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File just state taxes online free Publication 538 - Main Content Table of Contents Accounting PeriodsCalendar Year Fiscal Year Short Tax Year Improper Tax Year Change in Tax Year Individuals Partnerships, S Corporations, and Personal Service Corporations (PSCs) Corporations (Other Than S Corporations and PSCs) Accounting MethodsSpecial methods. File just state taxes online free Hybrid method. File just state taxes online free Cash Method Accrual Method Inventories Change in Accounting Method How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File just state taxes online free Accounting Periods You must use a tax year to figure your taxable income. File just state taxes online free A tax year is an annual accounting period for keeping records and reporting income and expenses. File just state taxes online free An annual accounting period does not include a short tax year (discussed later). File just state taxes online free You can use the following tax years: A calendar year; or A fiscal year (including a 52-53-week tax year). File just state taxes online free Unless you have a required tax year, you adopt a tax year by filing your first income tax return using that tax year. File just state taxes online free A required tax year is a tax year required under the Internal Revenue Code or the Income Tax Regulations. File just state taxes online free You cannot adopt a tax year by merely: Filing an application for an extension of time to file an income tax return; Filing an application for an employer identification number (Form SS-4); or Paying estimated taxes. File just state taxes online free This section discusses: A calendar year. File just state taxes online free A fiscal year (including a period of 52 or 53 weeks). File just state taxes online free A short tax year. File just state taxes online free An improper tax year. File just state taxes online free A change in tax year. File just state taxes online free Special situations that apply to individuals. File just state taxes online free Restrictions that apply to the accounting period of a partnership, S corporation, or personal service corporation. File just state taxes online free Special situations that apply to corporations. File just state taxes online free Calendar Year A calendar year is 12 consecutive months beginning on January 1st and ending on December 31st. File just state taxes online free If you adopt the calendar year, you must maintain your books and records and report your income and expenses from January 1st through December 31st of each year. File just state taxes online free If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you obtain approval from the IRS to change it, or are otherwise allowed to change it without IRS approval. File just state taxes online free See Change in Tax Year, later. File just state taxes online free Generally, anyone can adopt the calendar year. File just state taxes online free However, you must adopt the calendar year if: You keep no books or records; You have no annual accounting period; Your present tax year does not qualify as a fiscal year; or You are required to use a calendar year by a provision in the Internal Revenue Code or the Income Tax Regulations. File just state taxes online free Fiscal Year A fiscal year is 12 consecutive months ending on the last day of any month except December 31st. File just state taxes online free If you are allowed to adopt a fiscal year, you must consistently maintain your books and records and report your income and expenses using the time period adopted. File just state taxes online free 52-53-Week Tax Year You can elect to use a 52-53-week tax year if you keep your books and records and report your income and expenses on that basis. File just state taxes online free If you make this election, your 52-53-week tax year must always end on the same day of the week. File just state taxes online free Your 52-53-week tax year must always end on: Whatever date this same day of the week last occurs in a calendar month, or Whatever date this same day of the week falls that is nearest to the last day of the calendar month. File just state taxes online free For example, if you elect a tax year that always ends on the last Monday in March, your 2012 tax year will end on March 25, 2013. File just state taxes online free Election. File just state taxes online free   To make the election for the 52-53-week tax year, attach a statement with the following information to your tax return. File just state taxes online free The month in which the new 52-53-week tax year ends. File just state taxes online free The day of the week on which the tax year always ends. File just state taxes online free The date the tax year ends. File just state taxes online free It can be either of the following dates on which the chosen day: Last occurs in the month in (1), above, or Occurs nearest to the last day of the month in (1), above. File just state taxes online free   When you figure depreciation or amortization, a 52-53-week tax year is generally considered a year of 12 calendar months. File just state taxes online free   To determine an effective date (or apply provisions of any law) expressed in terms of tax years beginning, including, or ending on the first or last day of a specified calendar month, a 52-53-week tax year is considered to: Begin on the first day of the calendar month beginning nearest to the first day of the 52-53-week tax year, and End on the last day of the calendar month ending nearest to the last day of the 52-53-week tax year. File just state taxes online free Example. File just state taxes online free Assume a tax provision applies to tax years beginning on or after July 1, 2012, which happens to be a Sunday. File just state taxes online free For this purpose, a 52-53-week tax year that begins on the last Tuesday of June, which falls on June 26, 2012, is treated as beginning on July 1, 2012. File just state taxes online free Short Tax Year A short tax year is a tax year of less than 12 months. File just state taxes online free A short period tax return may be required when you (as a taxable entity): Are not in existence for an entire tax year, or Change your accounting period. File just state taxes online free Tax on a short period tax return is figured differently for each situation. File just state taxes online free Not in Existence Entire Year Even if a taxable entity was not in existence for the entire year, a tax return is required for the time it was in existence. File just state taxes online free Requirements for filing the return and figuring the tax are generally the same as the requirements for a return for a full tax year (12 months) ending on the last day of the short tax year. File just state taxes online free Example 1. File just state taxes online free XYZ Corporation was organized on July 1, 2012. File just state taxes online free It elected the calendar year as its tax year. File just state taxes online free Therefore, its first tax return was due March 15, 2013. File just state taxes online free This short period return will cover the period from July 1, 2012, through December 31, 2012. File just state taxes online free Example 2. File just state taxes online free A calendar year corporation dissolved on July 23, 2012. File just state taxes online free Its final return is due by October 15, 2012. File just state taxes online free It will cover the short period from January 1, 2012, through July 23, 2012. File just state taxes online free Death of individual. File just state taxes online free   When an individual dies, a tax return must be filed for the decedent by the 15th day of the 4th month after the close of the individual's regular tax year. File just state taxes online free The decedent's final return will be a short period tax return that begins on January 1st, and ends on the date of death. File just state taxes online free In the case of a decedent who dies on December 31st, the last day of the regular tax year, a full calendar-year tax return is required. File just state taxes online free Example. File just state taxes online free   Agnes Green was a single, calendar year taxpayer. File just state taxes online free She died on March 6, 2012. File just state taxes online free Her final income tax return must be filed by April 15, 2013. File just state taxes online free It will cover the short period from January 1, 2012, to March 6, 2012. File just state taxes online free Figuring Tax for Short Year If the IRS approves a change in your tax year or you are required to change your tax year, you must figure the tax and file your return for the short tax period. File just state taxes online free The short tax period begins on the first day after the close of your old tax year and ends on the day before the first day of your new tax year. File just state taxes online free Figure tax for a short year under the general rule, explained below. File just state taxes online free You may then be able to use a relief procedure, explained later, and claim a refund of part of the tax you paid. File just state taxes online free General rule. File just state taxes online free   Income tax for a short tax year must be annualized. File just state taxes online free However, self-employment tax is figured on the actual self-employment income for the short period. File just state taxes online free Individuals. File just state taxes online free   An individual must figure income tax for the short tax year as follows. File just state taxes online free Determine your adjusted gross income (AGI) for the short tax year and then subtract your actual itemized deductions for the short tax year. File just state taxes online free You must itemize deductions when you file a short period tax return. File just state taxes online free Multiply the dollar amount of your exemptions by the number of months in the short tax year and divide the result by 12. File just state taxes online free Subtract the amount in (2) from the amount in (1). File just state taxes online free The result is your modified taxable income. File just state taxes online free Multiply the modified taxable income in (3) by 12, then divide the result by the number of months in the short tax year. File just state taxes online free The result is your annualized income. File just state taxes online free Figure the total tax on your annualized income using the appropriate tax rate schedule. File just state taxes online free Multiply the total tax by the number of months in the short tax year and divide the result by 12. File just state taxes online free The result is your tax for the short tax year. File just state taxes online free Relief procedure. File just state taxes online free   Individuals and corporations can use a relief procedure to figure the tax for the short tax year. File just state taxes online free It may result in less tax. File just state taxes online free Under this procedure, the tax is figured by two separate methods. File just state taxes online free If the tax figured under both methods is less than the tax figured under the general rule, you can file a claim for a refund of part of the tax you paid. File just state taxes online free For more information, see section 443(b)(2) of the Internal Revenue Code. File just state taxes online free Alternative minimum tax. File just state taxes online free   To figure the alternative minimum tax (AMT) due for a short tax year: Figure the annualized alternative minimum taxable income (AMTI) for the short tax period by completing the following steps. File just state taxes online free Multiply the AMTI by 12. File just state taxes online free Divide the result by the number of months in the short tax year. File just state taxes online free Multiply the annualized AMTI by the appropriate rate of tax under section 55(b)(1) of the Internal Revenue Code. File just state taxes online free The result is the annualized AMT. File just state taxes online free Multiply the annualized AMT by the number of months in the short tax year and divide the result by 12. File just state taxes online free   For information on the AMT for individuals, see the Instructions for Form 6251, Alternative Minimum Tax–Individuals. File just state taxes online free For information on the AMT for corporations, see the Instructions to Form 4626, Alternative Minimum Tax–Corporations. File just state taxes online free Tax withheld from wages. File just state taxes online free   You can claim a credit against your income tax liability for federal income tax withheld from your wages. File just state taxes online free Federal income tax is withheld on a calendar year basis. File just state taxes online free The amount withheld in any calendar year is allowed as a credit for the tax year beginning in the calendar year. File just state taxes online free Improper Tax Year Taxpayers that have adopted an improper tax year must change to a proper tax year. File just state taxes online free For example, if a taxpayer began business on March 15 and adopted a tax year ending on March 14 (a period of exactly 12 months), this would be an improper tax year. File just state taxes online free See Accounting Periods, earlier, for a description of permissible tax years. File just state taxes online free To change to a proper tax year, you must do one of the following. File just state taxes online free If you are requesting a change to a calendar tax year, file an amended income tax return based on a calendar tax year that corrects the most recently filed tax return that was filed on the basis of an improper tax year. File just state taxes online free Attach a completed Form 1128 to the amended tax return. File just state taxes online free Write “FILED UNDER REV. File just state taxes online free PROC. File just state taxes online free 85-15” at the top of Form 1128 and file the forms with the Internal Revenue Service Center where you filed your original return. File just state taxes online free If you are requesting a change to a fiscal tax year, file Form 1128 in accordance with the form instructions to request IRS approval for the change. File just state taxes online free Change in Tax Year Generally, you must file Form 1128 to request IRS approval to change your tax year. File just state taxes online free See the Instructions for Form 1128 for exceptions. File just state taxes online free If you qualify for an automatic approval request, a user fee is not required. File just state taxes online free Individuals Generally, individuals must adopt the calendar year as their tax year. File just state taxes online free An individual can adopt a fiscal year provided that the individual maintains his or her books and records on the basis of the adopted fiscal year. File just state taxes online free Partnerships, S Corporations, and Personal Service Corporations (PSCs) Generally, partnerships, S corporations (including electing S corporations), and PSCs must use a required tax year. File just state taxes online free A required tax year is a tax year that is required under the Internal Revenue Code and Income Tax Regulations. File just state taxes online free The entity does not have to use the required tax year if it receives IRS approval to use another permitted tax year or makes an election under section 444 of the Internal Revenue Code (discussed later). File just state taxes online