Ez forms  If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $5,500, or Your taxable compensation for the year. Ez forms If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of: $6,500, or Your taxable compensation for the year. Ez forms However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. Ez forms For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later. Ez forms Modified AGI limit for traditional IRA contributions increased. Ez forms  For 2013, if you were covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is: More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er), More than $59,000 but less than $69,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return. Ez forms If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $178,000 but less than $188,000. Ez forms If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA. Ez forms See How Much Can You Deduct , later. Ez forms Modified AGI limit for Roth IRA contributions increased. Ez forms  For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations. Ez forms Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. Ez forms You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more. Ez forms Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. Ez forms You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more. Ez forms Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. Ez forms You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more. Ez forms See Can You Contribute to a Roth IRA , later. Ez forms Net Investment Income Tax. Ez forms   For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan including IRAs (for example; 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Ez forms However, these distributions are taken into account when determining the modified adjusted gross income threshold. Ez forms Distributions from a nonqualified retirement plan are included in net investment income. Ez forms See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Ez forms Name change. Ez forms  All spousal IRAs have been renamed Kay Bailey Hutchison Spousal IRAs. Ez forms There are no changes to the rules regarding these IRAs. Ez forms See Kay Bailey Hutchison Spousal IRA Limit , later, for more information. Ez forms Reminders 2014 limits. Ez forms   You can find information about the 2014 contribution and AGI limits in Publication 590. Ez forms Contributions to both traditional and Roth IRAs. Ez forms   For information on your combined contribution limit if you contribute to both traditional and Roth IRAs, see Roth IRAs and traditional IRAs under How Much Can Be Contributed? in Roth IRAs, later. Ez forms Statement of required minimum distribution. Ez forms  If a minimum distribution from your IRA is required, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the required minimum distribution to you, or offer to calculate it for you. Ez forms The report or offer must include the date by which the amount must be distributed. Ez forms The report is due January 31 of the year in which the minimum distribution is required. Ez forms It can be provided with the year-end fair market value statement that you normally get each year. Ez forms No report is required for IRAs of owners who have died. Ez forms IRA interest. Ez forms  Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Ez forms Tax on your traditional IRA is generally deferred until you take a distribution. Ez forms Do not report this interest on your tax return as tax-exempt interest. Ez forms Form 8606. Ez forms   To designate contributions as nondeductible, you must file Form 8606, Nondeductible IRAs. Ez forms The term “50 or older” is used several times in this chapter. Ez forms It refers to an IRA owner who is age 50 or older by the end of the tax year. Ez forms Introduction An individual retirement arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for your retirement. Ez forms This chapter discusses the following topics. Ez forms The rules for a traditional IRA (any IRA that is not a Roth or SIMPLE IRA). Ez forms The Roth IRA, which features nondeductible contributions and tax-free distributions. Ez forms Simplified Employee Pensions (SEPs) and Savings Incentive Match Plans for Employees (SIMPLEs) are not discussed in this chapter. Ez forms For more information on these plans and employees' SEP IRAs and SIMPLE IRAs that are part of these plans, see Publications 560 and 590. Ez forms For information about contributions, deductions, withdrawals, transfers, rollovers, and other transactions, see Publication 590. Ez forms Useful Items - You may want to see: Publication 560 Retirement Plans for Small Business 590 Individual Retirement Arrangements (IRAs) Form (and Instructions) 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts 8606 Nondeductible IRAs Traditional IRAs In this chapter, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA. Ez forms ” A traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA. Ez forms Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until they are distributed. Ez forms Who Can Open a Traditional IRA? You can open and make contributions to a traditional IRA if: You (or, if you file a joint return, your spouse) received taxable compensation during the year, and You were not age 70½ by the end of the year. Ez forms What is compensation?   Generally, compensation is what you earn from working. Ez forms Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services. Ez forms The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Ez forms   Scholarship and fellowship payments are compensation for this purpose only if shown in box 1 of Form W-2. Ez forms   Compensation also includes commissions and taxable alimony and separate maintenance payments. Ez forms Self-employment income. Ez forms   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of: The deduction for contributions made on your behalf to retirement plans, and The deductible part of your self-employment tax. Ez forms   Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs. Ez forms Nontaxable combat pay. Ez forms   For IRA purposes, if you were a member of the U. Ez forms S. Ez forms Armed Forces, your compensation includes any nontaxable combat pay you receive. Ez forms What is not compensation?   Compensation does not include any of the following items. Ez forms Earnings and profits from property, such as rental income, interest income, and dividend income. Ez forms Pension or annuity income. Ez forms Deferred compensation received (compensation payments postponed from a past year). Ez forms Income from a partnership for which you do not provide services that are a material income-producing factor. Ez forms Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b. Ez forms Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. Ez forms When and How Can a Traditional IRA Be Opened? You can open a traditional IRA at any time. Ez forms However, the time for making contributions for any year is limited. Ez forms See When Can Contributions Be Made , later. Ez forms You can open different kinds of IRAs with a variety of organizations. Ez forms You can open an IRA at a bank or other financial institution or with a mutual fund or life insurance company. Ez forms You can also open an IRA through your stockbroker. Ez forms Any IRA must meet Internal Revenue Code requirements. Ez forms Kinds of traditional IRAs. Ez forms   Your traditional IRA can be an individual retirement account or annuity. Ez forms It can be part of either a simplified employee pension (SEP) or an employer or employee association trust account. Ez forms How Much Can Be Contributed? There are limits and other rules that affect the amount that can be contributed to a traditional IRA. Ez forms These limits and other rules are explained below. Ez forms Community property laws. Ez forms   Except as discussed later under Kay Bailey Hutchison Spousal IRA limit , each spouse figures his or her limit separately, using his or her own compensation. Ez forms This is the rule even in states with community property laws. Ez forms Brokers' commissions. Ez forms   Brokers' commissions paid in connection with your traditional IRA are subject to the contribution limit. Ez forms Trustees' fees. Ez forms   Trustees' administrative fees are not subject to the contribution limit. Ez forms Qualified reservist repayments. Ez forms   If you are (or were) a member of a reserve component and you were ordered or called to active duty after September 11, 2001, you may be able to contribute (repay) to an IRA amounts equal to any qualified reservist distributions you received. Ez forms You can make these repayment contributions even if they would cause your total contributions to the IRA to be more than the general limit on contributions. Ez forms To be eligible to make these repayment contributions, you must have received a qualified reservist distribution from an IRA or from a