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Fillable State Tax Forms

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Fillable State Tax Forms

Fillable state tax forms Publication 971 - Main Content Table of Contents How To Request ReliefException for agreements relating to TEFRA partnership proceedings. Fillable state tax forms The IRS Must Contact Your Spouse or Former Spouse Tax Court Review of Request Community Property LawsRelief for Married Persons Who Did Not File Joint Returns Innocent Spouse ReliefUnderstated Tax Erroneous Items Actual Knowledge or Reason To Know Indications of Unfairness for Innocent Spouse Relief Separation of Liability ReliefLimitations on Relief Equitable ReliefConditions for Getting Equitable Relief Factors for Determining Whether To Grant Equitable Relief RefundsProof Required Refunds Under Equitable Relief Limit on Amount of Refund Filled-in Form 8857 Flowcharts How To Request Relief File Form 8857 to ask the IRS for the types of relief discussed in this publication. Fillable state tax forms If you are requesting relief for more than three tax years, you must file an additional Form 8857. Fillable state tax forms The IRS will review your Form 8857 and let you know if you qualify. Fillable state tax forms A completed Form 8857 is shown later. Fillable state tax forms When to file Form 8857. Fillable state tax forms   You should file Form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. Fillable state tax forms The following are some of the ways you may become aware of such a liability. Fillable state tax forms The IRS is examining your tax return and proposing to increase your tax liability. Fillable state tax forms The IRS sends you a notice. Fillable state tax forms   You must file Form 8857 no later than two years after the date on which the IRS first attempted to collect the tax from you that occurs after July 22, 1998. Fillable state tax forms (But see the exceptions below for different filing deadlines that apply. Fillable state tax forms ) For this reason, do not delay filing because you do not have all the documentation. Fillable state tax forms   Collection activities that may start the 2-year period are: The IRS offset your income tax refund against an amount you owed on a joint return for another year and the IRS informed you about your right to file Form 8857. Fillable state tax forms The filing of a claim by the IRS in a court proceeding in which you were a party or the filing of a claim in a proceeding that involves your property. Fillable state tax forms This includes the filing of a proof of claim in a bankruptcy proceeding. Fillable state tax forms The filing of a suit by the United States against you to collect the joint liability. Fillable state tax forms The issuance of a section 6330 notice, which notifies you of the IRS' intent to levy and your right to a collection due process (CDP) hearing. Fillable state tax forms The collection-related notices include, but are not limited to, Letter 11 and Letter 1058. Fillable state tax forms Exception for equitable relief. Fillable state tax forms   On July 25, 2011, the IRS issued Notice 2011-70 (available at www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2011-32_IRB/ar11. Fillable state tax forms html) expanding the amount of time to request equitable relief. Fillable state tax forms The amount of time to request equitable relief depends on whether you are seeking relief from a balance due, seeking a credit or refund, or both: Balance Due – Generally, you must file your request within the time period the IRS has to collect the tax. Fillable state tax forms Generally, the IRS has 10 years from the date the tax liability was assessed to collect the tax. Fillable state tax forms In certain cases, the 10-year period is suspended. Fillable state tax forms The amount of time the suspension is in effect will extend the time the IRS has to collect the tax. Fillable state tax forms See Pub. Fillable state tax forms 594, The IRS Collection Process, for details. Fillable state tax forms Credit or Refund – Generally, you must file your request within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is later. Fillable state tax forms But you may have more time to file if you live in a federally declared disaster area or you are physically or mentally unable to manage your financial affairs. Fillable state tax forms See Pub. Fillable state tax forms 556, Examination of Returns, Appeal Rights, and Claims for Refund, for details. Fillable state tax forms Both a Balance Due and a Credit or Refund – If you are seeking a refund of amounts you paid and relief from a balance due over and above what you have paid, the time period for credit or refund will apply to any payments you have made, and the time period for collection of a balance due amount will apply to any unpaid liability. Fillable state tax forms Exception for relief based on community property laws. Fillable state tax forms   If you are requesting relief based on community property laws, a different filing deadline applies. Fillable state tax forms See Relief from liability arising from community property law discussed later under Community Property Laws . Fillable state tax forms Form 8857 filed by or on behalf of a decedent. Fillable state tax forms   An executor (including any other duly appointed representative) may pursue a Form 8857 filed during the decedent's lifetime. Fillable state tax forms An executor (including any other duly appointed representative) may also file Form 8857 as long as the decedent satisfied the eligibility requirements while alive. Fillable state tax forms For purposes of separation of liability relief (discussed later), the decedent's marital status is determined on the earlier of the date relief was requested or the date of death. Fillable state tax forms Situations in which you are not entitled to relief. Fillable state tax forms   You are not entitled to innocent spouse relief for any tax year to which the following situations apply. Fillable state tax forms In a final decision dated after July 22, 1998, a court considered whether to grant you relief from joint liability and decided not to do so. Fillable state tax forms In a final decision dated after July 22, 1998, a court did not consider whether to grant you relief from joint liability, but you meaningfully participated in the proceeding and could have asked for relief. Fillable state tax forms You entered into an offer in compromise with the IRS. Fillable state tax forms You entered into a closing agreement with the IRS that disposed of the same liability for which you want to seek relief. Fillable state tax forms Exception for agreements relating to TEFRA partnership proceedings. Fillable state tax forms   You may be entitled to relief, discussed in (4) earlier, if you entered into a closing agreement for both partnership items and nonpartnership items, while you were a party to a pending TEFRA partnership proceeding. Fillable state tax forms (TEFRA is an acronym that refers to the “Tax Equity and Fiscal Responsibility Act of 1982” that prescribed the tax treatment of partnership items. Fillable state tax forms ) You are not entitled to relief for the nonpartnership items, but you will be entitled to relief for the partnership items (if you otherwise qualify). Fillable state tax forms Transferee liability not affected by innocent spouse relief provisions. Fillable state tax forms   The innocent spouse relief provisions do not affect tax liabilities that arise under federal or state transferee liability or property laws. Fillable state tax forms Therefore, even if you are relieved of the tax liability under the innocent spouse relief provisions, you may remain liable for the unpaid tax, interest, and penalties to the extent provided by these laws. Fillable state tax forms Example. Fillable state tax forms Herb and Wanda timely filed their 2008 joint income tax return on April 15, 2009. Fillable state tax forms Herb died in March 2010, and the executor of Herb's will transferred all of the estate's assets to Wanda. Fillable state tax forms In August 2010, the IRS assessed a deficiency for the 2008 return. Fillable state tax forms The items causing the deficiency belong to Herb. Fillable state tax forms Wanda is relieved of the deficiency under the innocent spouse relief provisions, and Herb's estate remains solely liable for it. Fillable state tax forms However, the IRS may collect the deficiency from Wanda to the extent permitted under federal or state transferee liability or property laws. Fillable state tax forms The IRS Must Contact Your Spouse or Former Spouse By law, the IRS must contact your spouse or former spouse. Fillable state tax forms There are no exceptions, even for victims of spousal abuse or domestic violence. Fillable state tax forms We will inform your spouse or former spouse that you filed Form 8857 and will allow him or her to participate in the process. Fillable state tax forms If you are requesting relief from joint and several liability on a joint return, the IRS must also inform him or her of its preliminary and final determinations regarding your request for relief. Fillable state tax forms However, to protect your privacy, the IRS will not disclose your personal information (for example, your current name, address, phone number(s), information about your employer, your income or assets) or any other information that does not relate to making a determination about your request for relief from liability. Fillable state tax forms If you petition the Tax Court (explained below), your spouse or former spouse may see your personal information. Fillable state tax forms Tax Court Review of Request After you file Form 8857, you may be able to petition (ask) the United States Tax Court to review your request for relief in the following two situations. Fillable state tax forms The IRS sends you a final determination letter regarding your request for relief. Fillable state tax forms You do not receive a final determination letter from the IRS within six months from the date you filed Form 8857. Fillable state tax forms If you seek equitable relief for an underpaid tax, you will be able to get a Tax Court review of your request only if the tax arose or remained unpaid on or after December 20, 2006. Fillable state tax forms The United States Tax Court is an independent judicial body and is not part of the IRS. Fillable state tax forms You must file a petition with the United States Tax Court in order for it to review your request for relief. Fillable state tax forms You must file the petition no later than the 90th day after the date the IRS mails its final determination notice to you. Fillable state tax forms If you do not file a petition, or you file it late, the Tax Court cannot review your request for relief. Fillable state tax forms You can get a copy of the rules for filing a petition by writing to the Tax Court at the following address:    United States Tax Court 400 Second Street, NW Washington, DC 20217 Or you can visit the Tax Court's website at www. Fillable state tax forms ustaxcourt. Fillable state tax forms gov Community Property Laws You must generally follow community property laws when filing a tax return if you are married and live in a community property state. Fillable state tax forms Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Fillable state tax forms Generally, community property laws require you to allocate community income and expenses equally between both spouses. Fillable state tax forms However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. Fillable state tax forms Relief for Married Persons Who Did Not File Joint Returns Married persons who live in community property states, but who did not file joint returns, have two ways to get relief. Fillable state tax forms Relief From Liability Arising From Community Property Law You are not responsible for the tax relating to an item of community income if all the following conditions exist. Fillable state tax forms You did not file a joint return for the tax year. Fillable state tax forms You did not include the item of community income in gross income. Fillable state tax forms The item of community income you did not include is one of the following: Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an employee. Fillable state tax forms Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. Fillable state tax forms Your spouse's (or former spouse's) distributive share of partnership income. Fillable state tax forms Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Fillable state tax forms Use the appropriate community property law to determine what is