free The following discussions provide the rules for partnerships, S corporations, and PSCs. File just state taxes online free Partnership A partnership must conform its tax year to its partners' tax years unless any of the following apply. File just state taxes online free The partnership makes an election under section 444 of the Internal Revenue Code to have a tax year other than a required tax year by filing Form 8716. File just state taxes online free The partnership elects to use a 52-53-week tax year that ends with reference to either its required tax year or a tax year elected under section 444. File just state taxes online free The partnership can establish a business purpose for a different tax year. File just state taxes online free The rules for the required tax year for partnerships are as follows. File just state taxes online free If one or more partners having the same tax year own a majority interest (more than 50%) in partnership profits and capital, the partnership must use the tax year of those partners. File just state taxes online free If there is no majority interest tax year, the partnership must use the tax year of all its principal partners. File just state taxes online free A principal partner is one who has a 5% or more interest in the profits or capital of the partnership. File just state taxes online free If there is no majority interest tax year and the principal partners do not have the same tax year, the partnership generally must use a tax year that results in the least aggregate deferral of income to the partners. File just state taxes online free If a partnership changes to a required tax year because of these rules, it can get automatic approval by filing Form 1128. File just state taxes online free Least aggregate deferral of income. File just state taxes online free   The tax year that results in the least aggregate deferral of income is determined as follows. File just state taxes online free Figure the number of months of deferral for each partner using one partner's tax year. File just state taxes online free Find the months of deferral by counting the months from the end of that tax year forward to the end of each other partner's tax year. File just state taxes online free Multiply each partner's months of deferral figured in step (1) by that partner's share of interest in the partnership profits for the year used in step (1). File just state taxes online free Add the amounts in step (2) to get the aggregate (total) deferral for the tax year used in step (1). File just state taxes online free Repeat steps (1) through (3) for each partner's tax year that is different from the other partners' years. File just state taxes online free   The partner's tax year that results in the lowest aggregate (total) number is the tax year that must be used by the partnership. File just state taxes online free If the calculation results in more than one tax year qualifying as the tax year with the least aggregate deferral, the partnership can choose any one of those tax years as its tax year. File just state taxes online free However, if one of the tax years that qualifies is the partnership's existing tax year, the partnership must retain that tax year. File just state taxes online free Example. File just state taxes online free A and B each have a 50% interest in partnership P, which uses a fiscal year ending June 30. File just state taxes online free A uses the calendar year and B uses a fiscal year ending November 30. File just state taxes online free P must change its tax year to a fiscal year ending November 30 because this results in the least aggregate deferral of income to the partners, as shown in the following table. File just state taxes online free Year End 12/31: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. File just state taxes online free 5 -0- -0- B 11/30 0. File just state taxes online free 5 11 5. File just state taxes online free 5 Total Deferral 5. File just state taxes online free 5 Year End 11/30: Year End Profits Interest Months of Deferral Interest × Deferral A 12/31 0. File just state taxes online free 5 1 0. File just state taxes online free 5 B 11/30 0. File just state taxes online free 5 -0- -0- Total Deferral 0. File just state taxes online free 5 When determination is made. File just state taxes online free   The determination of the tax year under the least aggregate deferral rules must generally be made at the beginning of the partnership's current tax year. File just state taxes online free However, the IRS can require the partnership to use another day or period that will more accurately reflect the ownership of the partnership. File just state taxes online free This could occur, for example, if a partnership interest was transferred for the purpose of qualifying for a particular tax year. File just state taxes online free Short period return. File just state taxes online free   When a partnership changes its tax year, a short period return must be filed. File just state taxes online free The short period return covers the months between the end of the partnership's prior tax year and the beginning of its new tax year. File just state taxes online free   If a partnership changes to the tax year resulting in the least aggregate deferral, it must file a Form 1128 with the short period return showing the computations used to determine that tax year. File just state taxes online free The short period return must indicate at the top of page 1, “FILED UNDER SECTION 1. File just state taxes online free 706-1. File just state taxes online free ” More information. File just state taxes online free   For more information about changing a partnership's tax year, and information about ruling requests, see the Instructions for Form 1128. File just state taxes online free S Corporation All S corporations, regardless of when they became an S corporation, must use a permitted tax year. File just state taxes online free A permitted tax year is any of the following. File just state taxes online free The calendar year. File just state taxes online free A tax year elected under section 444 of the Internal Revenue Code. File just state taxes online free See Section 444 Election, below for details. File just state taxes online free A 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. File just state taxes online free Any other tax year for which the corporation establishes a business purpose. File just state taxes online free If an electing S corporation wishes to adopt a tax year other than a calendar year, it must request IRS approval using Form 2553, instead of filing Form 1128. File just state taxes online free For information about changing an S corporation's tax year and information about ruling requests, see the Instructions for Form 1128. File just state taxes online free Personal Service Corporation (PSC) A PSC must use a calendar tax year unless any of the following apply. File just state taxes online free The corporation makes an election under section 444 of the Internal Revenue Code. File just state taxes online free See Section 444 Election, below for details. File just state taxes online free The corporation elects to use a 52-53-week tax year ending with reference to the calendar year or a tax year elected under section 444. File just state taxes online free The corporation establishes a business purpose for a fiscal year. File just state taxes online free See the Instructions for Form 1120 for general information about PSCs. File just state taxes online free For information on adopting or changing tax years for PSCs and information about ruling requests, see the Instructions for Form 1128. File just state taxes online free Section 444 Election A partnership, S corporation, electing S corporation, or PSC can elect under section 444 of the Internal Revenue Code to use a tax year other than its required tax year. File just state taxes online free Certain restrictions apply to the election. File just state taxes online free A partnership or an S corporation that makes a section 444 election must make certain required payments and a PSC must make certain distributions (discussed later). File just state taxes online free The section 444 election does not apply to any partnership, S corporation, or PSC that establishes a business purpose for a different period, explained later. File just state taxes online free A partnership, S corporation, or PSC can make a section 444 election if it meets all the following requirements. File just state taxes online free It is not a member of a tiered structure (defined in section 1. File just state taxes online free 444-2T of the regulations). File just state taxes online free It has not previously had a section 444 election in effect. File just state taxes online free It elects a year that meets the deferral period requirement. File just state taxes online free Deferral period. File just state taxes online free   The determination of the deferral period depends on whether the partnership, S corporation, or PSC is retaining its tax year or adopting or changing its tax year with a section 444 election. File just state taxes online free Retaining tax year. File just state taxes online free   Generally, a partnership, S corporation, or PSC can make a section 444 election to retain its tax year only if the deferral period of the new tax year is 3 months or less. File just state taxes online free This deferral period is the number of months between the beginning of the retained year and the close of the first required tax year. File just state taxes online free Adopting or changing tax year. File just state taxes online free   If the partnership, S corporation, or PSC is adopting or changing to a tax year other than its required year, the deferral period is the number of months from the end of the new tax year to the end of the required tax year. File just state taxes online free The IRS will allow a section 444 election only if the deferral period of the new tax year is less than the shorter of: Three months, or The deferral period of the tax year being changed. File just state taxes online free This is the tax year immediately preceding the year for which the partnership, S corporation, or PSC wishes to make the section 444 election. File just state taxes online free If the partnership, S corporation, or PSC's tax year is the same as its required tax year, the deferral period is zero. File just state taxes online free Example 1. File just state taxes online free BD Partnership uses a calendar year, which is also its required tax year. File just state taxes online free BD cannot make a section 444 election because the deferral period is zero. File just state taxes online free Example 2. File just state taxes online free E, a newly formed partnership, began operations on December 1. File just state taxes online free E is owned by calendar year partners. File just state taxes online free E wants to make a section 444 election to adopt a September 30 tax year. File just state taxes online free E's deferral period for the tax year beginning December 1 is 3 months, the number of months between September 30 and December 31. File just state taxes online free Making the election. File just state taxes online free   Make a section 444 election by filing Form 8716 with the Internal Revenue Service Center where the entity will file its tax return. File just state taxes online free Form 8716 must be filed by the earlier of: The due date (not including extensions) of the income tax return for the tax year resulting from the section 444 election, or The 15th day of the 6th month of the tax year for which the election will be effective. File just state taxes online free For this purpose, count the month in which the tax year begins, even if it begins after the first day of that month. File just state taxes online free Note. File just state taxes online free If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. File just state taxes online free   Attach a copy of Form 8716 to Form 1065, Form 1120S, or Form 1120 for the first tax year for which the election is made. File just state taxes online free Example 1. File just state taxes online free AB, a partnership, begins operations on September 13, 2012, and is qualified to make a section 444 election to use a September 30 tax year for its tax year beginning September 13, 2012. File just state taxes online free AB must file Form 8716 by January 15, 2013, which is the due date of the partnership's tax return for the period from September 13, 2012, to September 30, 2012. File just state taxes online free Example 2. File just state taxes online free The facts are the same as in Example 1 except that AB begins operations on October 21, 2012. File just state taxes online free AB must file Form 8716 by March 17, 2013. File just state taxes online free Example 3. File just state taxes online free B is a corporation that first becomes a PSC for its tax year beginning September 1, 2012. File just state taxes online free B qualifies to make a section 444 election to use a September 30 tax year for its tax year beginning September 1, 2012. File just state taxes online free B must file Form 8716 by December 17, 2012, the due date of the income tax return for the short period from September 1, 2012, to September 30, 2012. File just state taxes online free Note. File just state taxes online free The due dates in Examples 2 and 3 are adjusted because the dates fall on a Saturday, Sunday or legal holiday. File just state taxes online free Extension of time for filing. File just state taxes online free   There is an automatic extension of 12 months to make this election. File just state taxes online free See the Form 8716 instructions for more information. File just state taxes online free Terminating the election. File just state taxes online free   The section 444 election remains in effect until it is terminated. File just state taxes online free If the election is terminated, another section 444 election cannot be made for any tax year. File just state taxes online free   The election ends when any of the following applies to the partnership, S corporation, or PSC. File just state taxes online free The entity changes to its required tax year. File just state taxes online free The entity liquidates. File just state taxes online free The entity becomes a member of a tiered structure. File just state taxes online free The IRS determines that the entity willfully failed to comply with the required payments or distributions. File just state taxes online free   The election will also end if either of the following events occur. File just state taxes online free An S corporation's S election is terminated. File just state taxes online free However, if the S corporation immediately becomes a PSC, the PSC can continue the section 444 election of the S corporation. File just state taxes online free A PSC ceases to be a PSC. File just state taxes online free If the PSC elects to be an S corporation, the S corporation can continue the election of the PSC. File just state taxes online free Required payment for partnership or S corporation. File just state taxes online free   A partnership or an S corporation must make a required payment for any tax year: The section 444 election is in effect. File just state taxes online free The required payment for that year (or any preceding tax year) is more than $500. File just state taxes online