section 401(k) or 403(b) plan or similar arrangement. Ez forms   For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 of Publication 590. Ez forms Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA. Ez forms (See Roth IRAs, later. Ez forms ) General limit. Ez forms   For 2013, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts. Ez forms $5,500 ($6,500 if you are 50 or older). Ez forms Your taxable compensation (defined earlier) for the year. Ez forms This is the most that can be contributed regardless of whether the contributions are to one or more traditional IRAs or whether all or part of the contributions are nondeductible. Ez forms (See Nondeductible Contributions , later. Ez forms ) Qualified reservist repayments do not affect this limit. Ez forms Example 1. Ez forms Betty, who is 34 years old and single, earned $24,000 in 2013. Ez forms Her IRA contributions for 2013 are limited to $5,500. Ez forms Example 2. Ez forms John, an unmarried college student working part time, earned $3,500 in 2013. Ez forms His IRA contributions for 2013 are limited to $3,500, the amount of his compensation. Ez forms Kay Bailey Hutchison Spousal IRA limit. Ez forms   For 2013, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following amounts. Ez forms $5,500 ($6,500 if you are 50 or older). Ez forms The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts. Ez forms Your spouse's IRA contribution for the year to a traditional IRA. Ez forms Any contribution for the year to a Roth IRA on behalf of your spouse. Ez forms This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $11,000 ($12,000 if only one of you is 50 or older, or $13,000 if both of you are 50 or older). Ez forms When Can Contributions Be Made? As soon as you open your traditional IRA, contributions can be made to it through your chosen sponsor (trustee or other administrator). Ez forms Contributions must be in the form of money (cash, check, or money order). Ez forms Property cannot be contributed. Ez forms Contributions must be made by due date. Ez forms   Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. Ez forms Age 70½ rule. Ez forms   Contributions cannot be made to your traditional IRA for the year in which you reach age 70½ or for any later year. Ez forms   You attain age 70½ on the date that is 6 calendar months after the 70th anniversary of your birth. Ez forms If you were born on or before June 30, 1943, you cannot contribute for 2013 or any later year. Ez forms Designating year for which contribution is made. Ez forms   If an amount is contributed to your traditional IRA between January 1 and April 15, you should tell the sponsor which year (the current year or the previous year) the contribution is for. Ez forms If you do not tell the sponsor which year it is for, the sponsor can assume, and report to the IRS, that the contribution is for the current year (the year the sponsor received it). Ez forms Filing before a contribution is made. Ez forms   You can file your return claiming a traditional IRA contribution before the contribution is actually made. Ez forms Generally, the contribution must be made by the due date of your return, not including extensions. Ez forms Contributions not required. Ez forms   You do not have to contribute to your traditional IRA for every tax year, even if you can. Ez forms How Much Can You Deduct? Generally, you can deduct the lesser of: The contributions to your traditional IRA for the year, or The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if it applies). Ez forms However, if you or your spouse was covered by an employer retirement plan, you may not be able to deduct this amount. Ez forms See Limit If Covered by Employer Plan , later. Ez forms You may be able to claim a credit for contributions to your traditional IRA. Ez forms For more information, see chapter 37. Ez forms Trustees' fees. Ez forms   Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. Ez forms However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). Ez forms See chapter 28. Ez forms Brokers' commissions. Ez forms   Brokers' commissions are part of your IRA contribution and, as such, are deductible subject to the limits. Ez forms Full deduction. Ez forms   If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more traditional IRAs of up to the lesser of: $5,500 ($6,500 if you are age 50 or older in 2013). Ez forms 100% of your compensation. Ez forms This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf. Ez forms Kay Bailey Hutchison Spousal IRA. Ez forms   In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of the following amounts. Ez forms $5,500 ($6,500 if the spouse with the lower compensation is age 50 or older in 2013). Ez forms The total compensation includible in the gross income of both spouses for the year reduced by the following three amounts. Ez forms The IRA deduction for the year of the spouse with the greater compensation. Ez forms Any designated nondeductible contribution for the year made on behalf of the spouse with the greater compensation. Ez forms Any contributions for the year to a Roth IRA on behalf of the spouse with the greater compensation. Ez forms This limit is reduced by any contributions to a 501(c)(18) plan on behalf of the spouse with the lesser compensation. Ez forms Note. Ez forms If you were divorced or legally separated (and did not remarry) before the end of the year, you cannot deduct any contributions to your spouse's IRA. Ez forms After a divorce or legal separation, you can deduct only contributions to your own IRA. Ez forms Your deductions are subject to the rules for single individuals. Ez forms Covered by an employer retirement plan. Ez forms   If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. Ez forms This is discussed later under Limit If Covered by Employer Plan . Ez forms Limits on the amount you can deduct do not affect the amount that can be contributed. Ez forms See Nondeductible Contributions , later. Ez forms Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. Ez forms The “Retirement plan” box should be checked if you were covered. Ez forms Reservists and volunteer firefighters should also see Situations in Which You Are Not Covered by an Employer Plan , later. Ez forms If you are not certain whether you were covered by your employer's retirement plan, you should ask your employer. Ez forms Federal judges. Ez forms   For purposes of the IRA deduction, federal judges are covered by an employer retirement plan. Ez forms For Which Year(s) Are You Covered by an Employer Plan? Special rules apply to determine the tax years for which you are covered by an employer plan. Ez forms These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Ez forms Tax year. Ez forms   Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. Ez forms For almost all people, the tax year is the calendar year. Ez forms Defined contribution plan. Ez forms   Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Ez forms   A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. Ez forms Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Ez forms Defined benefit plan. Ez forms   If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. Ez forms This rule applies even if you: Declined to participate in the plan, Did not make a required contribution, or Did not perform the minimum service required to accrue a benefit for the year. Ez forms   A defined benefit plan is any plan that is not a defined contribution plan. Ez forms Defined benefit plans include pension plans and annuity plans. Ez forms No vested interest. Ez forms   If you accrue a benefit for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the accrual. Ez forms Situations in Which You Are Not Covered by an Employer Plan Unless you are covered under another employer plan, you are not covered by an employer plan if you are in one of the situations described below. Ez forms Social security or railroad retirement. Ez forms   Coverage under social security or railroad retirement is not coverage under an employer retirement plan. Ez forms Benefits from a previous employer's plan. Ez forms   If you receive retirement benefits from a previous employer's plan, you are not covered by that plan. Ez forms Reservists. Ez forms   If the only reason you participate in a plan is because you are a member of a reserve unit of the armed forces, you may not be covered by the plan. Ez forms You are not covered by the plan if both of the following conditions are met. Ez forms The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Ez forms You did not serve more than 90 days on active duty during the year (not counting duty for training). Ez forms Volunteer firefighters. Ez forms   If the only reason you participate in a plan is because you are a volunteer firefighter, you may not be covered by the plan. Ez forms You are not covered by the plan if both of the following conditions are