separate property. Fillable state tax forms Any other income that belongs to your spouse (or former spouse) under community property law. Fillable state tax forms You establish that you did not know of, and had no reason to know of, that community income. Fillable state tax forms See  Actual Knowledge or Reason To Know , below. Fillable state tax forms Under all facts and circumstances, it would not be fair to include the item of community income in your gross income. Fillable state tax forms See Indications of unfairness for liability arising from community property law, later. Fillable state tax forms Actual knowledge or reason to know. Fillable state tax forms   You knew or had reason to know of an item of community income if: You actually knew of the item of community income, or A reasonable person in similar circumstances would have known of the item of community income. Fillable state tax forms Amount of community income unknown. Fillable state tax forms   If you are aware of the source of the item of community income or the income-producing activity, but are unaware of the specific amount, you are considered to know or have reason to know of the item of community income. Fillable state tax forms Not knowing the specific amount is not a basis for relief. Fillable state tax forms Reason to know. Fillable state tax forms   The IRS will consider all facts and circumstances in determining whether you had reason to know of an item of community income. Fillable state tax forms The facts and circumstances include: The nature of the item of community income and the amount of the item relative to other income items. Fillable state tax forms The financial situation of you and your spouse (or former spouse). Fillable state tax forms Your educational background and business experience. Fillable state tax forms Whether the item of community income represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Fillable state tax forms Indications of unfairness for liability arising from community property law. Fillable state tax forms   The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax due to the item of community income. Fillable state tax forms   The following are examples of factors the IRS will consider. Fillable state tax forms Whether you received a benefit, either directly or indirectly, from the omitted item of community income (defined below). Fillable state tax forms Whether your spouse (or former spouse) deserted you. Fillable state tax forms Whether you and your spouse have been divorced or separated. Fillable state tax forms  For other factors see Factors for Determining Whether To Grant Equitable Relief later. Fillable state tax forms Benefit from omitted item of community income. Fillable state tax forms   A benefit includes normal support, but does not include de minimis (small) amounts. Fillable state tax forms Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers received several years after the filing of the return. Fillable state tax forms   For example, if you receive property, including life insurance proceeds, from your spouse (or former spouse) and the property is traceable to omitted items of community income attributable to your spouse (or former spouse), you are considered to have benefitted from those omitted items of community income. Fillable state tax forms Equitable Relief If you do not qualify for the relief described above and are now liable for an underpaid or understated tax you believe should be paid only by your spouse (or former spouse), you may request equitable relief (discussed later). Fillable state tax forms How and When To Request Relief You request relief by filing Form 8857, as discussed earlier. Fillable state tax forms Fill in Form 8857 according to the instructions. Fillable state tax forms For relief from liability arising from community property law, you must file Form 8857 no later than 6 months before the expiration of the period of limitations on assessment (including extensions) against your spouse for the tax year for which you are requesting relief. Fillable state tax forms However, if the IRS begins an examination of your return during that 6-month period, the latest time for requesting relief is 30 days after the date the IRS' initial contact letter to you. Fillable state tax forms The period of limitation on assessment is the amount of time, generally three years, that the IRS has from the date you filed the return to assess taxes that you owe. Fillable state tax forms Innocent Spouse Relief By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Fillable state tax forms Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). Fillable state tax forms However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. Fillable state tax forms The IRS can collect these amounts from either you or your spouse (or former spouse). Fillable state tax forms You must meet all of the following conditions to qualify for innocent spouse relief. Fillable state tax forms You filed a joint return. Fillable state tax forms There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse). Fillable state tax forms You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). Fillable state tax forms See Actual Knowledge or Reason To Know, later. Fillable state tax forms Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. Fillable state tax forms See Indications of Unfairness for Innocent Spouse Relief , later. Fillable state tax forms Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme. Fillable state tax forms A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Fillable state tax forms Understated Tax You have an understated tax if the IRS determined that your total tax should be more than the amount that was actually shown on your return. Fillable state tax forms Erroneous Items Erroneous items are either of the following. Fillable state tax forms Unreported income. Fillable state tax forms This is any gross income item received by your spouse (or former spouse) that is not reported. Fillable state tax forms Incorrect deduction, credit, or basis. Fillable state tax forms This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse). Fillable state tax forms The following are examples of erroneous items. Fillable state tax forms The expense for which the deduction is taken was never paid or incurred. Fillable state tax forms For example, your spouse, a cash-basis taxpayer, deducted $10,000 of advertising expenses on Schedule C of your joint Form 1040, but never paid for any advertising. Fillable state tax forms The expense does not qualify as a deductible expense. Fillable state tax forms For example, your spouse claimed a business fee deduction of $10,000 that was for the payment of state fines. Fillable state tax forms Fines are not deductible. Fillable state tax forms No factual argument can be made to support the deductibility of the expense. Fillable state tax forms For example, your spouse claimed $4,000 for security costs related to a home office, which were actually veterinary and food costs for your family's two dogs. Fillable state tax forms Actual Knowledge or Reason To Know You knew or had reason to know of an understated tax if: You actually knew of the understated tax, or A reasonable person in similar circumstances would have known of the understated tax. Fillable state tax forms Actual knowledge. Fillable state tax forms   If you actually knew about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Fillable state tax forms You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Fillable state tax forms For information about the criteria for determining whether you actually knew about an erroneous item, see Actual Knowledge later under Separation of Liability Relief. Fillable state tax forms Reason to know. Fillable state tax forms   If you had reason to know about an erroneous item that belongs to your spouse (or former spouse), the relief discussed here does not apply to any part of the understated tax due to that item. Fillable state tax forms You and your spouse (or former spouse) remain jointly liable for that part of the understated tax. Fillable state tax forms   The IRS will consider all facts and circumstances in determining whether you had reason to know of an understated tax due to an erroneous item. Fillable state tax forms The facts and circumstances include: The nature of the erroneous item and the amount of the erroneous item relative to other items. Fillable state tax forms The financial situation of you and your spouse (or former spouse). Fillable state tax forms Your educational background and business experience. Fillable state tax forms The extent of your participation in the activity that resulted in the erroneous item. Fillable state tax forms Whether you failed to ask, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question. Fillable state tax forms Whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (for example, omitted income from an investment regularly reported on prior years' returns). Fillable state tax forms Partial relief when a portion of erroneous item is unknown. Fillable state tax forms   You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item. Fillable state tax forms You will be relieved of the understated tax due to that portion of the item if all other requirements are met for that portion. Fillable state tax forms Example. Fillable state tax forms At the time you signed your joint return, you knew that your spouse did not report $5,000 of gambling winnings. Fillable state tax forms The IRS examined your tax return several months after you filed it and determined that your spouse's unreported gambling winnings were actually $25,000. Fillable state tax forms You established that you did not know about, and had no reason to know about, the additional $20,000 because of the way your spouse handled gambling winnings. Fillable state tax forms The understated tax due to the $20,000 will qualify for innocent spouse relief if you meet the other requirements. Fillable state tax forms The understated tax due to the $5,000 of gambling winnings you knew about will not qualify for relief. Fillable state tax forms Indications of Unfairness for Innocent Spouse Relief The IRS will consider all of the facts and circumstances of the case in order to determine whether it is unfair to hold you responsible for the understated tax. Fillable state tax forms The following are examples of factors the IRS will consider. Fillable state tax forms Whether you received a significant benefit (defined below), either directly or indirectly, from the understated tax. Fillable state tax forms Whether your spouse (or former spouse) deserted you. Fillable state tax forms Whether you and your spouse have been divorced or separated. Fillable state tax forms Whether you received a benefit on the return from the understated tax. Fillable state tax forms For other factors, see Factors for Determining Whether To Grant Equitable Relief later under Equitable Relief. Fillable state tax forms Significant benefit. Fillable state tax forms   A significant benefit is any benefit in excess of normal support. Fillable state tax forms Normal support depends on your particular circumstances. Fillable state tax forms Evidence of a direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understated tax. Fillable state tax forms Example. Fillable state tax forms You receive money from your spouse that is beyond normal support. Fillable state tax forms The money can be traced to your spouse's lottery winnings that were not reported on your joint return. Fillable state tax forms You will be considered to have received a significant benefit from that income. Fillable state tax forms This is true even if your spouse gives you the money several years after he or she received it. Fillable state tax forms Separation of Liability Relief Under this type of relief, the understated tax (plus interest and penalties) on your joint return is allocated between you and your spouse (or former spouse). Fillable state tax forms The understated tax allocated to you is generally the amount you are responsible for. Fillable state tax forms This type of relief is available only for unpaid liabilities resulting from the understated tax. Fillable state tax forms Refunds are not allowed. Fillable state tax forms To request separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. Fillable state tax forms You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. Fillable state tax forms (Under this rule, you are no longer married if you are widowed. Fillable state tax forms ) You were not a member of the same household (explained below) as the spouse with whom you filed the joint return