free    This payment represents the value of the tax deferral the owners receive by using a tax year different from the required tax year. File just state taxes online free   Form 8752, Required Payment or Refund Under Section 7519, must be filed each year the section 444 election is in effect, even if no payment is due. File just state taxes online free If the required payment is more than $500 (or the required payment for any prior year was more than $500), the payment must be made when Form 8752 is filed. File just state taxes online free If the required payment is $500 or less and no payment was required in a prior year, Form 8752 must be filed showing a zero amount. File just state taxes online free Applicable election year. File just state taxes online free   Any tax year a section 444 election is in effect, including the first year, is called an applicable election year. File just state taxes online free Form 8752 must be filed and the required payment made (or zero amount reported) by May 15th of the calendar year following the calendar year in which the applicable election year begins. File just state taxes online free Required distribution for PSC. File just state taxes online free   A PSC with a section 444 election in effect must distribute certain amounts to employee-owners by December 31 of each applicable year. File just state taxes online free If it fails to make these distributions, it may be required to defer certain deductions for amounts paid to owner-employees. File just state taxes online free The amount deferred is treated as paid or incurred in the following tax year. File just state taxes online free   For information on the minimum distribution, see the instructions for Part I of Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC). File just state taxes online free Back-up election. File just state taxes online free   A partnership, S corporation, or PSC can file a back-up section 444 election if it requests (or plans to request) permission to use a business purpose tax year, discussed later. File just state taxes online free If the request is denied, the back-up section 444 election must be activated (if the partnership, S corporation, or PSC otherwise qualifies). File just state taxes online free Making back-up election. File just state taxes online free   The general rules for making a section 444 election, as discussed earlier, apply. File just state taxes online free When filing Form 8716, type or print “BACK-UP ELECTION” at the top of the form. File just state taxes online free However, if Form 8716 is filed on or after the date Form 1128 (or Form 2553) is filed, type or print “FORM 1128 (or FORM 2553) BACK-UP ELECTION” at the top of Form 8716. File just state taxes online free Activating election. File just state taxes online free   A partnership or S corporation activates its back-up election by filing the return required and making the required payment with Form 8752. File just state taxes online free The due date for filing Form 8752 and making the payment is the later of the following dates. File just state taxes online free May 15 of the calendar year following the calendar year in which the applicable election year begins. File just state taxes online free 60 days after the partnership or S corporation has been notified by the IRS that the business year request has been denied. File just state taxes online free   A PSC activates its back-up election by filing Form 8716 with its original or amended income tax return for the tax year in which the election is first effective and printing on the top of the income tax return, “ACTIVATING BACK-UP ELECTION. File just state taxes online free ” 52-53-Week Tax Year A partnership, S corporation, or PSC can use a tax year other than its required tax year if it elects a 52-53-week tax year (discussed earlier) that ends with reference to either its required tax year or a tax year elected under section 444 (discussed earlier). File just state taxes online free A newly formed partnership, S corporation, or PSC can adopt a 52-53-week tax year ending with reference to either its required tax year or a tax year elected under section 444 without IRS approval. File just state taxes online free However, if the entity wishes to change to a 52-53-week tax year or change from a 52-53-week tax year that references a particular month to a non-52-53-week tax year that ends on the last day of that month, it must request IRS approval by filing Form 1128. File just state taxes online free Business Purpose Tax Year A partnership, S corporation, or PSC establishes the business purpose for a tax year by filing Form 1128. File just state taxes online free See the Instructions for Form 1128 for details. File just state taxes online free Corporations (Other Than S Corporations and PSCs) A new corporation establishes its tax year when it files its first tax return. File just state taxes online free A newly reactivated corporation that has been inactive for a number of years is treated as a new taxpayer for the purpose of adopting a tax year. File just state taxes online free An S corporation or a PSC must use the required tax year rules, discussed earlier, to establish a tax year. File just state taxes online free Generally, a corporation that wants to change its tax year must obtain approval from the IRS under either the: (a) automatic approval procedures; or (b) ruling request procedures. File just state taxes online free See the Instructions for Form 1128 for details. File just state taxes online free Accounting Methods An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. File just state taxes online free Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. File just state taxes online free You choose an accounting method when you file your first tax return. File just state taxes online free If you later want to change your accounting method, you must get IRS approval. File just state taxes online free See Change in Accounting Method, later. File just state taxes online free No single accounting method is required of all taxpayers. File just state taxes online free You must use a system that clearly reflects your income and expenses and you must maintain records that will enable you to file a correct return. File just state taxes online free In addition to your permanent accounting books, you must keep any other records necessary to support the entries on your books and tax returns. File just state taxes online free You must use the same accounting method from year to year. File just state taxes online free An accounting method clearly reflects income only if all items of gross income and expenses are treated the same from year to year. File just state taxes online free If you do not regularly use an accounting method that clearly reflects your income, your income will be refigured under the method that, in the opinion of the IRS, does clearly reflect income. File just state taxes online free Methods you can use. File just state taxes online free   In general, you can compute your taxable income under any of the following accounting methods. File just state taxes online free Cash method. File just state taxes online free Accrual method. File just state taxes online free Special methods of accounting for certain items of income and expenses. File just state taxes online free A hybrid method which combines elements of two or more of the above accounting methods. File just state taxes online free The cash and accrual methods of accounting are explained later. File just state taxes online free Special methods. File just state taxes online free   This publication does not discuss special methods of accounting for certain items of income or expenses. File just state taxes online free For information on reporting income using one of the long-term contract methods, see section 460 of the Internal Revenue Code and the related regulations. File just state taxes online free The following publications also discuss special methods of reporting income or expenses. File just state taxes online free Publication 225, Farmer's Tax Guide. File just state taxes online free Publication 535, Business Expenses. File just state taxes online free Publication 537, Installment Sales. File just state taxes online free Publication 946, How To Depreciate Property. File just state taxes online free Hybrid method. File just state taxes online free   Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly reflects your income and you use it consistently. File just state taxes online free However, the following restrictions apply. File just state taxes online free If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales. File just state taxes online free See Exceptions under Inventories, later. File just state taxes online free Generally, you can use the cash method for all other items of income and expenses. File just state taxes online free See Inventories, later. File just state taxes online free If you use the cash method for reporting your income, you must use the cash method for reporting your expenses. File just state taxes online free If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. File just state taxes online free Any combination that includes the cash method is treated as the cash method for purposes of section 448 of the Internal Revenue Code. File just state taxes online free Business and personal items. File just state taxes online free   You can account for business and personal items using different accounting methods. File just state taxes online free For example, you can determine your business income and expenses under an accrual method, even if you use the cash method to figure personal items. File just state taxes online free Two or more businesses. File just state taxes online free   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. File just state taxes online free No business is separate and distinct, unless a complete and separate set of books and records is maintained for each business. File just state taxes online free Note. File just state taxes online free If you use different accounting methods to create or shift profits or losses between businesses (for example, through inventory adjustments, sales, purchases, or expenses) so that income is not clearly reflected, the businesses will not be considered separate and distinct. File just state taxes online free Cash Method Most individuals and many small businesses use the cash method of accounting. File just state taxes online free Generally, if you produce, purchase, or sell merchandise, you must keep an inventory and use an accrual method for sales and purchases of merchandise. File just state taxes online free See Inventories, later, for exceptions to this rule. File just state taxes online free Income Under the cash method, you include in your gross income all items of income you actually or constructively receive during the tax year. File just state taxes online free If you receive property and services, you must include their fair market value (FMV) in income. File just state taxes online free Constructive receipt. File just state taxes online free   Income is constructively received when an amount is credited to your account or made available to you without restriction. File just state taxes online free You need not have possession of it. File just state taxes online free If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. File just state taxes online free Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. File just state taxes online free Example. File just state taxes online free You are a calendar year taxpayer. File just state taxes online free Your bank credited, and made available, interest to your bank account in December 2012. File just state taxes online free You did not withdraw it or enter it into your books until 2013. File just state taxes online free You must include the amount in gross income for 2012, the year you constructively received it. File just state taxes online free You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. File just state taxes online free You must report the income in the year the property is received or made available to you without restriction. File just state taxes online free Expenses Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them. File just state taxes online free This includes business expenses for which you contest liability. File just state taxes online free However, you may not be able to deduct an expense paid in advance. File just state taxes online free Instead, you may be required to capitalize certain costs, as explained later under Uniform Capitalization Rules. File just state taxes online free Expense paid in advance. File just state taxes online free   An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. File just state taxes online free   Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. File just state taxes online free 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. File just state taxes online free   If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must obtain approval from the IRS before using the general rule and/or the 12-month rule. File just state taxes online free See Change in Accounting Method, later. File just state taxes online free Example 1. File just state taxes online free You are a calendar year taxpayer and pay $3,000 in 2012 for a business insurance policy that is effective for three years (36 months), beginning on July 1, 2012. File just state taxes online free The general rule that an expense paid in advance is deductible only in the year to which it applies is applicable to this payment because the payment does not qualify for the 12-month rule. File just state taxes online free Therefore, only $500 (6/36 x $3,000) is deductible in 2012, $1,000 (12/36 x $3,000) is deductible in 2013, $1,000 (12/36 x $3,000) is deductible in 2014, and the remaining $500 is deductible in 2015. File just state taxes online free Example 2. File just state taxes online free You are a calendar year taxpayer and pay $10,000 on July 1, 2012, for a business insurance policy that is effective for only one year beginning on July 1, 2012. File just state taxes online free The 12-month rule applies. File just state taxes online free Therefore, the full $10,000 is deductible in 2012. File just state taxes online free Excluded Entities The following entities cannot use the cash method, including any combination of methods that includes the cash method. File just state taxes online free (See Special rules for farming businesses, later. File just state taxes online free ) A corporation (other than an S corporation) with average annual gross receipts exceeding $5 million. File just state taxes online free See Gross receipts test, below. File just state taxes online free A partnership with a corporation (other than an S corporation) as a partner, and with the partnership having average annual gross receipts exceeding $5 million. File just state taxes online free See Gross receipts test, below. File just state taxes online free A tax shelter. File just state taxes online free Exceptions The following entities are not prohibited from using the cash method of accounting. File just state taxes online free Any corporation or partnership, other than a tax shelter, that meets the gross receipts test for all tax years after 1985. File just state taxes online free A qualified personal service corporation (PSC). File just state taxes