met. Ez forms The plan you participate in is established for its employees by: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Ez forms Your accrued retirement benefits at the beginning of the year will not provide more than $1,800 per year at retirement. Ez forms Limit If Covered by Employer Plan If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status. Ez forms Your deduction begins to decrease (phase out) when your income rises above a certain amount and is eliminated altogether when it reaches a higher amount. Ez forms These amounts vary depending on your filing status. Ez forms To determine if your deduction is subject to phaseout, you must determine your modified adjusted gross income (AGI) and your filing status. Ez forms See Filing status and Modified adjusted gross income (AGI) , later. Ez forms Then use Table 17-1 or 17-2 to determine if the phaseout applies. Ez forms Social security recipients. Ez forms   Instead of using Table 17-1 or Table 17-2, use the worksheets in Appendix B of Publication 590 if, for the year, all of the following apply. Ez forms You received social security benefits. Ez forms You received taxable compensation. Ez forms Contributions were made to your traditional IRA. Ez forms You or your spouse was covered by an employer retirement plan. Ez forms Use those worksheets to figure your IRA deduction, your nondeductible contribution, and the taxable portion, if any, of your social security benefits. Ez forms Deduction phaseout. Ez forms   If you were covered by an employer retirement plan and you did not receive any social security retirement benefits, your IRA deduction may be reduced or eliminated depending on your filing status and modified AGI as shown in Table 17-1. Ez forms Table 17-1. Ez forms Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Ez forms IF your filing status is. Ez forms . Ez forms . Ez forms   AND your modified AGI is. Ez forms . Ez forms . Ez forms   THEN you can take. Ez forms . Ez forms . Ez forms single   or  head of household   $59,000 or less   a full deduction. Ez forms   more than $59,000 but less than $69,000   a partial deduction. Ez forms   $69,000 or more   no deduction. Ez forms married filing jointly   or  qualifying widow(er)   $95,000 or less   a full deduction. Ez forms   more than $95,000 but less than $115,000   a partial deduction. Ez forms   $115,000 or more   no deduction. Ez forms married filing separately2   less than $10,000   a partial deduction. Ez forms   $10,000 or more   no deduction. Ez forms 1Modified AGI (adjusted gross income). Ez forms See Modified adjusted gross income (AGI) . Ez forms 2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the “Single” column). Ez forms If your spouse is covered. Ez forms   If you are not covered by an employer retirement plan, but your spouse is, and you did not receive any social security benefits, your IRA deduction may be reduced or eliminated entirely depending on your filing status and modified AGI as shown in Table 17-2. Ez forms Filing status. Ez forms   Your filing status depends primarily on your marital status. Ez forms For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. Ez forms If you need more information on filing status, see chapter 2. Ez forms Lived apart from spouse. Ez forms   If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single. Ez forms Table 17-2. Ez forms Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction. Ez forms IF your filing status is. Ez forms . Ez forms . Ez forms   AND your modified AGI is. Ez forms . Ez forms . Ez forms   THEN you can take. Ez forms . Ez forms . Ez forms single, head of household, or qualifying widow(er)   any amount   a full deduction. Ez forms married filing jointly or separately with a spouse who is not covered by a plan at work   any amount   a full deduction. Ez forms married filing jointly with a spouse who is covered by a plan at work   $178,000 or less   a full deduction. Ez forms   more than $178,000 but less than $188,000   a partial deduction. Ez forms   $188,000 or more   no deduction. Ez forms married filing separately with a spouse who is covered by a plan at work2   less than $10,000   a partial deduction. Ez forms   $10,000 or more   no deduction. Ez forms 1Modified AGI (adjusted gross income). Ez forms See Modified adjusted gross income (AGI) . Ez forms 2You are entitled to the full deduction if you did not live with your spouse at any time during the year. Ez forms Modified adjusted gross income (AGI). Ez forms   How you figure your modified AGI depends on whether you are filing Form 1040 or Form 1040A. Ez forms If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Publication 590. Ez forms You may be able to use Worksheet 17-1 to figure your modified AGI. Ez forms    Do not assume that your modified AGI is the same as your compensation. Ez forms Your modified AGI may include income in addition to your compensation (discussed earlier), such as interest, dividends, and income from IRA distributions. Ez forms Form 1040. Ez forms   If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following eight amounts. Ez forms IRA deduction. Ez forms Student loan interest deduction. Ez forms Tuition and fees deduction. Ez forms Domestic production activities deduction. Ez forms Foreign earned income exclusion. Ez forms Foreign housing exclusion or deduction. Ez forms Exclusion of qualified savings bond interest shown on Form 8815, Exclusion of Interest From Series EE and I U. Ez forms S. Ez forms Savings Bonds Issued After 1989. Ez forms Exclusion of employer-provided adoption benefits shown on Form 8839, Qualified Adoption Expenses. Ez forms This is your modified AGI. Ez forms Form 1040A. Ez forms   If you file Form 1040A, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts. Ez forms IRA deduction. Ez forms Student loan interest deduction. Ez forms Tuition and fees deduction. Ez forms Exclusion of qualified savings bond interest shown on Form 8815. Ez forms This is your modified AGI. Ez forms Both contributions for 2013 and distributions in 2013. Ez forms   If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable. Ez forms You received distributions in 2013 from one or more traditional IRAs. Ez forms You made contributions to a traditional IRA for 2013. Ez forms Some of those contributions may be nondeductible contributions. Ez forms If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. Ez forms To do this, you can use Worksheet 1-5, Figuring the Taxable Part of Your IRA Distribution, in Publication 590. Ez forms   If at least one of the above does not apply, figure your modified AGI using Worksheet 17-1, later. Ez forms    How to figure your reduced IRA deduction. Ez forms   You can figure your reduced IRA deduction for either Form 1040 or Form 1040A by using the worksheets in chapter 1 of Publication 590. Ez forms Also, the instructions for Form 1040 and Form 1040A include similar worksheets that you may be able to use instead. Ez forms Worksheet 17-1. Ez forms Figuring Your Modified AGI Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes. Ez forms 1. Ez forms Enter your adjusted gross income (AGI) from Form 1040, line 38, or Form 1040A, line 22, figured without taking into account the amount from Form 1040, line 32, or Form 1040A, line 17 1. Ez forms   2. Ez forms Enter any student loan interest deduction from Form 1040, line 33, or Form 1040A, line 18 2. Ez forms   3. Ez forms Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19 3. Ez forms   4. Ez forms Enter any domestic production activities deduction from Form 1040, line 35 4. Ez forms   5. Ez forms Enter any foreign earned income and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 5. Ez forms   6. Ez forms Enter any foreign housing deduction from Form 2555, line 50 6. Ez forms   7. Ez forms Enter any excludable savings bond interest from Form 8815, line 14 7. Ez forms   8. Ez forms Enter any excluded employer-provided adoption benefits from Form 8839, line 28 8. Ez forms   9. Ez forms Add lines 1 through 8. Ez forms This is your Modified AGI for traditional IRA purposes 9. Ez forms   Reporting Deductible Contributions If you file Form 1040, enter your IRA deduction on line 32 of that form. Ez forms If you file Form 1040A, enter your IRA deduction on line 17. Ez forms You cannot deduct IRA contributions on Form 1040EZ. Ez forms Nondeductible Contributions Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. Ez forms The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Ez forms Example. Ez forms Mike is 28 years old and single. Ez forms In 2013, he was covered by a retirement plan at work. Ez forms His salary was $57,312. Ez forms His modified AGI was $70,000. Ez forms Mike made a $5,500 IRA contribution for 2013. Ez forms Because he was covered by a retirement plan and his modified AGI was over $69,000, he cannot deduct his $5,500 IRA contribution. Ez forms He