at any time during the 12-month per- iod ending on the date you file Form 8857. Fillable state tax forms Members of the same household. Fillable state tax forms   You and your spouse are not members of the same household if you are living apart and are estranged. Fillable state tax forms However, you and your spouse are considered members of the same household if any of the following conditions are met. Fillable state tax forms You and your spouse reside in the same dwelling. Fillable state tax forms You and your spouse reside in separate dwellings but are not estranged, and one of you is temporarily absent from the other's household as explained in (3) below. Fillable state tax forms Either spouse is temporarily absent from the household and it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Fillable state tax forms Examples of temporary absences include absence due to imprisonment, illness, business, vacation, military service, or education. Fillable state tax forms Burden of proof. Fillable state tax forms   You must be able to prove that you meet all of the requirements for separation of liability relief (except actual knowledge) and that you did not transfer property to avoid tax (discussed later). Fillable state tax forms You must also establish the basis for allocating the erroneous items. Fillable state tax forms Limitations on Relief Even if you meet the requirements discussed previously, separation of liability relief will not be granted in the following situations. Fillable state tax forms The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. Fillable state tax forms A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Fillable state tax forms The IRS proves that at the time you signed your joint return, you had actual knowledge (explained below) of any erroneous items giving rise to the deficiency that were allocable to your spouse (or former spouse). Fillable state tax forms For the definition of erroneous items, see Erroneous Items earlier under Innocent Spouse Relief. Fillable state tax forms Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. Fillable state tax forms See Transfers of Property To Avoid Tax , later. Fillable state tax forms Actual Knowledge The relief discussed here does not apply to any part of the understated tax due to your spouse's (or former spouse's) erroneous items of which you had actual knowledge. Fillable state tax forms You and your spouse (or former spouse) remain jointly and severally liable for this part of the understated tax. Fillable state tax forms If you had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. Fillable state tax forms You had actual knowledge of an erroneous item if: You knew that an item of unreported income was received. Fillable state tax forms (This rule applies whether or not there was a receipt of cash. Fillable state tax forms ) You knew of the facts that made an incorrect deduction or credit unallowable. Fillable state tax forms For a false or inflated deduction, you knew that the expense was not incurred, or not incurred to the extent shown on the tax return. Fillable state tax forms Knowledge of the source of an erroneous item is not sufficient to establish actual knowledge. Fillable state tax forms Also, your actual knowledge may not be inferred when you merely had a reason to know of the erroneous item. Fillable state tax forms Similarly, the IRS does not have to establish that you knew of the source of an erroneous item in order to establish that you had actual knowledge of the item itself. Fillable state tax forms Your actual knowledge of the proper tax treatment of an erroneous item is not relevant for purposes of demonstrating that you had actual knowledge of that item. Fillable state tax forms Neither is your actual knowledge of how the erroneous item was treated on the tax return. Fillable state tax forms For example, if you knew that your spouse received dividend income, relief is not available for that income even if you did not know it was taxable. Fillable state tax forms Example. Fillable state tax forms Bill and Karen Green filed a joint return showing Karen's wages of $50,000 and Bill's self-employment income of $10,000. Fillable state tax forms The IRS audited their return and found that Bill did not report $20,000 of self-employment income. Fillable state tax forms The additional income resulted in a $6,000 understated tax, plus interest and penalties. Fillable state tax forms After obtaining a legal separation from Bill, Karen filed Form 8857 to request separation of liability relief. Fillable state tax forms The IRS proved that Karen actually knew about the $20,000 of additional income at the time she signed the joint return. Fillable state tax forms Bill is liable for all of the understated tax, interest, and penalties because all of it was due to his unreported income. Fillable state tax forms Karen is also liable for the understated tax, interest, and penalties due to the $20,000 of unreported income because she actually knew of the item. Fillable state tax forms The IRS can collect the entire $6,000 plus interest and penalties from either Karen or Bill because they are jointly and individually liable for it. Fillable state tax forms Factors supporting actual knowledge. Fillable state tax forms   The IRS may rely on all facts and circumstances in determining whether you actually knew of an erroneous item at the time you signed the return. Fillable state tax forms The following are examples of factors the IRS may use. Fillable state tax forms Whether you made a deliberate effort to avoid learning about the item in order to be shielded from liability. Fillable state tax forms Whether you and your spouse (or former spouse) jointly owned the property that resulted in the erroneous item. Fillable state tax forms Exception for spousal abuse or domestic violence. Fillable state tax forms   Even if you had actual knowledge, you may still qualify for relief if you establish that: You were the victim of spousal abuse or domestic violence before signing the return, and Because of that abuse, you did not challenge the treatment of any items on the return because you were afraid your spouse (or former spouse) would retaliate against you. Fillable state tax forms   If you establish that you signed your joint return under duress (threat of harm or other form of coercion), then it is not a joint return, and you are not liable for any tax shown on that return or any tax deficiency for that return. Fillable state tax forms However, you may be required to file a separate return for that tax year. Fillable state tax forms For more information about duress, see the instructions for Form 8857. Fillable state tax forms Transfers of Property To Avoid Tax If your spouse (or former spouse) transfers property (or the right to property) to you for the main purpose of avoiding tax or payment of tax, the tax liability allocated to you will be increased by the fair market value of the property on the date of the transfer. Fillable state tax forms The increase may not be more than the entire amount of the liability. Fillable state tax forms A transfer will be presumed to have as its main purpose the avoidance of tax or payment of tax if the transfer is made after the date that is 1 year before the date on which the IRS sent its first letter of proposed deficiency. Fillable state tax forms This presumption will not apply if: The transfer was made under a divorce decree, separate maintenance agreement, or a written instrument incident to such an agreement, or You establish that the transfer did not have as its main purpose the avoidance of tax or payment of tax. Fillable state tax forms If the presumption does not apply, but the IRS can establish that the purpose of the transfer was the avoidance of tax or payment of tax, the tax liability allocated to you will be increased as explained above. Fillable state tax forms Equitable Relief If you do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law, you may still be relieved of responsibility for tax, interest, and penalties through equitable relief. Fillable state tax forms Unlike innocent spouse relief or separation of liability relief, you can get equitable relief from an understated tax (defined earlier under Innocent Spouse Relief ) or an underpaid tax. Fillable state tax forms An underpaid tax is an amount of tax you properly reported on your return but you have not paid. Fillable state tax forms For example, your joint 2009 return shows that you and your spouse owed $5,000. Fillable state tax forms You paid $2,000 with the return. Fillable state tax forms You have an underpaid tax of $3,000. Fillable state tax forms Conditions for Getting Equitable Relief You may qualify for equitable relief if you meet all of the following conditions. Fillable state tax forms You are not eligible for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. Fillable state tax forms You have an understated tax or an underpaid tax. Fillable state tax forms You did not pay the tax. Fillable state tax forms However, see Refunds , later, for situations in which you are entitled to a refund of payments you made. Fillable state tax forms You establish that, taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated or underpaid tax. Fillable state tax forms See Factors for Determining Whether To Grant Equitable Relief, later. Fillable state tax forms You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. Fillable state tax forms A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner. Fillable state tax forms Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. Fillable state tax forms See Transfers of Property To Avoid Tax, earlier, under Separation of Liability Relief. Fillable state tax forms You did not file or fail to file your return with the intent to commit fraud. Fillable state tax forms The income tax liability from which you seek relief must be attributable to an item of the spouse (or former spouse) with whom you filed the joint return, unless one of the following exceptions applies: The item is attributable or partially attributable to you solely due to the operation of community property law. Fillable state tax forms If you meet this exception, that item will be considered attributable to your spouse (or former spouse) for purposes of equitable relief. Fillable state tax forms If the item is titled in your name, the item is presumed to be attributable to you. Fillable state tax forms However, you can rebut this presumption based on the facts and circumstances. Fillable state tax forms You did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by your spouse (or former spouse) for his or her benefit. Fillable state tax forms If you meet this exception, the IRS will consider granting equitable relief although the underpaid tax may be attributable in part or in full to your item, and only to the extent the funds intended for payment were taken by your spouse (or former spouse). Fillable state tax forms You establish that you were the victim of spousal abuse or domestic violence before signing the return, and that, as a result of the prior abuse, you did not challenge the treatment of any items on the return for fear of your spouse's (or former spouse's) retaliation. Fillable state tax forms If you meet this exception, relief will be considered although the understated tax or underpaid tax may be attributable in part or in full to your item. Fillable state tax forms Factors for Determining Whether To Grant Equitable Relief The IRS will consider all of the facts and circumstances in order to determine whether it is unfair to hold you responsible for the understated or underpaid tax. Fillable state tax forms The following are examples of factors that the IRS will consider to determine whether to grant equitable relief. Fillable state tax forms The IRS will consider all factors and weigh them appropriately. Fillable state tax forms Relevant Factors The following are examples of factors that may be relevant to whether the IRS will grant equitable relief. Fillable state tax forms Whether you are separated (whether legally or not) or divorced from your spouse. Fillable state tax forms A temporary absence, such as an absence due to imprisonment, illness, business, vacation, military service, or education, is not considered separation for this purpose. Fillable state tax forms A temporary absence is one where it is reasonable to assume that the absent spouse will return to the household, and the household or a substantially equivalent household is maintained in anticipation of the absent spouse's return. Fillable state tax forms Whether you would suffer a significant economic hardship if