online free Gross receipts test. File just state taxes online free   A corporation or partnership, other than a tax shelter, that meets the gross receipts test can generally use the cash method. File just state taxes online free A corporation or a partnership meets the test if, for each prior tax year beginning after 1985, its average annual gross receipts are $5 million or less. File just state taxes online free    An entity's average annual gross receipts for a prior tax year is determined by: Adding the gross receipts for that tax year and the 2 preceding tax years; and Dividing the total by 3. File just state taxes online free See Gross receipts test for qualifying taxpayers, for more information. File just state taxes online free Generally, a partnership applies the test at the partnership level. File just state taxes online free Gross receipts for a short tax year are annualized. File just state taxes online free Aggregation rules. File just state taxes online free   Organizations that are members of an affiliated service group or a controlled group of corporations treated as a single employer for tax purposes are required to aggregate their gross receipts to determine whether the gross receipts test is met. File just state taxes online free Change to accrual method. File just state taxes online free   A corporation or partnership that fails to meet the gross receipts test for any tax year is prohibited from using the cash method and must change to an accrual method of accounting, effective for the tax year in which the entity fails to meet this test. File just state taxes online free Special rules for farming businesses. File just state taxes online free   Generally, a taxpayer engaged in the trade or business of farming is allowed to use the cash method for its farming business. File just state taxes online free However, certain corporations (other than S corporations) and partnerships that have a partner that is a corporation must use an accrual method for their farming business. File just state taxes online free For this purpose, farming does not include the operation of a nursery or sod farm or the raising or harvesting of trees (other than fruit and nut trees). File just state taxes online free   There is an exception to the requirement to use an accrual method for corporations with gross receipts of $1 million or less for each prior tax year after 1975. File just state taxes online free For family corporations engaged in farming, the exception applies if gross receipts were $25 million or less for each prior tax year after 1985. File just state taxes online free See chapter 2 of Publication 225, Farmer's Tax Guide, for more information. File just state taxes online free Qualified PSC. File just state taxes online free   A PSC that meets the following function and ownership tests can use the cash method. File just state taxes online free Function test. File just state taxes online free   A corporation meets the function test if at least 95% of its activities are in the performance of services in the fields of health, veterinary services, law, engineering (including surveying and mapping), architecture, accounting, actuarial science, performing arts, or consulting. File just state taxes online free Ownership test. File just state taxes online free   A corporation meets the ownership test if at least 95% of its stock is owned, directly or indirectly, at all times during the year by one or more of the following. File just state taxes online free Employees performing services for the corporation in a field qualifying under the function test. File just state taxes online free Retired employees who had performed services in those fields. File just state taxes online free The estate of an employee described in (1) or (2). File just state taxes online free Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death. File just state taxes online free   Indirect ownership is generally taken into account if the stock is owned indirectly through one or more partnerships, S corporations, or qualified PSCs. File just state taxes online free Stock owned by one of these entities is considered owned by the entity's owners in proportion to their ownership interest in that entity. File just state taxes online free Other forms of indirect stock ownership, such as stock owned by family members, are generally not considered when determining if the ownership test is met. File just state taxes online free   For purposes of the ownership test, a person is not considered an employee of a corporation unless that person performs more than minimal services for the corporation. File just state taxes online free Change to accrual method. File just state taxes online free   A corporation that fails to meet the function test for any tax year; or fails to meet the ownership test at any time during any tax year must change to an accrual method of accounting, effective for the year in which the corporation fails to meet either test. File just state taxes online free A corporation that fails to meet the function test or the ownership test is not treated as a qualified PSC for any part of that tax year. File just state taxes online free Accrual Method Under the accrual method of accounting, generally you report income in the year it is earned and deduct or capitalize expenses in the year incurred. File just state taxes online free The purpose of an accrual method of accounting is to match income and expenses in the correct year. File just state taxes online free Income Generally, you include an amount in gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy. File just state taxes online free Under this rule, you report an amount in your gross income on the earliest of the following dates. File just state taxes online free When you receive payment. File just state taxes online free When the income amount is due to you. File just state taxes online free When you earn the income. File just state taxes online free When title has passed. File just state taxes online free Estimated income. File just state taxes online free   If you include a reasonably estimated amount in gross income and later determine the exact amount is different, take the difference into account in the tax year you make that determination. File just state taxes online free Change in payment schedule. File just state taxes online free   If you perform services for a basic rate specified in a contract, you must accrue the income at the basic rate, even if you agree to receive payments at a reduced rate. File just state taxes online free Continue this procedure until you complete the services, then account for the difference. File just state taxes online free Advance Payment for Services Generally, you report an advance payment for services to be performed in a later tax year as income in the year you receive the payment. File just state taxes online free However, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can elect to postpone including the advance payment in income until the next tax year. File just state taxes online free However, you cannot postpone including any payment beyond that tax year. File just state taxes online free Service agreement. File just state taxes online free   You can postpone reporting income from an advance payment you receive for a service agreement on property you sell, lease, build, install, or construct. File just state taxes online free This includes an agreement providing for incidental replacement of parts or materials. File just state taxes online free However, this applies only if you offer the property without a service agreement in the normal course of business. File just state taxes online free Postponement not allowed. File just state taxes online free   Generally, one cannot postpone including an advance payment in income for services if either of the following applies. File just state taxes online free You are to perform any part of the service after the end of the tax year immediately following the year you receive the advance payment. File just state taxes online free You are to perform any part of the service at any unspecified future date that may be after the end of the tax year immediately following the year you receive the advance payment. File just state taxes online free Examples. File just state taxes online free   In each of the following examples, assume the tax year is a calendar year and that the accrual method of accounting is used. File just state taxes online free Example 1. File just state taxes online free You manufacture, sell, and service computers. File just state taxes online free You received payment in 2012 for a one-year contingent service contract on a computer you sold. File just state taxes online free You can postpone including in income the part of the payment you did not earn in 2012 if, in the normal course of your business, you offer computers for sale without a contingent service contract. File just state taxes online free Example 2. File just state taxes online free You are in the television repair business. File just state taxes online free You received payments in 2012 for one-year contracts under which you agree to repair or replace certain parts that fail to function properly in television sets manufactured and sold by unrelated parties. File just state taxes online free You include the payments in gross income as you earn them. File just state taxes online free Example 3. File just state taxes online free You own a dance studio. File just state taxes online free On October 1, 2012, you receive payment for a one-year contract for 48 one-hour lessons beginning on that date. File just state taxes online free You give eight lessons in 2012. File just state taxes online free Under this method of including advance payments, you must include one-sixth (8/48) of the payment in income for 2012, and five-sixths (40/48) of the payment in 2013, even if you do not give all the lessons by the end of 2013. File just state taxes online free Example 4. File just state taxes online free Assume the same facts as in Example 3, except the payment is for a two-year contract for 96 lessons. File just state taxes online free You must include the entire payment in income in 2012 since part of the services may be performed after the following year. File just state taxes online free Guarantee or warranty. File just state taxes online free   Generally, you cannot postpone reporting income you receive under a guarantee or warranty contract. File just state taxes online free Prepaid rent. File just state taxes online free   You cannot postpone reporting income from prepaid rent. File just state taxes online free Prepaid rent does not include payment for the use of a room or other space when significant service is also provided for the occupant. File just state taxes online free You provide significant service when you supply space in a hotel, boarding house, tourist home, motor court, motel, or apartment house that furnishes hotel services. File just state taxes online free Books and records. File just state taxes online free   Any advance payment you include in gross receipts on your tax return for the year you receive payment must not be less than the payment you include in income for financial reports under the method of accounting used for those reports. File just state taxes online free Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. File just state taxes online free IRS approval. File just state taxes online free   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payment for services. File just state taxes online free Advance Payment for Sales Special rules apply to including income from advance payments on agreements for future sales or other dispositions of goods held primarily for sale to customers in the ordinary course of your trade or business. File just state taxes online free However, the rules do not apply to a payment (or part of a payment) for services that are not an integral part of the main activities covered under the agreement. File just state taxes online free An agreement includes a gift certificate that can be redeemed for goods. File just state taxes online free Amounts due and payable are considered received. File just state taxes online free How to report payments. File just state taxes online free   Generally, include an advance payment in income in the year in which you receive it. File just state taxes online free However, you can use the alternative method, discussed next. File just state taxes online free Alternative method of reporting. File just state taxes online free   Under the alternative method, generally include an advance payment in income in the earlier tax year in which you: Include advance payments in gross receipts under the method of accounting you use for tax purposes, or Include any part of advance payments in income for financial reports under the method of accounting used for those reports. File just state taxes online free Financial reports include reports to shareholders, partners, beneficiaries, and other proprietors for credit purposes and consolidated financial statements. File just state taxes online free Example 1. File just state taxes online free You are a retailer. File just state taxes online free You use an accrual method of accounting and account for the sale of goods when you ship the goods. File just state taxes online free You use this method for both tax and financial reporting purposes. File just state taxes online free You can include advance payments in gross receipts for tax purposes in either: (a) the tax year in which you receive the payments; or (b) the tax year in which you ship the goods. File just state taxes online free However, see Exception for inventory goods, later. File just state taxes online free Example 2. File just state taxes online free You are a calendar year taxpayer. File just state taxes online free You manufacture household furniture and use an accrual method of accounting. File just state taxes online free Under this method, you accrue income for your financial reports when you ship the furniture. File just state taxes online free For tax purposes, you do not accrue income until the furniture has been delivered and accepted. File just state taxes online free In 2012, you received an advance payment of $8,000 for an order of furniture to be manufactured for a total price of $20,000. File just state taxes online free You shipped the furniture to the customer in December 2012, but it was not delivered and accepted until January 2013. File just state taxes online free For tax purposes, you include the $8,000 advance payment in gross income for 2012; and include the remaining $12,000 of the contract price in gross income for 2013. File just state taxes online free Information schedule. File just state taxes online free   If you use the alternative method of reporting advance payments, you must attach a statement with the following information to your tax return each year. File just state taxes online free Total advance payments received in the current tax year. File just state taxes online free Total advance payments received in earlier tax years and not included in income before the current tax year. File just state taxes online free Total payments received in earlier tax years included in income for the current tax year. File just state taxes online free Exception for inventory goods. File just state taxes online free   If you have an