must designate this contribution as a nondeductible contribution by reporting it on Form 8606, as explained next. Ez forms Form 8606. Ez forms   To designate contributions as nondeductible, you must file Form 8606. Ez forms   You do not have to designate a contribution as nondeductible until you file your tax return. Ez forms When you file, you can even designate otherwise deductible contributions as nondeductible. Ez forms   You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year. Ez forms A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. Ez forms In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. Ez forms See Form 8606 under Distributions Fully or Partly Taxable, later. Ez forms Failure to report nondeductible contributions. Ez forms   If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions when withdrawn. Ez forms All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made. Ez forms Penalty for overstatement. Ez forms   If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause. Ez forms Penalty for failure to file Form 8606. Ez forms   You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause. Ez forms    Tax on earnings on nondeductible contributions. Ez forms   As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed. Ez forms See When Can You Withdraw or Use IRA Assets , later. Ez forms Cost basis. Ez forms   You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Ez forms Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions. Ez forms Inherited IRAs If you inherit a traditional IRA, you are called a beneficiary. Ez forms A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Ez forms Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Ez forms Inherited from spouse. Ez forms   If you inherit a traditional IRA from your spouse, you generally have the following three choices. Ez forms You can: Treat it as your own IRA by designating yourself as the account owner. Ez forms Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: Qualified employer plan, Qualified employee annuity plan (section 403(a) plan), Tax-sheltered annuity plan (section 403(b) plan), or Deferred compensation plan of a state or local government (section 457 plan). Ez forms Treat yourself as the beneficiary rather than treating the IRA as your own. Ez forms Treating it as your own. Ez forms   You will be considered to have chosen to treat the IRA as your own if: Contributions (including rollover contributions) are made to the inherited IRA, or You do not take the required minimum distribution for a year as a beneficiary of the IRA. Ez forms You will only be considered to have chosen to treat the IRA as your own if: You are the sole beneficiary of the IRA, and You have an unlimited right to withdraw amounts from it. Ez forms   However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. Ez forms Inherited from someone other than spouse. Ez forms   If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. Ez forms This means that you cannot make any contributions to the IRA. Ez forms It also means you cannot roll over any amounts into or out of the inherited IRA. Ez forms However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Ez forms For more information, see the discussion of inherited IRAs under Rollover From One IRA Into Another, later. Ez forms Can You Move Retirement Plan Assets? You can transfer, tax free, assets (money or property) from other retirement plans (including traditional IRAs) to a traditional IRA. Ez forms You can make the following kinds of transfers. Ez forms Transfers from one trustee to another. Ez forms Rollovers. Ez forms Transfers incident to a divorce. Ez forms Transfers to Roth IRAs. Ez forms   Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. Ez forms You can also move assets from a qualified retirement plan to a Roth IRA. Ez forms See Can You Move Amounts Into a Roth IRA? under Roth IRAs, later. Ez forms Trustee-to-Trustee Transfer A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Ez forms Because there is no distribution to you, the transfer is tax free. Ez forms Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers, discussed later under Rollover From One IRA Into Another . Ez forms For information about direct transfers to IRAs from retirement plans other than IRAs, see Can You Move Retirement Plan Assets? in chapter 1 and Can You Move Amounts Into a Roth IRA? in chapter 2 of Publication 590. Ez forms Rollovers Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute (roll over) to another retirement plan. Ez forms The contribution to the second retirement plan is called a “rollover contribution. Ez forms ” Note. Ez forms An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan. Ez forms Kinds of rollovers to a traditional IRA. Ez forms   You can roll over amounts from the following plans into a traditional IRA: A traditional IRA, An employer's qualified retirement plan for its employees, A deferred compensation plan of a state or local government (section 457 plan), or A tax-sheltered annuity plan (section 403(b) plan). Ez forms Treatment of rollovers. Ez forms   You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and under Reporting rollovers from employer plans . Ez forms Kinds of rollovers from a traditional IRA. Ez forms   You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. Ez forms These plans include the federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). Ez forms The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Ez forms Qualified plans may, but are not required to, accept such rollovers. Ez forms Time limit for making a rollover contribution. Ez forms   You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. Ez forms The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. Ez forms For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms Extension of rollover period. Ez forms   If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, special rules extend the rollover period. Ez forms For more information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms More information. Ez forms   For more information on rollovers, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms Rollover From One IRA Into Another You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Ez forms Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA. Ez forms Waiting period between rollovers. Ez forms   Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. Ez forms You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover. Ez forms   The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Ez forms Example. Ez forms You have two traditional IRAs, IRA-1 and IRA-2. Ez forms You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). Ez forms You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. Ez forms However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. Ez forms This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. Ez forms Exception. Ez forms   For an exception for distributions from failed financial institutions, see Rollover From One IRA Into Another under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms Partial rollovers. Ez forms   If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. Ez forms The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). Ez forms The amount you keep may be subject to the 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes? . Ez forms Required distributions. Ez forms   Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. Ez forms Inherited IRAs. Ez forms   If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own. Ez forms See Treating it as your own , earlier. Ez forms Not inherited from spouse. Ez forms   If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. Ez forms You must withdraw the IRA assets within a certain period. Ez forms For more information, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Ez forms Reporting rollovers from IRAs. Ez forms   Report any rollover from one traditional IRA to the same or another traditional IRA on lines 15a and 15b, Form 1040, or lines 11a and 11b, Form 1040A, as follows. Ez forms   Enter the total amount of the distribution on Form 1040, line 15a, or Form 1040A, line 11a. Ez forms If the total amount on Form 1040, line 15a, or Form 1040A, line 11a, was rolled over, enter zero on Form 1040, line 15b, or Form 1040A, line 11b. Ez forms If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b, or Form 1040A, line 11b. Ez forms Put “Rollover” next to Form 1040, line 15b, or Form 1040A, line 11b. Ez forms See your tax return instructions. Ez forms   If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did. Ez forms Rollover From Employer's Plan Into an IRA You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's): Employer's qualified pension, profit-sharing, or stock bonus plan; Annuity plan; Tax-sheltered annuity plan (section 403(b) plan); or Governmental deferred compensation