relief is not granted. Fillable state tax forms (In other words, you would not be able to pay your reasonable basic living expenses. Fillable state tax forms ) Whether you have a legal obligation under a divorce decree or agreement to pay the tax. Fillable state tax forms This factor will not weigh in favor of relief if you knew or had reason to know, when entering into the divorce decree or agreement, that your former spouse would not pay the income tax liability. Fillable state tax forms Whether you received a significant benefit (beyond normal support) from the underpaid tax or item causing the understated tax. Fillable state tax forms (For a definition of significant benefit, see Indications of Unfairness for Innocent Spouse Relief earlier. Fillable state tax forms ) Whether you have made a good faith effort to comply with federal income tax laws for the tax year for which you are requesting relief or the following years. Fillable state tax forms Whether you knew or had reason to know about the items causing the understated tax or that the tax would not be paid, as explained next. Fillable state tax forms Knowledge or reason to know. Fillable state tax forms   In the case of an underpaid tax, the IRS will consider whether you did not know and had no reason to know that your spouse (or former spouse) would not pay the income tax liability. Fillable state tax forms   In the case of an income tax liability that arose from an understated tax, the IRS will consider whether you did not know and had no reason to know of the item causing the understated tax. Fillable state tax forms Reason to know of the item giving rise to the understated tax will not be weighed more heavily than other factors. Fillable state tax forms Actual knowledge of the item giving rise to the understated tax, however, is a strong factor weighing against relief. Fillable state tax forms This strong factor may be overcome if the factors in favor of equitable relief are particularly compelling. Fillable state tax forms Reason to know. Fillable state tax forms   In determining whether you had reason to know, the IRS will consider your level of education, any deceit or evasiveness of your spouse (or former spouse), your degree of involvement in the activity generating the income tax liability, your involvement in business and household financial matters, your business or financial expertise, and any lavish or unusual expenditures compared with past spending levels. Fillable state tax forms Example. Fillable state tax forms You and your spouse filed a joint 2009 return. Fillable state tax forms That return showed you owed $10,000. Fillable state tax forms You had $5,000 of your own money and you took out a loan to pay the other $5,000. Fillable state tax forms You gave 2 checks for $5,000 each to your spouse to pay the $10,000 liability. Fillable state tax forms Without telling you, your spouse took the $5,000 loan and spent it on himself. Fillable state tax forms You and your spouse were divorced in 2010. Fillable state tax forms In addition, you had no knowledge or reason to know at the time you signed the return that the tax would not be paid. Fillable state tax forms These facts indicate to the IRS that it may be unfair to hold you liable for the $5,000 underpaid tax. Fillable state tax forms The IRS will consider these facts, together with all of the other facts and circumstances, to determine whether to grant you equitable relief from the $5,000 underpaid tax. Fillable state tax forms Factors Weighing in Favor of Equitable Relief The following are examples of factors that will weigh in favor of equitable relief, but will not weigh against equitable relief. Fillable state tax forms Whether your spouse (or former spouse) abused you. Fillable state tax forms Whether you were in poor mental or physical health on the date you signed the return or at the time you requested relief. Fillable state tax forms Refunds If you are granted relief, refunds are: Permitted under innocent spouse relief as explained later under Limit on Amount of Refund . Fillable state tax forms Not permitted under separation of liability relief. Fillable state tax forms Permitted in limited circumstances under equitable relief, as explained under Refunds Under Equitable Relief. Fillable state tax forms Proof Required The IRS will only refund payments you made with your own money. Fillable state tax forms However, you must provide proof that you made the payments with your own money. Fillable state tax forms Examples of proof are a copy of your bank statement or a canceled check. Fillable state tax forms No proof is required if your individual refund was used by the IRS to pay a tax you owed on a joint tax return for another year. Fillable state tax forms Refunds Under Equitable Relief In the following situations, you are eligible to receive a refund of certain payments you made. Fillable state tax forms Underpaid tax. Fillable state tax forms   If you are granted relief for an underpaid tax, you are eligible for a refund of separate payments that you made after July 22, 1998. Fillable state tax forms However, you are not eligible for refunds of payments made with the joint return, joint payments, or payments that your spouse (or former spouse) made. Fillable state tax forms For example, withholding tax and estimated tax payments cannot be refunded because they are considered made with the joint return. Fillable state tax forms   The amount of the refund is subject to the limit discussed later under Limit on Amount of Refund. Fillable state tax forms Understated tax. Fillable state tax forms   If you are granted relief for an understated tax, you are eligible for a refund of certain payments made under an installment agreement that you entered into with the IRS, if you have not defaulted on the installment agreement. Fillable state tax forms You are not in default if the IRS did not issue you a notice of default or take any action to end the installment agreement. Fillable state tax forms Only installment payments made after the date you filed Form 8857 are eligible for a refund. Fillable state tax forms   The amount of the refund is subject to the limit discussed next. Fillable state tax forms Limit on Amount of Refund The amount of your refund is limited. Fillable state tax forms Read the following chart to find out the limit. Fillable state tax forms IF you file Form 8857. Fillable state tax forms . Fillable state tax forms . Fillable state tax forms THEN the refund cannot be more than. Fillable state tax forms . Fillable state tax forms . Fillable state tax forms Within 3 years after filing your return The part of the tax paid within 3 years (plus any extension of time for filing your return) before you filed Form 8857. Fillable state tax forms After the 3-year period, but within 2 years from the time you paid the tax The tax you paid within 2 years immediately before you filed Form 8857. Fillable state tax forms Filled-in Form 8857 This part explains how Janie Boulder fills out Form 8857 to request innocent spouse relief. Fillable state tax forms Janie and Joe Boulder filed a joint tax return for 2007. Fillable state tax forms They claimed one dependency exemption for their son Michael. Fillable state tax forms Their return was adjusted by the IRS because Joe did not report a $5,000 award he won that year. Fillable state tax forms Janie did not know about the award when the return was filed. Fillable state tax forms They agreed to the adjustment but could not pay the additional amount due of $815 ($650 tax + $165 penalty and interest). Fillable state tax forms Janie and Joe were divorced on May 13, 2009. Fillable state tax forms In February 2010, Janie filed her 2009 federal income tax return as head of household. Fillable state tax forms She expected a refund of $1,203. Fillable state tax forms In May 2010, she received a notice informing her that the IRS had offset her refund against the $815 owed on her joint 2007 income tax return and that she had a right to file Form 8857. Fillable state tax forms Janie applies the conditions listed earlier under Innocent Spouse Relief to see if she qualifies for relief. Fillable state tax forms Janie meets the first and second conditions because the joint tax return they filed has an understated tax due to Joe's erroneous item. Fillable state tax forms Janie believes she meets the third condition. Fillable state tax forms She did not know about the award and had no reason to know about it because of the secretive way Joe conducted his financial affairs. Fillable state tax forms Janie believes she meets the fourth condition. Fillable state tax forms She believes it would be unfair to be held liable for the tax because she did not benefit from the award. Fillable state tax forms Joe spent it on personal items for his use only. Fillable state tax forms Because Janie believes she qualifies for innocent spouse relief, she first completes Part I of Form 8857 to determine if she should file the form. Fillable state tax forms In Part I, she makes all entries under the Tax Year 1 column because she is requesting relief for only one year. Fillable state tax forms Part I Line 1. Fillable state tax forms   She enters “2007” on line 1 because this is the tax year for which she is requesting relief. Fillable state tax forms Line 2. Fillable state tax forms   She checks the box because she wants a refund. Fillable state tax forms Note. Fillable state tax forms Because the IRS used her individual refund to pay the tax owed on the joint tax return, she does not need to provide proof of payment. Fillable state tax forms Line 3. Fillable state tax forms   She checks the “No” box because the IRS did not use her share of a joint refund to pay Joe's past-due debts. Fillable state tax forms Line 4. Fillable state tax forms   She checks the “Yes” box because she filed a joint tax return for tax year 2007. Fillable state tax forms Line 5. Fillable state tax forms   She skips this line because she checked the “Yes” box on line 4. Fillable state tax forms Part II Line 6. Fillable state tax forms   She enters her name, address, social security number, county, and best daytime phone number. Fillable state tax forms Part III Line 7. Fillable state tax forms   She enters Joe's name, address, social security number, and best daytime phone number. Fillable state tax forms Line 8. Fillable state tax forms   She checks the “divorced since” box and enters the date she was divorced as “05/13/2009. Fillable state tax forms ” She attaches a copy of her entire divorce decree (not Illustrated) to the form. Fillable state tax forms Line 9. Fillable state tax forms   She checks the box for “High school diploma, equivalent, or less,” because she had completed high school when her 2007 joint tax return was filed. Fillable state tax forms Line 10. Fillable state tax forms   She checks the “No” box because she was not a victim of spousal abuse or domestic violence. Fillable state tax forms Line 11. Fillable state tax forms   She checks the “No” box because neither she nor Joe incurred any large expenses during the year for which she wants relief. Fillable state tax forms Line 12. Fillable state tax forms   She checks the “Yes” box because she signed the 2007 joint tax return. Fillable state tax forms Line 13. Fillable state tax forms   She checks the “No” box because she did not have a mental or physical condition when the return was filed and does not have one now. Fillable state tax forms Part IV Line 14. Fillable state tax forms   Because she was not involved in preparing the return, she checks the box, “You were not involved in preparing the returns. Fillable state tax forms ” Line 15. Fillable state tax forms   She checks the box, “You did not know anything was incorrect or missing” because she did not know that Joe had received a $5,000 award. Fillable state tax forms She explains this in the space provided. Fillable state tax forms Line 16. Fillable state tax forms   She checks the box, “You knew that person had income” because she knew Joe had income from wages. Fillable state tax forms She also lists Joe's income. Fillable state tax forms Under “Type of Income” she enters “wages. Fillable state tax forms ” Under “Who paid it to that person,” she enters the name of Joe's employer, “Allied. Fillable state tax forms ” Under “Tax Year 1” she enters the amount of Joe's wages, “$40,000. Fillable state tax forms ” Because she is only requesting relief for one tax year, she leaves the entry spaces for “Tax Year 2” and “Tax Year 3” blank. Fillable state tax forms Line 17. Fillable state tax forms   She checks the “No” box because she did not know any amount was owed to the IRS