agreement to sell goods properly included in inventory, you can postpone including the advance payment in income until the end of the second tax year following the year you receive an advance payment if, on the last day of the tax year, you meet the following requirements. File just state taxes online free You account for the advance payment under the alternative method (discussed earlier). File just state taxes online free You have received a substantial advance payment on the agreement (discussed next). File just state taxes online free You have enough substantially similar goods on hand, or available through your normal source of supply, to satisfy the agreement. File just state taxes online free These rules also apply to an agreement, such as a gift certificate, that can be satisfied with goods that cannot be identified in the tax year you receive an advance payment. File just state taxes online free   If you meet these conditions, all advance payments you receive by the end of the second tax year, including payments received in prior years but not reported, must be included in income by the second tax year following the tax year of receipt of substantial advance payments. File just state taxes online free You must also deduct in that second year all actual or estimated costs for the goods required to satisfy the agreement. File just state taxes online free If you estimated the cost, you must take into account any difference between the estimate and the actual cost when the goods are delivered. File just state taxes online free Note. File just state taxes online free You must report any advance payments you receive after the second year in the year received. File just state taxes online free No further deferral is allowed. File just state taxes online free Substantial advance payments. File just state taxes online free   Under an agreement for a future sale, you have substantial advance payments if, by the end of the tax year, the total advance payments received during that year and preceding tax years are equal to or more than the total costs reasonably estimated to be includible in inventory because of the agreement. File just state taxes online free Example. File just state taxes online free You are a calendar year, accrual method taxpayer who accounts for advance payments under the alternative method. File just state taxes online free In 2008, you entered into a contract for the sale of goods properly includible in your inventory. File just state taxes online free The total contract price is $50,000 and you estimate that your total inventoriable costs for the goods will be $25,000. File just state taxes online free You receive the following advance payments under the contract. File just state taxes online free 2009 $17,500 2010 10,000 2011 7,500 2012 5,000 2013 5,000 2014 5,000 Total contract price $50,000   Your customer asked you to deliver the goods in 2015. File just state taxes online free In your 2010 closing inventory, you had on hand enough of the type of goods specified in the contract to satisfy the contract. File just state taxes online free Since the advance payments you had received by the end of 2010 were more than the costs you estimated, the payments are substantial advance payments. File just state taxes online free   For 2012, include in income all payments you received by the end of 2012, the second tax year following the tax year in which you received substantial advance payments. File just state taxes online free You must include $40,000 in sales for 2012 (the total amounts received from 2009 through 2012) and include in inventory the cost of the goods (or similar goods) on hand. File just state taxes online free If no such goods are on hand, then estimate the cost necessary to satisfy the contract. File just state taxes online free   No further deferral is allowed. File just state taxes online free You must include in gross income the advance payment you receive each remaining year of the contract. File just state taxes online free Take into account the difference between any estimated cost of goods sold and the actual cost when you deliver the goods in 2015. File just state taxes online free IRS approval. File just state taxes online free   You must file Form 3115 to obtain IRS approval to change your method of accounting for advance payments for sales. File just state taxes online free Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both the following apply. File just state taxes online free The all-events test has been met. File just state taxes online free The test is met when: All events have occurred that fix the fact of liability, and The liability can be determined with reasonable accuracy. File just state taxes online free Economic performance has occurred. File just state taxes online free Economic Performance Generally, you cannot deduct or capitalize a business expense until economic performance occurs. File just state taxes online free If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or the property is used. File just state taxes online free If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. File just state taxes online free Example. File just state taxes online free You are a calendar year taxpayer. File just state taxes online free You buy office supplies in December 2012. File just state taxes online free You receive the supplies and the bill in December, but you pay the bill in January 2013. File just state taxes online free You can deduct the expense in 2012 because all events have occurred to fix the liability, the amount of the liability can be determined, and economic performance occurred in 2012. File just state taxes online free Your office supplies may qualify as a recurring item, discussed later. File just state taxes online free If so, you can deduct them in 2012, even if the supplies are not delivered until 2013 (when economic performance occurs). File just state taxes online free Workers' compensation and tort liability. File just state taxes online free   If you are required to make payments under workers' compensation laws or in satisfaction of any tort liability, economic performance occurs as you make the payments. File just state taxes online free If you are required to make payments to a special designated settlement fund established by court order for a tort liability, economic performance occurs as you make the payments. File just state taxes online free Taxes. File just state taxes online free   Economic performance generally occurs as estimated income tax, property taxes, employment taxes, etc. File just state taxes online free are paid. File just state taxes online free However, you can elect to treat taxes as a recurring item, discussed later. File just state taxes online free You can also elect to ratably accrue real estate taxes. File just state taxes online free See chapter 5 of Publication 535 for information about real estate taxes. File just state taxes online free Other liabilities. File just state taxes online free   Other liabilities for which economic performance occurs as you make payments include liabilities for breach of contract (to the extent of incidental, consequential, and liquidated damages), violation of law, rebates and refunds, awards, prizes, jackpots, insurance, and warranty and service contracts. File just state taxes online free Interest. File just state taxes online free   Economic performance occurs with the passage of time (as the borrower uses, and the lender forgoes use of, the lender's money) rather than as payments are made. File just state taxes online free Compensation for services. File just state taxes online free   Generally, economic performance occurs as an employee renders service to the employer. File just state taxes online free However, deductions for compensation or other benefits paid to an employee in a year subsequent to economic performance are subject to the rules governing deferred compensation, deferred benefits, and funded welfare benefit plans. File just state taxes online free For information on employee benefit programs, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. File just state taxes online free Vacation pay. File just state taxes online free   You can take a current deduction for vacation pay earned by your employees if you pay it during the year or, if the amount is vested, within 2½ months after the end of the year. File just state taxes online free If you pay it later than this, you must deduct it in the year actually paid. File just state taxes online free An amount is vested if your right to it cannot be nullified or cancelled. File just state taxes online free Exception for recurring items. File just state taxes online free   An exception to the economic performance rule allows certain recurring items to be treated as incurred during the tax year even though economic performance has not occurred. File just state taxes online free The exception applies if all the following requirements are met. File just state taxes online free The all-events test, discussed earlier, is met. File just state taxes online free Economic performance occurs by the earlier of the following dates. File just state taxes online free 8½ months after the close of the year. File just state taxes online free The date you file a timely return (including extensions) for the year. File just state taxes online free The item is recurring in nature and you consistently treat similar items as incurred in the tax year in which the all-events test is met. File just state taxes online free Either: The item is not material, or Accruing the item in the year in which the all-events test is met results in a better match against income than accruing the item in the year of economic performance. File just state taxes online free This exception does not apply to workers' compensation or tort liabilities. File just state taxes online free Amended return. File just state taxes online free   You may be able to file an amended return and treat a liability as incurred under the recurring item exception. File just state taxes online free You can do so if economic performance for the liability occurs after you file your tax return for the year, but within 8½ months after the close of the tax year. File just state taxes online free Recurrence and consistency. File just state taxes online free   To determine whether an item is recurring and consistently reported, consider the frequency with which the item and similar items are incurred (or expected to be incurred) and how you report these items for tax purposes. File just state taxes online free A new expense or an expense not incurred every year can be treated as recurring if it is reasonable to expect that it will be incurred regularly in the future. File just state taxes online free Materiality. File just state taxes online free   Factors to consider in determining the materiality of a recurring item include the size of the item (both in absolute terms and in relation to your income and other expenses) and the treatment of the item on your financial statements. File just state taxes online free   An item considered material for financial statement purposes is also considered material for tax purposes. File just state taxes online free However, in certain situations an immaterial item for financial accounting purposes is treated as material for purposes of economic performance. File just state taxes online free Matching expenses with income. File just state taxes online free   Costs directly associated with the revenue of a period are properly allocable to that period. File just state taxes online free To determine whether the accrual of an expense in a particular year results in a better match with the income to which it relates, generally accepted accounting principles (GAAP; visit www. File just state taxes online free fasab. File just state taxes online free gov/accepted. File just state taxes online free html) are an important factor. File just state taxes online free   For example, if you report sales income in the year of sale, but you do not ship the goods until the following year, the shipping costs are more properly matched to income in the year of sale than the year the goods are shipped. File just state taxes online free Expenses that cannot be practically associated with income of a particular period, such as advertising costs, should be assigned to the period the costs are incurred. File just state taxes online free However, the matching requirement is considered met for certain types of expenses. File just state taxes online free These expenses include taxes, payments under insurance, warranty, and service contracts, rebates, refunds, awards, prizes, and jackpots. File just state taxes online free Expenses Paid in Advance An expense you pay in advance is deductible only in the year to which it applies, unless the expense qualifies for the 12-month rule. File just state taxes online free Under the 12-month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the taxpayer that do not extend beyond the earlier of the following. File just state taxes online free 12 months after the right or benefit begins, or The end of the tax year after the tax year in which payment is made. File just state taxes online free If you have not been applying the general rule (an expense paid in advance is deductible only in the year to which it applies) and/or the 12-month rule to the expenses you paid in advance, you must get IRS approval before using the general rule and/or the 12-month rule. File just state taxes online free See Change in Accounting Method, later, for information on how to get IRS approval. File just state taxes online free See Expense paid in advance under Cash Method, earlier, for examples illustrating the application of the general and 12-month rules. File just state taxes online free Related Persons Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. File just state taxes online free Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. File just state taxes online free See section 267 of the Internal Revenue Code and Publication 542, Corporations, for the definition of related person. File just state taxes online free Inventories An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. File just state taxes online free If you must account for an inventory in your business, you must use an accrual method of accounting for your purchases and sales. File just state taxes online free However, see Exceptions, next. File just state taxes online free See also Accrual Method, earlier. File just state taxes online free To figure taxable income, you must value your inventory at the beginning and end of each tax year. File just state taxes online free To determine the value, you need a method for identifying the items in your inventory and a method for valuing these items. File just state taxes online free See Identifying Cost and Valuing Inventory, later. File just state taxes online free The rules for valuing inventory are not the same for all businesses. File just state taxes online free The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. File just state taxes online free Your inventory practices must be consistent from year to year. File just state taxes online free The rules discussed here apply only if they do not conflict with the uniform capitalization rules of section 263A and the mark-to-market rules of section 475. File just state taxes online free Exceptions The