plan (section 457 plan). Ez forms A qualified plan is one that meets the requirements of the Internal Revenue Code. Ez forms Eligible rollover distribution. Ez forms   Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following. Ez forms A required minimum distribution (explained later under When Must You Withdraw IRA Assets? (Required Minimum Distributions) ). Ez forms A hardship distribution. Ez forms Any of a series of substantially equal periodic distributions paid at least once a year over: Your lifetime or life expectancy, The lifetimes or life expectancies of you and your beneficiary, or A period of 10 years or more. Ez forms Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains. Ez forms A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan. Ez forms Dividends on employer securities. Ez forms The cost of life insurance coverage. Ez forms Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. Ez forms To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. Ez forms See Form 8606 under Distributions Fully or Partly Taxable, later. Ez forms Rollover by nonspouse beneficiary. Ez forms   A direct transfer from a deceased employee's qualified pension, profit-sharing, or stock bonus plan; annuity plan; tax-sheltered annuity (section 403(b)) plan; or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. Ez forms The IRA is treated as an inherited IRA. Ez forms For more information about inherited IRAs, see Inherited IRAs , earlier. Ez forms Reporting rollovers from employer plans. Ez forms    Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a, or Form 1040A, line 12a. Ez forms This amount should be shown in box 1 of Form 1099-R. Ez forms From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Ez forms From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Ez forms Enter the remaining amount, even if zero, on Form 1040, line 16b, or Form 1040A, line 12b. Ez forms Also, enter "Rollover" next to Form 1040, line 16b, or Form 1040A, line 12b. Ez forms Transfers Incident to Divorce If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. Ez forms The transfer is tax free. Ez forms For detailed information, see Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms Converting From Any Traditional IRA to a Roth IRA Allowable conversions. Ez forms   You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. Ez forms The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. Ez forms If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. Ez forms However, a part or all of the conversion contribution from your traditional IRA is included in your gross income. Ez forms Required distributions. Ez forms   You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70½) under the required distribution rules (discussed later). Ez forms Income. Ez forms   You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. Ez forms These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA. Ez forms   You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed later. Ez forms   You must file Form 8606 to report 2013 conversions from traditional, SEP, or SIMPLE IRAs to a Roth IRA in 2013 (unless you recharacterized the entire amount) and to figure the amount to include in income. Ez forms   If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. Ez forms See chapter 4. Ez forms Recharacterizations You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. Ez forms This is called recharacterizing the contribution. Ez forms See Can You Move Retirement Plan Assets? in chapter 1 of Publication 590 for more detailed information. Ez forms How to recharacterize a contribution. Ez forms   To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. Ez forms If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. Ez forms If you recharacterize your contribution, you must do all three of the following. Ez forms Include in the transfer any net income allocable to the contribution. Ez forms If there was a loss, the net income you must transfer may be a negative amount. Ez forms Report the recharacterization on your tax return for the year during which the contribution was made. Ez forms Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA. Ez forms No deduction allowed. Ez forms   You cannot deduct the contribution to the first IRA. Ez forms Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. Ez forms Required notifications. Ez forms   To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. Ez forms You must make the notifications by the date of the transfer. Ez forms Only one notification is required if both IRAs are maintained by the same trustee. Ez forms The notification(s) must include all of the following information. Ez forms The type and amount of the contribution to the first IRA that is to be recharacterized. Ez forms The date on which the contribution was made to the first IRA and the year for which it was made. Ez forms A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA. Ez forms The name of the trustee of the first IRA and the name of the trustee of the second IRA. Ez forms Any additional information needed to make the transfer. Ez forms Reporting a recharacterization. Ez forms   If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. Ez forms You must treat the contribution as having been made to the second IRA. Ez forms When Can You Withdraw or Use IRA Assets? There are rules limiting use of your IRA assets and distributions from it. Ez forms Violation of the rules generally results in additional taxes in the year of violation. Ez forms See What Acts Result in Penalties or Additional Taxes , later. Ez forms Contributions returned before the due date of return. Ez forms   If you made IRA contributions in 2013, you can withdraw them tax free by the due date of your return. Ez forms If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. Ez forms You can do this if, for each contribution you withdraw, both of the following conditions apply. Ez forms You did not take a deduction for the contribution. Ez forms You withdraw any interest or other income earned on the contribution. Ez forms You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Ez forms If there was a loss, the net income earned on the contribution may be a negative amount. Ez forms Note. Ez forms To calculate the amount you must withdraw, see Worksheet 1-4 under When Can You Withdraw or Use Assets? in chapter 1 of Publication 590. Ez forms Earnings includible in income. Ez forms   You must include in income any earnings on the contributions you withdraw. Ez forms Include the earnings in income for the year in which you made the contributions, not in the year in which you withdraw them. Ez forms Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Ez forms Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes?, later. Ez forms    Early distributions tax. Ez forms   The 10% additional tax on distributions made before you reach age 59½ does not apply to these tax-free withdrawals of your contributions. Ez forms However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 59½ rule, it will be subject to this tax. Ez forms When Must You Withdraw IRA Assets? (Required Minimum Distributions) You cannot keep funds in a traditional IRA indefinitely. Ez forms Eventually they must be distributed. Ez forms If there are no distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required. Ez forms See Excess Accumulations (Insufficient Distributions) , later. Ez forms The requirements for distributing IRA funds differ depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Ez forms Required minimum distribution. Ez forms   The amount that must be distributed each year is referred to as the required minimum distribution. Ez forms Required distributions not eligible for rollover. Ez forms   Amounts that must be distributed (required minimum distributions) during a particular year are not eligible for rollover treatment. Ez forms IRA owners. Ez forms   If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½. Ez forms April 1 of the year following the year in which you reach age 70½ is referred to as the required beginning date. Ez forms Distributions by the required beginning date. Ez forms   You must receive at least a minimum amount for each year starting with the year you reach age 70½ (your 70½ year). Ez forms If you do not (or did not) receive that minimum amount in your 70½ year, then you must receive distributions for your 70½ year by April 1 of the next year. Ez forms   If an IRA owner dies after reaching age 70½, but before April 1 of the next year, no minimum distribution is required because death occurred before the required beginning date. Ez forms Even if you begin receiving distributions before you attain age 70½, you must begin calculating and receiving required minimum distributions by your required beginning date. Ez forms Distributions after the required beginning date. Ez forms   The required