when the 2007 return was signed. Fillable state tax forms Line 18. Fillable state tax forms   She checks the “No” box because, when the return was signed, she was not having financial problems. Fillable state tax forms Line 19. Fillable state tax forms   She checks the box, “You were not involved in handling money for the household” because Joe handled all the money for the household. Fillable state tax forms She provides additional information in the space provided. Fillable state tax forms Line 20. Fillable state tax forms   She checks the “No” box because Joe has never transferred money or property to her. Fillable state tax forms Part V Line 21. Fillable state tax forms   She enters the number “1” on both the line for “Adults” and the line for “Children” because her current household consists of herself and her son. Fillable state tax forms Line 22. Fillable state tax forms   She enters her average monthly income for her entire household. Fillable state tax forms Line 23. Fillable state tax forms   She lists her assets, which are $500 for the fair market value of a car, $450 in her checking account, and $100 in her savings account. Fillable state tax forms Signing and mailing Form 8857. Fillable state tax forms    Janie signs and dates the form. Fillable state tax forms She attaches the copy of her divorce decree (not illustrated) required by line 8. Fillable state tax forms Finally, she sends the form to the IRS address or fax number shown in the instructions for Form 8857. Fillable state tax forms This image is too large to be displayed in the current screen. Fillable state tax forms Please click the link to view the image. Fillable state tax forms Boulder's filled-in Form 8857 page 1 This image is too large to be displayed in the current screen. Fillable state tax forms Please click the link to view the image. Fillable state tax forms Boulder's filled-in Form 8857 page 2 This image is too large to be displayed in the current screen. Fillable state tax forms Please click the link to view the image. Fillable state tax forms Boulder's filled-in Form 8857 page 3 This image is too large to be displayed in the current screen. Fillable state tax forms Please click the link to view the image. Fillable state tax forms Boulder's filled-in Form 8857 page 4 Flowcharts The following flowcharts provide a quick way for determining whether you may qualify for relief. Fillable state tax forms But do not rely on these flowcharts alone. Fillable state tax forms Also read the earlier discussions. Fillable state tax forms Figure A. Fillable state tax forms Do You Qualify for Innocent Spouse Relief? Please click here for the text description of the image. Fillable state tax forms "Do You Qualify for Innocent Spouse Relief?" Figure B. Fillable state tax forms Do You Qualify for Separation of Liability Relief? Please click here for the text description of the image. Fillable state tax forms "Do You Qualify for Separation of Liability Relief?" Figure C. Fillable state tax forms Do You Qualify for Equitable Relief? This image is too large to be displayed in the current screen. Fillable state tax forms Please click the link to view the image. Fillable state tax forms "Do You Qualify for Equitable Relief?" Prev  Up  Next   Home   More Online Publications
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The Fillable State Tax Forms

Fillable state tax forms 8. Fillable state tax forms   Amortization Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: How To Deduct Amortization Starting a BusinessBusiness Start-Up Costs Costs of Organizing a Corporation Costs of Organizing a Partnership How To Amortize Getting a Lease Section 197 IntangiblesSection 197 Intangibles Defined Assets That Are Not Section 197 Intangibles Safe Harbor for Creative Property Costs Anti-Churning Rules Incorrect Amount of Amortization Deducted Disposition of Section 197 Intangibles Reforestation Costs Geological and Geophysical Costs Pollution Control FacilitiesNew identifiable treatment facility. Fillable state tax forms Research and Experimental Costs Optional Write-off of Certain Tax Preferences Introduction Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. Fillable state tax forms It is similar to the straight line method of depreciation. Fillable state tax forms The various amortizable costs covered in this chapter are included in the list below. Fillable state tax forms However, this chapter does not discuss amortization of bond premium. Fillable state tax forms For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses. Fillable state tax forms Topics - This chapter discusses: Deducting amortization Amortizing costs of starting a business Amortizing costs of getting a lease Amortizing costs of section 197 intangibles Amortizing reforestation costs Amortizing costs of geological and geophysical costs Amortizing costs of pollution control facilities Amortizing costs of research and experimentation Amortizing costs of certain tax preferences Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 4626 Alternative Minimum Tax—Corporations 6251 Alternative Minimum Tax—Individuals See chapter 12 for information about getting publications and forms. Fillable state tax forms How To Deduct Amortization To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return. Fillable state tax forms To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. Fillable state tax forms For example, in 2012, you began to amortize a lease. Fillable state tax forms In 2013, you began to amortize a second lease. Fillable state tax forms Report amortization from the new lease on line 42 of your 2013 Form 4562. Fillable state tax forms Report amortization from the 2012 lease on line 43 of your 2013 Form 4562. Fillable state tax forms If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Fillable state tax forms Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return. Fillable state tax forms Starting a Business When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Fillable state tax forms Generally, you recover costs for particular assets through depreciation deductions. Fillable state tax forms However, you generally cannot recover other costs until you sell the business or otherwise go out of business. Fillable state tax forms For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1. Fillable state tax forms For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. Fillable state tax forms The costs that are not deducted currently can be amortized ratably over a 180-month period. Fillable state tax forms The amortization period starts with the month you begin operating your active trade or business. Fillable state tax forms You are not required to attach a statement to make this election. Fillable state tax forms You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Fillable state tax forms Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. Fillable state tax forms See Regulations sections 1. Fillable state tax forms 195-1, 1. Fillable state tax forms 248-1, and 1. Fillable state tax forms 709-1. Fillable state tax forms For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Fillable state tax forms Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. Fillable state tax forms If the election is made, you must attach any statement required by Regulations sections 1. Fillable state tax forms 195-1(b), 1. Fillable state tax forms 248-1(c), and 1. Fillable state tax forms 709-1(c), as in effect before September 9, 2008. Fillable state tax forms Note. Fillable state tax forms You can apply the provisions of Regulations sections 1. Fillable state tax forms 195-1, 1. Fillable state tax forms 248-1, and 1. Fillable state tax forms 709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Fillable state tax forms Otherwise, the provisions under Regulations sections 1. Fillable state tax forms 195-1(b), 1. Fillable state tax forms 248-1(c), and 1. Fillable state tax forms 709-1(c), as in effect before September 9, 2008, will apply. Fillable state tax forms For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. Fillable state tax forms See How To Make the Election , later. Fillable state tax forms The cost must qualify as one of the following. Fillable state tax forms A business start-up cost. Fillable state tax forms An organizational cost for a corporation. Fillable state tax forms An organizational cost for a partnership. Fillable state tax forms Business Start-Up Costs Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Fillable state tax forms Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business. Fillable state tax forms Qualifying costs. Fillable state tax forms   A start-up cost is amortizable if it meets both of the following tests. Fillable state tax forms It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into). Fillable state tax forms It is a cost you pay or incur before the day your active trade or business begins. Fillable state tax forms   Start-up costs include amounts paid for the following: An analysis or survey of potential markets, products, labor supply, transportation facilities, etc. Fillable state tax forms Advertisements for the opening of the business. Fillable state tax forms Salaries and wages for employees who are being trained and their instructors. Fillable state tax forms Travel and other necessary costs for securing prospective distributors, suppliers, or customers. Fillable state tax forms Salaries and fees for executives and consultants, or for similar professional services. Fillable state tax forms Nonqualifying costs. Fillable state tax forms   Start-up costs do not include deductible interest, taxes, or research and experimental costs. Fillable state tax forms See Research and Experimental Costs , later. Fillable state tax forms Purchasing an active trade or business. Fillable state tax forms   Amortizable start-up costs for purchasing an active trade or business include only investigative costs incurred in the course of a general search for or preliminary investigation of the business. Fillable state tax forms These are costs that help you decide whether to purchase a business. Fillable state tax forms Costs you incur in an attempt to purchase a specific business are capital expenses that you cannot amortize. Fillable state tax forms Example. Fillable state tax forms On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. Fillable state tax forms They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. Fillable state tax forms In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. Fillable state tax forms The letter stated that a binding commitment would result only after a purchase agreement was signed. Fillable state tax forms The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. Fillable state tax forms On October 22nd, you signed a purchase agreement with XYZ, Inc. Fillable state tax forms All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Fillable state tax forms Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized. Fillable state tax forms Disposition of business. Fillable state tax forms   If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. Fillable state tax forms However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Fillable state tax forms Costs of Organizing a Corporation Amounts paid to organize a corporation are the direct costs of creating the corporation. Fillable state tax forms Qualifying costs. Fillable state tax forms   To qualify as an organizational cost, it must be: For the creation of the corporation, Chargeable to a capital account (see chapter 1), Amortized over the life of the corporation if the corporation had a fixed life, and Incurred before the end of the first tax year in which the corporation is in business. Fillable state tax forms   A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year. Fillable state tax forms   Examples of organizational costs include: The cost of temporary directors. Fillable state tax forms The cost of organizational meetings. Fillable state tax forms State incorporation fees. Fillable state tax forms The cost of legal services. Fillable state tax forms Nonqualifying costs. Fillable state tax forms   The following items are capital expenses that cannot be amortized: Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs. Fillable state tax forms Costs associated with the transfer of assets to the corporation. Fillable state tax forms Costs of Organizing a Partnership The costs to organize a partnership are the direct costs of creating the partnership. Fillable state tax forms Qualifying costs. Fillable state tax forms   A partnership can amortize an organizational cost only if it meets all the following tests. Fillable state tax