following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. File just state taxes online free These taxpayers can also account for inventoriable items as materials and supplies that are not incidental (discussed later). File just state taxes online free A qualifying taxpayer under Revenue Procedure 2001-10 on page 272 of Internal Revenue Bulletin 2001-2, available at www. File just state taxes online free irs. File just state taxes online free gov/pub/irs-irbs/irb01–02. File just state taxes online free pdf. File just state taxes online free A qualifying small business taxpayer under Revenue Procedure 2002-28, on page 815 of Internal Revenue Bulletin 2002-18, available at www. File just state taxes online free irs. File just state taxes online free gov/pub/irs-irbs/irb02–18. File just state taxes online free pdf. File just state taxes online free In addition to the information provided in this publication, you should see the revenue procedures referenced in the list, above, and the instructions for Form 3115 for information you will need to adopt or change to these accounting methods (see Changing methods, later). File just state taxes online free Qualifying taxpayer. File just state taxes online free   You are a qualifying taxpayer under Revenue Procedure 2001-10 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 17, 1998 (see Gross receipts test for qualifying taxpayers, next). File just state taxes online free Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $1 million or less. File just state taxes online free You are not a tax shelter as defined under section 448(d)(3) of the Internal Revenue Code. File just state taxes online free Gross receipts test for qualifying taxpayers. File just state taxes online free   To determine if you meet the gross receipts test for qualifying taxpayers, use the following steps: Step 1. File just state taxes online free List each of the test years. File just state taxes online free For qualifying taxpayers under Revenue Procedure 2001-10, the test years are each prior tax year ending on or after December 17, 1998. File just state taxes online free Step 2. File just state taxes online free Determine your average annual gross receipts for each test year listed in Step 1. File just state taxes online free Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. File just state taxes online free Step 3. File just state taxes online free You meet the gross receipts test for qualifying taxpayers if your average annual gross receipts for each test year listed in Step 1 is $1 million or less. File just state taxes online free Qualifying small business taxpayer. File just state taxes online free   You are a qualifying small business taxpayer under Revenue Procedure 2002-28 only if: You satisfy the gross receipts test for each prior tax year ending on or after December 31, 2000 (see Gross receipts test for qualifying small business taxpayers, next). File just state taxes online free Your average annual gross receipts for each test year (explained in Step 1, listed next) must be $10 million or less. File just state taxes online free You are not prohibited from using the cash method under section 448 of the Internal Revenue Code. File just state taxes online free Your principle business activity is an eligible business. File just state taxes online free See Eligible business, later. File just state taxes online free You have not changed (or have not been required to change) from the cash method because you became ineligible to use the cash method under Revenue Procedure 2002-28. File just state taxes online free Note. File just state taxes online free Revenue Procedure 2002-28 does not apply to a farming business of a qualifying small business taxpayer. File just state taxes online free A taxpayer engaged in the trade or business of farming generally is allowed to use the cash method for any farming business. File just state taxes online free See Special rules for farming businesses under Cash Method, earlier. File just state taxes online free Gross receipts test for qualifying small business taxpayers. File just state taxes online free   To determine if you meet the gross receipts test for qualifying small business taxpayers, use the following steps: Step 1. File just state taxes online free List each of the test years. File just state taxes online free For qualifying small business taxpayers under Revenue Procedure 2002-28, the test years are each prior tax year ending on or after December 31, 2000. File just state taxes online free Step 2. File just state taxes online free Determine your average annual gross receipts for each test year listed in Step 1. File just state taxes online free Your average annual gross receipts for a tax year is determined by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3. File just state taxes online free Step 3. File just state taxes online free You meet the gross receipts test for qualifying small business taxpayers if your average annual gross receipts for each test year listed in Step 1 is $10 million or less. File just state taxes online free Eligible business. File just state taxes online free   An eligible business is any business for which a qualified small business taxpayer can use the cash method and choose to not keep an inventory. File just state taxes online free You have an eligible business if you meet any of the following requirements. File just state taxes online free Your principal business activity is described in a North American Industry Classification System (NAICS) code other than any of the following NAICS subsector codes: NAICS codes 211 and 212 (mining activities). File just state taxes online free NAICS codes 31-33 (manufacturing). File just state taxes online free NAICS code 42 (wholesale trade). File just state taxes online free NAICS codes 44-45 (retail trade). File just state taxes online free NAICS codes 5111 and 5122 (information industries). File just state taxes online free Your principal business activity is the provision of services, including the provision of property incident to those services. File just state taxes online free Your principal business activity is the fabrication or modification of tangible personal property upon demand in accordance with customer design or specifications. File just state taxes online free   Information about the NAICS codes can be found at http://www. File just state taxes online free census. File just state taxes online free gov/naics or in the instructions for your federal income tax return. File just state taxes online free Gross receipts. File just state taxes online free   In general, gross receipts must include all receipts from all your trades or businesses that must be recognized under the method of accounting you used for that tax year for federal income tax purposes. File just state taxes online free See the definit
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File just state taxes online free 3. File just state taxes online free   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. File just state taxes online free Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. File just state taxes online free Certain contracts held by a charitable remainder trust. File just state taxes online free Excise Taxes. File just state taxes online free Indoor tanning services. File just state taxes online free Application for Recognition of ExemptionPolitical activity. File just state taxes online free Private delivery service. File just state taxes online free Amendments to organizing documents required. File just state taxes online free How to show reasonable action and good faith. File just state taxes online free Not acting reasonably and in good faith. File just state taxes online free Prejudicing the interest of the Government. File just state taxes online free Procedure for requesting extension. File just state taxes online free More information. File just state taxes online free Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. File just state taxes online free Grass roots expenditures. File just state taxes online free Lobbying nontaxable amount. File just state taxes online free Grass roots nontaxable amount. File just state taxes online free Organization that no longer qualifies. File just state taxes online free Tax on organization. File just state taxes online free Tax on managers. File just state taxes online free Taxes on organizations. File just state taxes online free Taxes on managers. File just state taxes online free Political expenditures. File just state taxes online free Correction of expenditure. File just state taxes online free Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. File just state taxes online free Religious. File just state taxes online free Charitable. File just state taxes online free Scientific. File just state taxes online free Testing for public safety. File just state taxes online free Literary. File just state taxes online free Educational. File just state taxes online free Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). File just state taxes online free The prevention of cruelty to children or animals. File just state taxes online free To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. File just state taxes online free A trust is a fund or foundation and will qualify. File just state taxes online free However, an individual or a partnership will not qualify. File just state taxes online free Examples. File just state taxes online free   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. File just state taxes online free Child care organizations. File just state taxes online free   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. File just state taxes online free Instrumentalities. File just state taxes online free   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). File just state taxes online free Examples of a qualifying instrumentality might include state schools, universities, or hospitals. File just state taxes online free However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. File just state taxes online free A state or municipality itself does not qualify for exemption. File just state taxes online free Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. File just state taxes online free Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. File just state taxes online free Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. File just state taxes online free Fundraising events. File just state taxes online free   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. File just state taxes online free This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. File just state taxes online free   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. File just state taxes online free If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. File just state taxes online free You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. File just state taxes online free See Disclosure of Quid Pro Quo Contributions in chapter 2. File just state taxes online free Exemption application not filed. File just state taxes online free   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. File just state taxes online free Separate fund—contributions that are deductible. File just state taxes online free   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. File just state taxes online free   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. File just state taxes online free A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. File just state taxes online free Personal benefit contracts. File just state taxes online free   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. File just state taxes online free   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. File just state taxes online free Certain annuity contracts. File just state taxes online free   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). File just state taxes online free Certain contracts held by a charitable remainder trust. File just state taxes online free   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. File just state taxes online free Excise tax. File just state taxes online free   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. File just state taxes online free The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. File just state taxes online free Excise Taxes. File just state taxes online free   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. File just state taxes online free Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. File just state taxes online free Indoor tanning services. File just state taxes online free   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. File just state taxes online free For more information, go to IRS. File just state taxes online free gov and select Affordable Care Act Tax Provisions. File just state taxes online free Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. File just state taxes online free For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. File just state taxes online free See the organization headings that follow for specific information your organization may need to provide. File just state taxes online free Form 1023. File just state taxes online free   Your organization must file its application for recognition of exemption on Form 1023. File just state taxes online free See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. File just state taxes online free Some organizations are not required to file Form 1023. File just state taxes online free See Organizations Not Required To File Form 1023, later. File just state taxes online free    Additional information to help you complete your application can be found online. File just state taxes online free Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. File just state taxes online free See Exemption Requirements - Section 501(c)(3) Organizations. File just state taxes online free   Form 1023 and accompanying statements must show that all of the following are true. File just state taxes online free The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. File just state taxes online free ) specified in the introduction to this chapter. File just state taxes online free No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. File just state taxes online free You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. File just state taxes online free The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. File just state taxes online free See Political activity, next, and Lobbying Expenditures , near the end of this chapter. File just state taxes online free Political activity. File just state taxes online free   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). File just state taxes online free Such participation or intervention includes the publishing or distributing of statements. File just state taxes online free   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. File just state taxes online free Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. File just state taxes online free Effective date of exemption. File just state taxes online free   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. File just state taxes online free These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. File just state taxes online free If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. File just state taxes online free Otherwise, exemption will be recognized