minimum distribution for any year after the year you turn 70½ must be made by December 31 of that later year. Ez forms    Beneficiaries. Ez forms   If you are the beneficiary of a decedent's traditional IRA, the requirements for distributions from that IRA generally depend on whether the IRA owner died before or after the required beginning date for distributions. Ez forms More information. Ez forms   For more information, including how to figure your minimum required distribution each year and how to figure your required distribution if you are a beneficiary of a decedent's IRA, see When Must You Withdraw Assets? in chapter 1 of Publication 590. Ez forms Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Ez forms Exceptions. Ez forms   Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: Rollovers, Qualified charitable distributions (QCD), discussed later, Tax-free withdrawals of contributions, discussed earlier, and The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable . Ez forms    Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Ez forms Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in Converting From Any Traditional IRA Into a Roth IRA under Can You Move Retirement Plan Assets? in chapter 1 of Publication 590. Ez forms Qualified charitable distributions (QCD). Ez forms   A QCD is generally a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. Ez forms Special rules apply if you made a qualified charitable distribution in January 2013 that you elected to treat as made in 2012. Ez forms See Qualified Charitable Distributions in Publication 590 for more information. Ez forms Ordinary income. Ez forms   Distributions from traditional IRAs that you include in income are taxed as ordinary income. Ez forms No special treatment. Ez forms   In figuring your tax, you cannot use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. Ez forms Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Ez forms Fully taxable. Ez forms   If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Ez forms Because you have no basis in your IRA, any distributions are fully taxable when received. Ez forms See Reporting taxable distributions on your return , later. Ez forms Partly taxable. Ez forms    If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. Ez forms These nondeductible contributions are not taxed when they are distributed to you. Ez forms They are a return of your investment in your IRA. Ez forms   Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. Ez forms If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Ez forms Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. Ez forms Form 8606. Ez forms   You must complete Form 8606 and attach it to your return if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Ez forms Using the form, you will figure the nontaxable distributions for 2013 and your total IRA basis for 2013 and earlier years. Ez forms Note. Ez forms If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Ez forms Send it to the IRS at the time and place you would otherwise file an income tax return. Ez forms Distributions reported on Form 1099-R. Ez forms   If you receive a distribution from your traditional IRA, you will receive Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Ez forms , or a similar statement. Ez forms IRA distributions are shown in boxes 1 and 2a of Form 1099-R. Ez forms A number or letter code in box 7 tells you what type of distribution you received from your IRA. Ez forms Withholding. Ez forms   Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Ez forms See chapter 4. Ez forms IRA distributions delivered outside the United States. Ez forms   In general, if you are a U. Ez forms S. Ez forms citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA. Ez forms Reporting taxable distributions on your return. Ez forms    Report fully taxable distributions, including early distributions on Form 1040, line 15b, or Form 1040A, line 11b (no entry is required on Form 1040, line 15a, or Form 1040A, line 11a). Ez forms If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a, or Form 1040A, line 11a, and the taxable part on Form 1040, line 15b, or Form 1040A, line 11b. Ez forms You cannot report distributions on Form 1040EZ. Ez forms What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. Ez forms There are additions to the regular tax for using your IRA funds in prohibited transactions. Ez forms There are also additional taxes for the following activities. Ez forms Investing in collectibles. Ez forms Making excess contributions. Ez forms Taking early distributions. Ez forms Allowing excess amounts to accumulate (failing to take required distributions). Ez forms There are penalties for overstating the amount of nondeductible contributions and for failure to file a Form 8606, if required. Ez forms Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA by you, your beneficiary, or any disqualified person. Ez forms Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendent, and any spouse of a lineal descendent). Ez forms The following are examples of prohibited transactions with a traditional IRA. Ez forms Borrowing money from it. Ez forms Selling property to it. Ez forms Receiving unreasonable compensation for managing it. Ez forms Using it as security for a loan. Ez forms Buying property for personal use (present or future) with IRA funds. Ez forms Effect on an IRA account. Ez forms   Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Ez forms Effect on you or your beneficiary. Ez forms   If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. Ez forms If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. Ez forms For information on figuring your gain and reporting it in income, see Are Distributions Taxable , earlier. Ez forms The distribution may be subject to additional taxes or penalties. Ez forms Taxes on prohibited transactions. Ez forms   If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. Ez forms In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction is not corrected. Ez forms More information. Ez forms   For more information on prohibited transactions, see What Acts Result in Penalties or Additional Taxes? in chapter 1 of Publication 590. Ez forms Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. Ez forms You may have to pay the 10% additional tax on early distributions, discussed later. Ez forms Collectibles. Ez forms   These include: Artworks, Rugs, Antiques, Metals, Gems, Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property. Ez forms Exception. Ez forms    Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U. Ez forms S. Ez forms gold coins, or one-ounce silver coins minted by the Treasury Department. Ez forms It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Ez forms Excess Contributions Generally, an excess contribution is the amount contributed to your traditional IRA(s) for the year that is more than the smaller of: The maximum deductible amount for the year. Ez forms For 2013, this is $5,500 ($6,500 if you are 50 or older), or Your taxable compensation for the year. Ez forms Tax on excess contributions. Ez forms   In general, if the excess contributions for a year are not withdrawn by the date your return for the year is due (including extensions), you are subject to a 6% tax. Ez forms You must pay the 6% tax each year on excess amounts that remain in your traditional IRA at the end of your tax year. Ez forms The tax cannot be more than 6% of the combined value of all your IRAs as of the end of your tax year. Ez forms Excess contributions withdrawn by due date of return. Ez forms   You will not have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution. Ez forms You must complete your withdrawal by the date your tax return for that year is due, including extensions. Ez forms How to treat withdrawn contributions. Ez forms   Do not include in your gross income an excess contribution that you withdraw from your traditional IRA before your tax return is due if both the following conditions are met. Ez forms No deduction was allowed for the excess contribution. Ez forms You withdraw the interest or other income earned on the excess contribution. Ez forms You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. Ez forms If there was a loss, the net income you must withdraw may be a negative amount. Ez forms How to treat withdrawn interest or other income. Ez forms   You must include in your gross income the interest or other income that was earned on the excess contribution. Ez forms Report it on your return for the year in which the excess contribution was made. Ez forms Your withdrawal of interest or other income may be subject to an additional 10% tax on early distributions, discus
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Tips for Choosing a Bank

Choosing a bank is a major decision, and there is no one right choice for all consumers.