forms It is for the creation of the partnership and not for starting or operating the partnership trade or business. Fillable state tax forms It is chargeable to a capital account (see chapter 1). Fillable state tax forms It could be amortized over the life of the partnership if the partnership had a fixed life. Fillable state tax forms It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. Fillable state tax forms However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later. Fillable state tax forms It is for a type of item normally expected to benefit the partnership throughout its entire life. Fillable state tax forms   Organizational costs include the following fees. Fillable state tax forms Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement. Fillable state tax forms Accounting fees for services incident to the organization of the partnership. Fillable state tax forms Filing fees. Fillable state tax forms Nonqualifying costs. Fillable state tax forms   The following costs cannot be amortized. Fillable state tax forms The cost of acquiring assets for the partnership or transferring assets to the partnership. Fillable state tax forms The cost of admitting or removing partners, other than at the time the partnership is first organized. Fillable state tax forms The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership. Fillable state tax forms The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. Fillable state tax forms These “syndication fees” are capital expenses that cannot be depreciated or amortized. Fillable state tax forms Liquidation of partnership. Fillable state tax forms   If a partnership is liquidated before the end of the amortization period, the unamortized amount of qualifying organizational costs can be deducted in the partnership's final tax year. Fillable state tax forms However, these costs can be deducted only to the extent they qualify as a loss from a business. Fillable state tax forms How To Amortize Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). Fillable state tax forms You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Fillable state tax forms Once you choose an amortization period, you cannot change it. Fillable state tax forms To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. Fillable state tax forms The result is the amount you can deduct for each month. Fillable state tax forms Cash method partnership. Fillable state tax forms   A partnership using the cash method of accounting can deduct an organizational cost only if it has been paid by the end of the tax year. Fillable state tax forms However, any cost the partnership could have deducted as an organizational cost in an earlier tax year (if it had been paid that year) can be deducted in the tax year of payment. Fillable state tax forms How To Make the Election To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. Fillable state tax forms You may also be required to attach an accompanying statement (described later) to your return. Fillable state tax forms For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Fillable state tax forms Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1. Fillable state tax forms 195-1, 1. Fillable state tax forms 248-1, and 1. Fillable state tax forms 709-1, you must also attach an accompanying statement to elect to amortize the costs. Fillable state tax forms If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. Fillable state tax forms See Starting a Business , earlier, for more information. Fillable state tax forms Generally, you must file the return by the due date (including any extensions). Fillable state tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable state tax forms For more information, see the instructions for Part VI of Form 4562. Fillable state tax forms You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Fillable state tax forms Note. Fillable state tax forms The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business. Fillable state tax forms If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. Fillable state tax forms A shareholder or partner cannot make this election. Fillable state tax forms You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Fillable state tax forms Only the corporation or partnership can amortize these costs. Fillable state tax forms However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. Fillable state tax forms These costs qualify as business start-up costs if you acquire the partnership interest. Fillable state tax forms Start-up costs election statement. Fillable state tax forms   If you elect to amortize your start-up costs, attach a separate statement (if required) that contains the following information. Fillable state tax forms A description of the business to which the start-up costs relate. Fillable state tax forms A description of each start-up cost incurred. Fillable state tax forms The month your active business began (or was acquired). Fillable state tax forms The number of months in your amortization period (which is generally 180 months). Fillable state tax forms Filing the statement early. Fillable state tax forms   You can elect to amortize your start-up costs by filing the statement with a return for any tax year before the year your active business begins. Fillable state tax forms If you file the statement early, the election becomes effective in the month of the tax year your active business begins. Fillable state tax forms Revised statement. Fillable state tax forms   You can file a revised statement to include any start-up costs not included in your original statement. Fillable state tax forms However, you cannot include on the revised statement any cost you previously treated on your return as a cost other than a start-up cost. Fillable state tax forms You can file the revised statement with a return filed after the return on which you elected to amortize your start-up costs. Fillable state tax forms Organizational costs election statement. Fillable state tax forms   If you elect to amortize your corporation's or partnership's organizational costs, attach a separate statement (if required) that contains the following information. Fillable state tax forms A description of each cost. Fillable state tax forms The amount of each cost. Fillable state tax forms The date each cost was incurred. Fillable state tax forms The month your corporation or partnership began active business (or acquired the business). Fillable state tax forms The number of months in your amortization period (which is generally 180 months). Fillable state tax forms Partnerships. Fillable state tax forms   The statement prepared for a cash basis partnership must also indicate the amount paid before the end of the year for each cost. Fillable state tax forms   You do not need to separately list any partnership organizational cost that is less than $10. Fillable state tax forms Instead, you can list the total amount of these costs with the dates the first and last costs were incurred. Fillable state tax forms   After a partnership makes the election to amortize organizational costs, it can later file an amended return to include additional organizational costs not included in the partnership's original return and statement. Fillable state tax forms Getting a Lease If you get a lease for business property, you may recover the cost of acquiring the lease by amortizing it over the term of the lease. Fillable state tax forms The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). Fillable state tax forms However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease). Fillable state tax forms For more information on the costs of getting a lease, see Cost of Getting a Lease in  chapter 3. Fillable state tax forms How to amortize. Fillable state tax forms   Enter your deduction in Part VI of Form 4562 if you are deducting amortization that begins during the current year, or on the appropriate line of your tax return if you are not otherwise required to file Form 4562. Fillable state tax forms Section 197 Intangibles Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. Fillable state tax forms You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income. Fillable state tax forms You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. Fillable state tax forms See Anti-Churning Rules, later. Fillable state tax forms Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). Fillable state tax forms The 15-year period begins with the later of: The month the intangible is acquired, or The month the trade or business or activity engaged in for the production of income begins. Fillable state tax forms You cannot deduct amortization for the month you dispose of the intangible. Fillable state tax forms If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs. Fillable state tax forms You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible. Fillable state tax forms Tax-exempt use property subject to a lease. Fillable state tax forms   The amortization period for any section 197 intangible leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), shall not be less than 125 percent of the lease term. Fillable state tax forms Cost attributable to other property. Fillable state tax forms   The rules for section 197 intangibles do not apply to any amount that is included in determining the cost of property that is not a section 197 intangible. Fillable state tax forms For example, if the cost of computer software is not separately stated from the cost of hardware or other tangible property and you consistently treat it as part of the cost of the hardware or other tangible property, these rules do not apply. Fillable state tax forms Similarly, none of the cost of acquiring real property held for the production of rental income is considered the cost of goodwill, going concern value, or any other section 197 intangible. Fillable state tax forms Section 197 Intangibles Defined The following assets are section 197 intangibles and must be amortized over 180 months: Goodwill; Going concern value; Workforce in place; Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers; A patent, copyright, formula, process, design, pattern, know-how, format, or similar item; A customer-based intangible; A supplier-based intangible; Any item similar to items (3) through (7); A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals); A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business; Any franchise, trademark, or trade name; and A contract for the use of, or a term interest in, any item in this list. Fillable state tax forms You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business. Fillable state tax forms Goodwill. Fillable state tax forms   This is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor. Fillable state tax forms Going concern value. Fillable state tax forms   This is the additional value of a trade or business that attaches to property because the property is an integral part of an ongoing business activity. Fillable state tax forms It includes value based on the ability of a business to continue to function and generate income even though there is a change in ownership (but does not include any other section 197 intangible). Fillable state tax forms It also includes value based on the immediate use or availability of an acquired trade or business, such as the use of earnings during any period in which the business would not otherwise be available or operational. Fillable state tax forms Workforce in place, etc. Fillable state tax forms   This includes the composition of a workforce (for example, its experience, education, or training). Fillable state tax forms It also includes the terms and conditions of employment, whether contractual or otherwise, and any other value placed on employees or any of their attributes. Fillable state tax forms   For example, you must amortize the part of the purchase price of a business that is for the existence of a highly skilled workforce. Fillable state tax forms Also, you must amortize the cost of acquiring an existing employment contract or relationship with employees or consultants. Fillable state tax forms Business books and records, etc. Fillable state tax forms   This includes the intangible value of technical manuals, training manuals or programs, data files, and accounting or inventory control systems. Fillable state tax forms It also includes the cost of customer lists, subscription lists, insurance expirations, patient or client files, and lists of newspaper, magazine, radio, and television advertisers. Fillable state tax forms Patents, copyrights, etc. Fillable state tax forms   This includes package design, computer software, and any