only from the date of receipt. File just state taxes online free The date of receipt is the date of the U. File just state taxes online free S. File just state taxes online free postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. File just state taxes online free Private delivery service. File just state taxes online free   If a private delivery service designated by the IRS, rather than the U. File just state taxes online free S. File just state taxes online free Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. File just state taxes online free The following private delivery services have been designated by the IRS. File just state taxes online free DHL Express (DHL): DHL “Same Day” Service. File just state taxes online free Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. File just state taxes online free United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. File just state taxes online free M. File just state taxes online free , UPS Worldwide Express Plus, and UPS Worldwide Express. File just state taxes online free Amendments to organizing documents required. File just state taxes online free   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. File just state taxes online free If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. File just state taxes online free Extensions of time for filing. File just state taxes online free   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. File just state taxes online free Automatic 12-month extension. File just state taxes online free Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. File just state taxes online free To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. File just state taxes online free 9100-2. File just state taxes online free ” Discretionary extensions. File just state taxes online free An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. File just state taxes online free How to show reasonable action and good faith. File just state taxes online free   An organization acted reasonably and showed good faith if at least one of the following is true. File just state taxes online free The organization requests relief before its failure to file is discovered by the IRS. File just state taxes online free The organization failed to file because of intervening events beyond its control. File just state taxes online free The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. File just state taxes online free The organization reasonably relied upon the written advice of the IRS. File just state taxes online free The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. File just state taxes online free An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. File just state taxes online free Not acting reasonably and in good faith. File just state taxes online free   An organization has not acted reasonably and in good faith under the following circumstances. File just state taxes online free It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. File just state taxes online free It was informed of the requirement to file and related tax consequences, but chose not to file. File just state taxes online free It uses hindsight in requesting relief. File just state taxes online free The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. File just state taxes online free Prejudicing the interest of the Government. File just state taxes online free   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. File just state taxes online free Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. File just state taxes online free The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. File just state taxes online free The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. File just state taxes online free Procedure for requesting extension. File just state taxes online free   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. File just state taxes online free A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. File just state taxes online free Any documents relevant to the application. File just state taxes online free An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. File just state taxes online free If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. File just state taxes online free This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. File just state taxes online free ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. File just state taxes online free This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. File just state taxes online free The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. File just state taxes online free These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. File just state taxes online free ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. File just state taxes online free The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. File just state taxes online free The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. File just state taxes online free   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. File just state taxes online free Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. File just state taxes online free More information. File just state taxes online free   For more information about these procedures, see Regulations sections 301. File just state taxes online free 9100-1, 301. File just state taxes online free 9100-2, 301. File just state taxes online free 9100-3, Revenue Procedure 2013-4, section 6. File just state taxes online free 04, 2013-1 I. File just state taxes online free R. File just state taxes online free B. File just state taxes online free 126, and Revenue Procedure 2013-8, 2013-1 I. File just state taxes online free R. File just state taxes online free B. File just state taxes online free 237. File just state taxes online free See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. File just state taxes online free Notification from the IRS. File just state taxes online free   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. File just state taxes online free Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. File just state taxes online free These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. File just state taxes online free Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). File just state taxes online free These organizations are exempt automatically if they meet the requirements of section 501(c)(3). File just state taxes online free Filing Form 1023 to establish exemption. File just state taxes online free   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. File just state taxes online free By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. File just state taxes online free A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. File just state taxes online free Private foundations. File just state taxes online free   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. File just state taxes online free Gross receipts test. File just state taxes online free   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. File just state taxes online free   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. File just state taxes online free For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. File just state taxes online free The organization must file Form 1023 within 90 days after the end of its second tax year. File just state taxes online free   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. File just state taxes online free However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. File just state taxes online free Example. File just state taxes online free   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. File just state taxes online free It was incorporated on January 1, 2009, and files returns on a calendar-year basis. File just state taxes online free It did not file a Form 1023. File just state taxes online free The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. File just state taxes online free Therefore, it did not have to file Form 1023 and is exempt for those years. File just state taxes online free However, for 2010, 2011, and 2012 the total gross receipts were $15,900. File just state taxes online free Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. File just state taxes online free If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. File just state taxes online free The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. File just state taxes online free   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. File just state taxes online free See the procedures for this extension discussed earlier. File just state taxes online free Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. File just state taxes online free This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. File just state taxes online free Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. File just state taxes online free These conditions for exemption are referred to as the organizational test. File just state taxes online free Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. File just state taxes online free Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). File just state taxes online free The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. File just state taxes online free Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. File just state taxes online free Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. File just state taxes online free In interpreting an organization's articles, the law of the state where the organization was created is controlling. File just state taxes online free If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. File just state taxes online free The following are examples illustrating the organizational test. File just state taxes online free Example 1. File just state taxes online free Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). File just state taxes online free These articles appropriately limit the organization's purposes. File just state taxes online free The organization meets the organizational test. File just state taxes online free Example 2. File just state taxes online free An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. File just state taxes online free The organization will not be properly limited as to its purposes since all research is not scientific. File just state taxes online free The organization does not meet the organizational test. File just state taxes online free Example 3. File just state taxes online free An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). File just state taxes online free The organization meets the organizational test. File just state taxes online free Example 4. File just state taxes online free If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. File just state taxes online free Example 5. File just state taxes online free If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. File just state taxes online free On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. File just state taxes online free Example 6. File just state taxes online free If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. File just state taxes online free Such purposes are vague and may be accomplished other than in an exempt manner. File just state taxes online free Example 7. File just state taxes online free A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. File just state taxes online free A hospital may or may not be exempt depending on the manner in which it is operated. File just state taxes online free Example 8. File just state taxes online free An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. File just state taxes online free Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. File just state taxes online free This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. File just state taxes online free If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. File just state taxes online free Dedication. File just state taxes online free   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. File just state taxes online free Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. File just state taxes online free Distribution. File just state taxes online free   Revenue Procedure 82-2, 1982-1 C. File just state taxes online free B. File just state taxes online free 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. File just state taxes online free The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. File just state taxes online free   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. File just state taxes online free Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. File just state taxes online free Sample articles of organization. File just state taxes online free   See sample articles of organization in the Appendix in the back of this publication. File just state taxes online free Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. File just state taxes online free In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. File just state taxes online free You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. File just state taxes online free If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. File just state taxes online free See also Private Schools , discussed later. File just state taxes online free Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. File just state taxes online free Advocacy of a position. File just state taxes online free   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. File just state taxes online free The mere presentation of unsupported opinion is not educational. File just state taxes online free Method not educational. File just state taxes online free   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). File just state taxes online free The following factors may indicate that the method is not educational. File just state taxes online free The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. File just state taxes online free The facts that purport to support the viewpoint are distorted. File just state taxes online free The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. File just state taxes online free The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. File just state taxes online free   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. File just state taxes online free Qualifying organizations. File just state taxes online free   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. File just state taxes online free College book stores, cafeterias, restaurants, etc. File just state taxes online free   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. File just state taxes online free Alumni association. File just state taxes online free   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. File just state taxes online free If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . File just state taxes online free Athletic organization. File just state taxes online free   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. File just state taxes online free If it is not so engaged, your organization may be exempt as a social club described in chapter 4. File just state taxes online free Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. File just state taxes online free If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. File just state taxes online free Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. File