When you shop for a bank, you have to consider the actual products and services it provides as well as the location of branches, size of the bank, fees, and interest rates. Even if you conduct most transactions online or at automated teller machines, you want to choose a bank with quality customer service.

Also, consider the variety of products that the bank provides; some banks may specialize in checking and savings accounts, while others are full-service banks, offering loans and CDs.

You don’t have to maintain all of your accounts at one bank; you can have relationships with several to get the best rates on different services.

The Ez Forms

Ez forms 4. Ez forms   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Ez forms Line of business. Ez forms Examples. Ez forms Improvement of business conditions. Ez forms Exception for local legislation. Ez forms De minimis exception. Ez forms Grass roots lobbying. Ez forms 501(c)(7) - Social and Recreation ClubsLimited membership. Ez forms Support. Ez forms Facilities open to public. Ez forms Gross receipts from nonmembership sources. Ez forms Gross receipts. Ez forms Nontraditional activities. Ez forms 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Ez forms Losses and expenses. Ez forms Distributions of proceeds. Ez forms The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Ez forms Perpetual care organization. Ez forms Care of individual plots. Ez forms 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Ez forms 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Ez forms Waiver of payment of income. Ez forms 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Ez forms Section 501(c)(3) organizations are covered in chapter 3 of this publication. Ez forms The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Ez forms 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Ez forms The discussion that follows describes the information you must provide when applying. Ez forms For application procedures, see chapter 1. Ez forms To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Ez forms In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Ez forms If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Ez forms See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Ez forms Examples. Ez forms   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Ez forms Nonprofit operation. Ez forms   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Ez forms However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Ez forms Social welfare. Ez forms   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Ez forms   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Ez forms It therefore does not qualify as a section 501(c)(4) organization. Ez forms Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Ez forms However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Ez forms Political activity. Ez forms   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Ez forms However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Ez forms See the discussion in chapter 2 under Political Organization Income Tax Return . Ez forms Social or recreational activity. Ez forms   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Ez forms Retirement benefit program. Ez forms   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Ez forms It may qualify under another paragraph of section 501(c) depending on all the facts. Ez forms   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Ez forms Tax treatment of donations. Ez forms   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Ez forms Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Ez forms They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Ez forms However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Ez forms for more information. Ez forms For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Ez forms gov. Ez forms Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Ez forms Volunteer fire companies. Ez forms   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Ez forms   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Ez forms In this event, your organization should file Form 1023. Ez forms Homeowners' associations. Ez forms   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Ez forms The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Ez forms Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Ez forms Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Ez forms   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Ez forms It also must show that it does not engage in exterior maintenance of private homes. Ez forms   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Ez forms Other organizations. Ez forms   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Ez forms 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Ez forms You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Ez forms In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Ez forms Submit any additional information that may be required, as described in this section. Ez forms Tax treatment of donations. Ez forms   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Ez forms However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Ez forms For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Ez forms Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Ez forms To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Ez forms In addition, no net earnings of the organization can inure to the benefit of any member. Ez forms Composition of membership. Ez forms   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Ez forms You must show in your application that your organization has the purposes described in the preceding paragraph. Ez forms These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Ez forms Benefits to members. Ez forms   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Ez forms However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Ez forms   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Ez forms gov. Ez forms Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Ez forms For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Ez forms The term harvesting, in this case, includes fishing and related pursuits. Ez forms Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Ez forms When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Ez forms The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Ez forms The following list contains some examples of activities that show an agricultural or horticultural purpose. Ez forms Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Ez forms Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Ez forms Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Ez forms Guarding the purity of a specific breed of livestock. Ez forms Encouraging improvements in the production of fish on privately owned fish farms. Ez forms Negotiating with processors for the price to be paid to members for their crops. Ez forms For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Ez forms gov. Ez forms 501(c)(6) - Business Leagues, etc. Ez forms If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Ez forms For a discussion of the procedure to follow, see chapter 1. Ez forms Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Ez forms In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Ez forms It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Ez forms A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Ez forms Trade associations and professional associations are considered business leagues. Ez forms Chamber of commerce. Ez forms   A chamber of commerce usually is composed of the merchants and traders of a city. Ez forms Board of trade. Ez forms   A board of trade often consists of persons engaged in similar lines of business. Ez forms For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Ez forms   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Ez forms Real estate board. Ez forms   A real estate board consists of members interested in improving the business conditions in the real estate field. Ez forms It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Ez forms Professional football leagues. Ez forms   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Ez forms They are exempt whether or not they administer a pension fund for football players. Ez forms General purpose. Ez forms   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Ez forms It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Ez forms Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Ez forms Line of business. Ez forms   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Ez forms It does not include a group composed of businesses that market a particular brand within an industry. Ez forms Common business interest. Ez forms   A common business interest of all members of the organization must be established by the application documents. Ez forms Examples. Ez forms   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Ez forms Improvement of business conditions. Ez forms   Generally, this must be shown to be the purpose of the organization. Ez forms This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Ez forms Stock or commodity exchange. Ez forms   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Ez forms Legislative activity. Ez forms   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Ez forms Deduction not allowed for dues used for political or legislative activities. Ez forms   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Ez forms Influencing legislation. Ez forms Participating or intervening in a political campaign for, or against, any candidate for public office. Ez forms Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Ez forms Communicating directly with certain executive branch officials to try to influence their official actions or positions. Ez forms See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Ez forms Exception for local legislation. Ez forms   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Ez forms Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Ez forms De minimis exception. Ez forms   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Ez forms Grass roots lobbying. Ez forms   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Ez forms Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Ez forms Tax treatment of donations. Ez forms   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Ez forms They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Ez forms   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Ez forms gov. Ez forms 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Ez forms In applying for recognition of exemption, you should submit the information described in this section. Ez forms Also see chapter 1 for the procedures to follow. Ez forms Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Ez forms Discrimination prohibited. Ez forms   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Ez forms   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Ez forms Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Ez forms Private benefit prohibited. Ez forms   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Ez forms For purposes of this requirement, it is not necessary that net earnings be actually distributed. Ez forms Even undistributed earnings can benefit members. Ez forms Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Ez forms However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Ez forms Purposes. Ez forms   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Ez forms You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Ez forms   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Ez forms A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Ez forms   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Ez forms For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Ez forms Limited membership. Ez forms   The membership in a social club must be limited. Ez forms To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Ez forms   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Ez forms Corporate members of a club are not the kind of members contemplated by the law. Ez forms Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Ez forms See Gross receipts from nonmembership sources , later. Ez forms Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Ez forms   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Ez forms However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Ez forms Support. Ez forms   In general, your club should be supported solely by membership fees, dues, and assessments. Ez forms However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Ez forms Business activities. Ez forms   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Ez forms However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Ez forms Facilities open to public. Ez forms   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Ez forms This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Ez forms Gross receipts from nonmembership sources. Ez forms   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Ez forms Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Ez forms Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Ez forms If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Ez forms Gross receipts. Ez