interest in a film, sound recording, videotape, book, or other similar property, except as discussed later under Assets That Are Not Section 197 Intangibles . Fillable state tax forms Customer-based intangible. Fillable state tax forms   This is the composition of market, market share, and any other value resulting from the future provision of goods or services because of relationships with customers in the ordinary course of business. Fillable state tax forms For example, you must amortize the part of the purchase price of a business that is for the existence of the following intangibles. Fillable state tax forms A customer base. Fillable state tax forms A circulation base. Fillable state tax forms An undeveloped market or market growth. Fillable state tax forms Insurance in force. Fillable state tax forms A mortgage servicing contract. Fillable state tax forms An investment management contract. Fillable state tax forms Any other relationship with customers involving the future provision of goods or services. Fillable state tax forms   Accounts receivable or other similar rights to income for goods or services provided to customers before the acquisition of a trade or business are not section 197 intangibles. Fillable state tax forms Supplier-based intangible. Fillable state tax forms   A supplier-based intangible is the value resulting from the future acquisitions, (through contract or other relationships with suppliers in the ordinary course of business) of goods or services that you will sell or use. Fillable state tax forms The amount you pay or incur for supplier-based intangibles includes, for example, any portion of the purchase price of an acquired trade or business that is attributable to the existence of a favorable relationship with persons providing distribution services (such as a favorable shelf or display space or a retail outlet), or the existence of favorable supply contracts. Fillable state tax forms Do not include any amount required to be paid for the goods or services to honor the terms of the agreement or other relationship. Fillable state tax forms Also, see Assets That Are Not Section 197 Intangibles below. Fillable state tax forms Government-granted license, permit, etc. Fillable state tax forms   This is any right granted by a governmental unit or an agency or instrumentality of a governmental unit. Fillable state tax forms For example, you must amortize the capitalized costs of acquiring (including issuing or renewing) a liquor license, a taxicab medallion or license, or a television or radio broadcasting license. Fillable state tax forms Covenant not to compete. Fillable state tax forms   Section 197 intangibles include a covenant not to compete (or similar arrangement) entered into in connection with the acquisition of an interest in a trade or business, or a substantial portion of a trade or business. Fillable state tax forms An interest in a trade or business includes an interest in a partnership or a corporation engaged in a trade or business. Fillable state tax forms   An arrangement that requires the former owner to perform services (or to provide property or the use of property) is not similar to a covenant not to compete to the extent the amount paid under the arrangement represents reasonable compensation for those services or for that property or its use. Fillable state tax forms Franchise, trademark, or trade name. Fillable state tax forms   A franchise, trademark, or trade name is a section 197 intangible. Fillable state tax forms You must amortize its purchase or renewal costs, other than certain contingent payments that you can deduct currently. Fillable state tax forms For information on currently deductible contingent payments, see chapter 11. Fillable state tax forms Professional sports franchise. Fillable state tax forms   A franchise engaged in professional sports and any intangible assets acquired in connection with acquiring the franchise (including player contracts) is a section 197 intangible amortizable over a 15-year period. Fillable state tax forms Contract for the use of, or a term interest in, a section 197 intangible. Fillable state tax forms   Section 197 intangibles include any right under a license, contract, or other arrangement providing for the use of any section 197 intangible. Fillable state tax forms It also includes any term interest in any section 197 intangible, whether the interest is outright or in trust. Fillable state tax forms Assets That Are Not Section 197 Intangibles The following assets are not section 197 intangibles. Fillable state tax forms Any interest in a corporation, partnership, trust, or estate. Fillable state tax forms Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract. Fillable state tax forms Any interest in land. Fillable state tax forms Most computer software. Fillable state tax forms (See Computer software , later. Fillable state tax forms ) Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Fillable state tax forms An interest in a film, sound recording, video tape, book, or similar property. Fillable state tax forms A right to receive tangible property or services under a contract or from a governmental agency. Fillable state tax forms An interest in a patent or copyright. Fillable state tax forms Certain rights that have a fixed duration or amount. Fillable state tax forms (See Rights of fixed duration or amount , later. Fillable state tax forms ) An interest under either of the following. Fillable state tax forms An existing lease or sublease of tangible property. Fillable state tax forms A debt that was in existence when the interest was acquired. Fillable state tax forms A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Fillable state tax forms Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized. Fillable state tax forms Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. Fillable state tax forms You generally must use the straight line method over its useful life. Fillable state tax forms For certain intangibles, the depreciation period is specified in the law and regulations. Fillable state tax forms For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months. Fillable state tax forms For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946. Fillable state tax forms Computer software. Fillable state tax forms   Section 197 intangibles do not include the following types of computer software. Fillable state tax forms Software that meets all the following requirements. Fillable state tax forms It is, or has been, readily available for purchase by the general public. Fillable state tax forms It is subject to a nonexclusive license. Fillable state tax forms It has not been substantially modified. Fillable state tax forms This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000. Fillable state tax forms Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business. Fillable state tax forms Computer software defined. Fillable state tax forms   Computer software includes all programs designed to cause a computer to perform a desired function. Fillable state tax forms It also includes any database or similar item that is in the public domain and is incidental to the operation of qualifying software. Fillable state tax forms Rights of fixed duration or amount. Fillable state tax forms   Section 197 intangibles do not include any right under a contract or from a governmental agency if the right is acquired in the ordinary course of a trade or business (or in an activity engaged in for the production of income) but not as part of a purchase of a trade or business and either: Has a fixed life of less than 15 years, or Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery. Fillable state tax forms However, this does not apply to the following intangibles. Fillable state tax forms Goodwill. Fillable state tax forms Going concern value. Fillable state tax forms A covenant not to compete. Fillable state tax forms A franchise, trademark, or trade name. Fillable state tax forms A customer-related information base, customer-based intangible, or similar item. Fillable state tax forms Safe Harbor for Creative Property Costs If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. Fillable state tax forms You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. Fillable state tax forms If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period. Fillable state tax forms Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. Fillable state tax forms Amortize these costs using the rules of Revenue Procedure 2004-36. Fillable state tax forms For more information, see Revenue Procedure 2004-36, 2004-24 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 1063, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2004-24_IRB/ar16. Fillable state tax forms html. Fillable state tax forms A change in the treatment of creative property costs is a change in method of accounting. Fillable state tax forms Anti-Churning Rules Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. Fillable state tax forms These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable. Fillable state tax forms Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply. Fillable state tax forms You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993. Fillable state tax forms You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change. Fillable state tax forms You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). Fillable state tax forms This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. Fillable state tax forms See Related person , later, for more information. Fillable state tax forms Exceptions. Fillable state tax forms   The anti-churning rules do not apply in the following situations. Fillable state tax forms You acquired the intangible from a decedent and its basis was stepped up to its fair market value. Fillable state tax forms The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. Fillable state tax forms This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions. Fillable state tax forms The gain-recognition exception, discussed later, applies. Fillable state tax forms Related person. Fillable state tax forms   For purposes of the anti-churning rules, the following are related persons. Fillable state tax forms An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Fillable state tax forms ), and lineal descendants (children, grandchildren, etc. Fillable state tax forms ). Fillable state tax forms A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock. Fillable state tax forms Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. Fillable state tax forms (For an exception, see section 1. Fillable state tax forms 197-2(h)(6)(iv) of the regulations. Fillable state tax forms ) A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust. Fillable state tax forms The grantor and fiduciary, and the fiduciary and beneficiary, of any trust. Fillable state tax forms The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts. Fillable state tax forms The executor and beneficiary of an estate. Fillable state tax forms A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it). Fillable state tax forms A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership. Fillable state tax forms Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation. Fillable state tax forms Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships. Fillable state tax forms A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership. Fillable state tax forms Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code). Fillable state tax forms When to determine relationship. Fillable state tax forms   Persons are treated as related if the relationship existed at the following time. Fillable state tax forms In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired. Fillable state tax forms In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction. Fillable state tax forms Ownership of stock. Fillable state tax forms   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following rules apply. Fillable state tax forms Rule 1. Fillable state tax forms   Stock directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. Fillable state tax forms Rule 2. Fillable state tax forms   An individual is considered to own the stock directly or indirectly owned by or for his or her family. Fillable state tax forms Family includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors, and lineal descendants. Fillable state tax forms Rule 3. Fillable state tax forms   An individual owning (other than by applying Rule 2) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. Fillable state tax forms Rule 4. Fillable state tax forms   For purposes of