just state taxes online free The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. File just state taxes online free (This information also must be projected, so far as may be feasible, for the next academic year. File just state taxes online free ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. File just state taxes online free A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. File just state taxes online free A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. File just state taxes online free The public school district and county in which the school is located. File just state taxes online free How to determine racial composition. File just state taxes online free   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. File just state taxes online free Nevertheless, a statement of the method by which the racial composition was determined must be supplied. File just state taxes online free The identity of individual students or members of the faculty and administrative staff should not be included with this information. File just state taxes online free   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. File just state taxes online free Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. File just state taxes online free Also, the school must circulate information that clearly states the school's admission policies. File just state taxes online free A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. File just state taxes online free The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. File just state taxes online free The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. File just state taxes online free Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. File just state taxes online free A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. File just state taxes online free A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. File just state taxes online free Policy statement. File just state taxes online free   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. File just state taxes online free Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. File just state taxes online free Publicity requirement. File just state taxes online free   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. File just state taxes online free Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. File just state taxes online free To satisfy this requirement, the school must use one of the following two methods. File just state taxes online free Method one. File just state taxes online free   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. File just state taxes online free Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. File just state taxes online free When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. File just state taxes online free If this method is used, the notice must meet the following printing requirements. File just state taxes online free It must appear in a section of the newspaper likely to be read by prospective students and their families. File just state taxes online free It must occupy at least 3 column inches. File just state taxes online free It must have its title printed in at least 12 point bold face type. File just state taxes online free It must have the remaining text printed in at least 8 point type. File just state taxes online free The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. File just state taxes online free It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. File just state taxes online free   Method two. File just state taxes online free   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. File just state taxes online free If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. File just state taxes online free In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. File just state taxes online free The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. File just state taxes online free Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. File just state taxes online free Exceptions. File just state taxes online free   The publicity requirements will not apply in the following situations. File just state taxes online free First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. File just state taxes online free These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. File just state taxes online free If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. File just state taxes online free Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . File just state taxes online free   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. File just state taxes online free The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. File just state taxes online free   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. File just state taxes online free Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. File just state taxes online free   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. File just state taxes online free The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. File just state taxes online free In this regard, it is each school's responsibility to determine whether either of the exceptions applies. File just state taxes online free Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. File just state taxes online free Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. File just state taxes online free Facilities and programs. File just state taxes online free   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. File just state taxes online free Scholarship and loan programs. File just state taxes online free   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. File just state taxes online free This must be known throughout the general community being served by the school and should be referred to in its publicity. File just state taxes online free Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. File just state taxes online free Certification. File just state taxes online free   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. File just state taxes online free   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. File just state taxes online free Recordkeeping requirements. File just state taxes online free With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. File just state taxes online free Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. File just state taxes online free Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. File just state taxes online free Copies of all materials used by or on behalf of the school to solicit contributions. File just state taxes online free Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. File just state taxes online free (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. File just state taxes online free ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. File just state taxes online free However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. File just state taxes online free The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. File just state taxes online free Similarly, the IRS does not require a school to keep records prohibited under state or federal law. File just state taxes online free Exceptions. File just state taxes online free   The school does not have to independently maintain these records for IRS use if both of the following are true. File just state taxes online free Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. File just state taxes online free The school maintains copies of these reports from which this information is readily obtainable. File just state taxes online free If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. File just state taxes online free Failure to maintain records. File just state taxes online free   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. File just state taxes online free Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. File just state taxes online free However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. File just state taxes online free Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). File just state taxes online free Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. File just state taxes online free Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. File just state taxes online free Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. File just state taxes online free The rest of this section contains a description of the information to be provided by certain specific organizations. File just state taxes online free This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. File just state taxes online free Each of the following organizations must submit the information described. File just state taxes online free Charitable organization supporting education. File just state taxes online free   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. File just state taxes online free Scholarships. File just state taxes online free   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. File just state taxes online free Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. File just state taxes online free How and by whom the recipients are or will be selected. File just state taxes online free If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. File just state taxes online free If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. File just state taxes online free A copy of the scholarship application form and any brochures or literature describing the scholarship program. File just state taxes online free Hospital. File just state taxes online free   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. File just state taxes online free   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. File just state taxes online free You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. File just state taxes online free Submit also an appraisal showing the fair rental value of the rented space. File just state taxes online free Clinic. File just state taxes online free   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. File just state taxes online free Home for the aged. File just state taxes online free   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. File just state taxes online free Community nursing bureau. File just state taxes online free   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. File just state taxes online free Organization providing loans. File just state taxes online free   If you make, or will make, loans for charitable and educational purposes, submit the following information. File just state taxes online free An explanation of the circumstances under which such loans are, or will be, made. File just state taxes online free Criteria for selection, including the rules of eligibility. File just state taxes online free How and by whom the recipients are or will be selected. File just state taxes online free Manner of repayment of the loan. File just state taxes online free Security required, if any. File just state taxes online free Interest charged, if any, and when payable. File just state taxes online free Copies in duplicate of the loan application and any brochures or literature describing the loan program. File just state taxes online free Public-interest law firms. File just state taxes online free   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. File just state taxes online free How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. File just state taxes online free Whether the organization will accept fees for its services. File just state taxes online free A description of the cases litigated or to be litigated and how they benefit the public generally. File just state taxes online free Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. File just state taxes online free Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. File just state taxes online free Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. File just state taxes online free Acceptance of attorneys' fees. File just state taxes online free   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. File just state taxes online free Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. File just state taxes online free   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. File just state taxes online free All fee awards must be paid to the organization and not to its individual staff attorneys. File just state taxes online free Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. File just state taxes online free Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. File just state taxes online free   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. File just state taxes online free   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. File just state taxes online free Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. File just state taxes online free That the particular religious beliefs of the organization are truly and sincerely held. File just state taxes online free That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. File just state taxes online free Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. File just state taxes online free If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. File just state taxes online free Churches. File just state taxes online free   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. File just state taxes online free In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. File just state taxes online free   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. File just state taxes online free Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. File just state taxes online free The IRS considers the facts and circumstances of each organization applying for church status. File just state taxes online free Convention or association of churches. File just state taxes online free   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. File just state taxes online free Integrated auxiliaries. File just state taxes online free   An organization is an integrated auxiliary of a church if all the following are true. File just state taxes online free The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). File just state taxes online free It is affiliated with a church or a convention or association of churches. File just state taxes online free It is internally supported. File just state taxes online free An organization is internally supported unless both of the following are true. File just state taxes online free It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). File just state taxes online free It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. File just state taxes online free Special rule. File just state taxes online free   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. File just state taxes online free   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. File just state taxes online free   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. File just state taxes online free Scientific Organizations You must show that your organization's research will be carried on in the public interest. File just state taxes online free Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. File just state taxes online free Aiding in the scientific education of college or university students. File just state taxes online free Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th