forms   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Ez forms These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Ez forms Receipts do not include initiation fees and capital contributions. Ez forms Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Ez forms Nontraditional activities. Ez forms   Activities conducted by a social club need to further its exempt purposes. Ez forms Traditional business activities are those that further a social club's exempt purposes. Ez forms Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Ez forms Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Ez forms Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Ez forms Fraternity foundations. Ez forms   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Ez forms Tax treatment of donations. Ez forms   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Ez forms 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Ez forms The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Ez forms , purposes. Ez forms The procedures to follow in applying for recognition of exemption are described in chapter 1. Ez forms If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Ez forms If so, your organization need not apply for individual recognition of exemption. Ez forms For more information, see Group Exemption Letter in chapter 1 of this publication. Ez forms Tax treatment of donations. Ez forms   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Ez forms Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Ez forms The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Ez forms Lodge system. Ez forms   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Ez forms Payment of benefits. Ez forms   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Ez forms An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Ez forms   The benefits must be limited to members and their dependents. Ez forms If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Ez forms Whole-life insurance. Ez forms   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Ez forms Reinsurance pool. Ez forms   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Ez forms Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Ez forms The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Ez forms S. Ez forms , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Ez forms The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Ez forms 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Ez forms Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Ez forms Chapter 1 describes the procedures to follow in applying for exemption. Ez forms Tax treatment of donations. Ez forms   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Ez forms Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Ez forms A local employees' association must apply for recognition of exemption by filing Form 1024. Ez forms The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Ez forms A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Ez forms Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Ez forms Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Ez forms The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Ez forms To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Ez forms Note. Ez forms Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Ez forms Notice requirement. Ez forms   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Ez forms The organization gives notice by filing Form 1024. Ez forms If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Ez forms An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Ez forms Membership. Ez forms   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Ez forms This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Ez forms   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Ez forms For example, the owner of a business whose employees are members of the association can be a member. Ez forms An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Ez forms Employees. Ez forms   Employees include individuals who became entitled to membership because they are or were employees. Ez forms For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Ez forms   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Ez forms Conversely, membership is involuntary if the designation as a member is due to employee status. Ez forms However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Ez forms An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Ez forms Payment of benefits. Ez forms   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Ez forms The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Ez forms Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Ez forms Nondiscrimination requirements. Ez forms   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Ez forms However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Ez forms   A plan meets the nondiscrimination requirements only if both of the following statements are true. Ez forms Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Ez forms The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Ez forms A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Ez forms   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Ez forms This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Ez forms   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Ez forms The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Ez forms For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Ez forms Excluded employees. Ez forms   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Ez forms These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Ez forms Highly compensated individual. Ez forms   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Ez forms Go to IRS. Ez forms gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Ez forms However, the employer can choose not to have (3) apply. Ez forms Aggregation rules. Ez forms   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Ez forms Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Ez forms Leased employees are treated as employees of the recipient. Ez forms One employee. Ez forms   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Ez forms Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Ez forms The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Ez forms A conformed copy of the plan of which the trust is a part should be attached to the application. Ez forms To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Ez forms Note. Ez forms Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Ez forms Notice requirement. Ez forms   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Ez forms The organization gives notice by filing Form 1024. Ez forms If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Ez forms An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Ez forms Types of payments. Ez forms   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Ez forms In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Ez forms Diversion of funds. Ez forms   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Ez forms Discrimination in benefits. Ez forms   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Ez forms However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Ez forms Prohibited transactions and exemption. Ez forms   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Ez forms It must file the claim on Form 1024. Ez forms The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Ez forms An authorized principal officer of your organization must make this declaration under the penalties of perjury. Ez forms   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Ez forms However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Ez forms Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Ez forms For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Ez forms 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Ez forms Benevolent life insurance associations of a purely local character and like organizations. Ez forms Mutual ditch or irrigation companies and like organizations. Ez forms Mutual or cooperative telephone companies and like organizations. Ez forms A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Ez forms The information to be provided upon application by each of these organizations is described in this section. Ez forms For information as to the procedures to follow in applying for exemption, see chapter 1. Ez forms General requirements. Ez forms   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Ez forms They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Ez forms Mutual character. Ez forms   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Ez forms They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Ez forms To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Ez forms   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Ez forms Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Ez forms The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Ez forms Membership. Ez forms   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Ez forms In a stock company, the stockholders are members. Ez forms However, a mutual life insurance organization cannot have policyholders other than its members. Ez forms Losses and expenses. Ez forms   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Ez forms Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Ez forms If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Ez forms Distributions of proceeds. Ez forms   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Ez forms Such distribution represents a refund in the costs of services rendered to the member. Ez forms The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Ez forms Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Ez forms Mutual or cooperative telephone company. Ez forms   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Ez forms Mutual or cooperative electric company. Ez forms   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Ez forms   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Ez forms Qualified pole rental. Ez forms   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Ez forms   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Ez forms The 85% requirement is applied on the basis of an annual accounting period. Ez forms Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Ez forms Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Ez forms Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Ez forms Example. Ez forms   The books of an organization reflect the following for the calendar year. Ez forms Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Ez forms   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Ez forms   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Ez forms   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Ez forms Tax treatment of donations. Ez forms   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Ez forms Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Ez forms If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Ez forms To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Ez forms If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Ez forms A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Ez forms A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Ez forms Organizations similar to local benevolent life insurance companies. Ez forms   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Ez forms However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Ez forms Burial and funeral benefit insurance organization. Ez forms   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Ez forms An organization that provides its benefits in the form of supplies and service is not a life insurance company. Ez forms Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Ez forms Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Ez forms They can serve noncontiguous areas. Ez forms Like organization. Ez forms   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Ez forms Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Ez forms 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Ez forms For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Ez forms A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Ez forms A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Ez forms The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Ez forms If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Ez forms Operating a mortuary is not permitted. Ez forms However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Ez forms How income can be used. Ez forms   You should show that your organization's earnings are or will be used only in one or more of the following ways. Ez forms To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Ez forms To buy cemetery property. Ez forms To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Ez forms No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Ez forms Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Ez forms Buying cemetery property. Ez forms   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Ez forms You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Ez forms   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Ez forms Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not