applying Rule 1, 2, or 3, treat stock constructively owned by a person under Rule 1 as actually owned by that person. Fillable state tax forms Do not treat stock constructively owned by an individual under Rule 2 or 3 as owned by the individual for reapplying Rule 2 or 3 to make another person the constructive owner of the stock. Fillable state tax forms Gain-recognition exception. Fillable state tax forms   This exception to the anti-churning rules applies if the person you acquired the intangible from (the transferor) meets both of the following requirements. Fillable state tax forms That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test. Fillable state tax forms That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. Fillable state tax forms See chapter 2 in Publication 544 for information on making this choice. Fillable state tax forms   If this exception applies, the anti-churning rules apply only to the amount of your adjusted basis in the intangible that is more than the gain recognized by the transferor. Fillable state tax forms Notification. Fillable state tax forms   If the person you acquired the intangible from chooses to recognize gain under the rules for this exception, that person must notify you in writing by the due date of the return on which the choice is made. Fillable state tax forms Anti-abuse rule. Fillable state tax forms   You cannot amortize any section 197 intangible acquired in a transaction for which the principal purpose was either of the following. Fillable state tax forms To avoid the requirement that the intangible be acquired after August 10, 1993. Fillable state tax forms To avoid any of the anti-churning rules. Fillable state tax forms More information. Fillable state tax forms   For more information about the anti-churning rules, including additional rules for partnerships, see Regulations section 1. Fillable state tax forms 197-2(h). Fillable state tax forms Incorrect Amount of Amortization Deducted If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. Fillable state tax forms See Amended Return , next. Fillable state tax forms If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. Fillable state tax forms See Changing Your Accounting Method , later. Fillable state tax forms Amended Return If you deducted an incorrect amount for amortization, you can file an amended return to correct the following. Fillable state tax forms A mathematical error made in any year. Fillable state tax forms A posting error made in any year. Fillable state tax forms An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting. Fillable state tax forms When to file. Fillable state tax forms   If an amended return is allowed, you must file it by the later of the following dates. Fillable state tax forms 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. Fillable state tax forms (A return filed early is considered filed on the due date. Fillable state tax forms ) 2 years from the time you paid your tax for that year. Fillable state tax forms Changing Your Accounting Method Generally, you must get IRS approval to change your method of accounting. Fillable state tax forms File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization. Fillable state tax forms The following are examples of a change in method of accounting for amortization. Fillable state tax forms A change in the amortization method, period of recovery, or convention of an amortizable asset. Fillable state tax forms A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa. Fillable state tax forms A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account. Fillable state tax forms Changes in amortization that are not a change in method of accounting include the following: A change in computing amortization in the tax year in which your use of the asset changes. Fillable state tax forms An adjustment in the useful life of an amortizable asset. Fillable state tax forms Generally, the making of a late amortization election or the revocation of a timely valid amortization election. Fillable state tax forms Any change in the placed-in-service date of an amortizable asset. Fillable state tax forms See Regulations section 1. Fillable state tax forms 446-1(e)(2)(ii)(a) for more information and examples. Fillable state tax forms Automatic approval. Fillable state tax forms   In some instances, you may be able to get automatic approval from the IRS to change your method of accounting for amortization. Fillable state tax forms For a list of automatic accounting method changes, see the Instructions for Form 3115. Fillable state tax forms Also see the Instructions for Form 3115 for more information on getting approval, automatic approval procedures, and a list of exceptions to the automatic approval process. Fillable state tax forms For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52, as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14, as modified and amplified by Revenue Procedure 2011-22, as modified by Revenue Procedure 2012-39, or any successor. Fillable state tax forms See Revenue Procedure 2006-12, 2006-3 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 310, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2006-03_IRB/ar14. Fillable state tax forms html. Fillable state tax forms  See Revenue Procedure 2006-37, 2006-38 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 499, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2006-38_IRB/ar10. Fillable state tax forms html. Fillable state tax forms  See Revenue Procedure 2008-52, 2008-36 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 587, available at www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2008-36_IRB/ar09. Fillable state tax forms html. Fillable state tax forms  See Revenue Procedure 2009-39, 2009-38 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 371, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2009-38_IRB/ar08. Fillable state tax forms html. Fillable state tax forms  See Revenue Procedure 2011-14, 2011-4 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 330, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2011-04_IRB/ar08. Fillable state tax forms html. Fillable state tax forms  See Revenue Procedure 2011-22, 2011-18 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 737, available at  www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2011-18_IRB/ar08. Fillable state tax forms html. Fillable state tax forms Also, see Revenue Procedure 2012-39, 2012-41 I. Fillable state tax forms R. Fillable state tax forms B. Fillable state tax forms 470 available at www. Fillable state tax forms irs. Fillable state tax forms gov/irb/2012-41_IRB/index. Fillable state tax forms html. Fillable state tax forms Disposition of Section 197 Intangibles A section 197 intangible is treated as depreciable property used in your trade or business. Fillable state tax forms If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). Fillable state tax forms If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Fillable state tax forms Any remaining gain, or any loss, is a section 1231 gain or loss. Fillable state tax forms If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. Fillable state tax forms For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544. Fillable state tax forms Nondeductible loss. Fillable state tax forms   You cannot deduct any loss on the disposition or worthlessness of a section 197 intangible that you acquired in the same transaction (or series of related transactions) as other section 197 intangibles you still have. Fillable state tax forms Instead, increase the adjusted basis of each remaining amortizable section 197 intangible by a proportionate part of the nondeductible loss. Fillable state tax forms Figure the increase by multiplying the nondeductible loss on the disposition of the intangible by the following fraction. Fillable state tax forms The numerator is the adjusted basis of each remaining intangible on the date of the disposition. Fillable state tax forms The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition. Fillable state tax forms Covenant not to compete. Fillable state tax forms   A covenant not to compete, or similar arrangement, is not considered disposed of or worthless before you dispose of your entire interest in the trade or business for which you entered into the covenant. Fillable state tax forms Nonrecognition transfers. Fillable state tax forms   If you acquire a section 197 intangible in a nonrecognition transfer, you are treated as the transferor with respect to the part of your adjusted basis in the intangible that is not more than the transferor's adjusted basis. Fillable state tax forms You amortize this part of the adjusted basis over the intangible's remaining amortization period in the hands of the transferor. Fillable state tax forms Nonrecognition transfers include transfers to a corporation, partnership contributions and distributions, like-kind exchanges, and involuntary conversions. Fillable state tax forms   In a like-kind exchange or involuntary conversion of a section 197 intangible, you must continue to amortize the part of your adjusted basis in the acquired intangible that is not more than your adjusted basis in the exchanged or converted intangible over the remaining amortization period of the exchanged or converted intangible. Fillable state tax forms Amortize over a new 15-year period the part of your adjusted basis in the acquired intangible that is more than your adjusted basis in the exchanged or converted intangible. Fillable state tax forms Example. Fillable state tax forms You own a section 197 intangible you have amortized for 4 full years. Fillable state tax forms It has a remaining unamortized basis of $30,000. Fillable state tax forms You exchange the asset plus $10,000 for a like-kind section 197 intangible. Fillable state tax forms The nonrecognition provisions of like-kind exchanges apply. Fillable state tax forms You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. Fillable state tax forms You amortize the other $10,000 of adjusted basis over a new 15-year period. Fillable state tax forms For more information, see Regulations section 1. Fillable state tax forms 197-2(g). Fillable state tax forms Reforestation Costs You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. Fillable state tax forms See Reforestation Costs in chapter 7. Fillable state tax forms You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. Fillable state tax forms There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year. Fillable state tax forms The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. Fillable state tax forms A partner, shareholder, or beneficiary cannot make that election. Fillable state tax forms A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc. Fillable state tax forms , of a partnership or S corporation. Fillable state tax forms The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each. Fillable state tax forms Qualifying costs. Fillable state tax forms   Reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Fillable state tax forms Qualifying costs include only those costs you must capitalize and include in the adjusted basis of the property. Fillable state tax forms They include costs for the following items. Fillable state tax forms Site preparation. Fillable state tax forms Seeds or seedlings. Fillable state tax forms Labor. Fillable state tax forms Tools. Fillable state tax forms Depreciation on equipment used in planting and seeding. Fillable state tax forms Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income. Fillable state tax forms Qualified timber property. Fillable state tax forms   Qualified timber property is property that contains trees in significant commercial quantities. Fillable state tax forms It can be a woodlot or other site that you own or lease. Fillable state tax forms The property qualifies only if it meets all of the following requirements. Fillable state tax forms It is located in the United States. Fillable state tax forms It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products. Fillable state tax forms It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation. Fillable state tax forms Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees. Fillable state tax forms Amortization period. Fillable state tax forms   The 84-month amortization period starts on the first day of the first month of the second half of the tax year you incur the costs (July 1 for a calendar year taxpayer), regardless of the month you actually incur the costs. Fillable state tax forms You can claim amortization deductions for no more than 6 months of the first and last (eighth) tax years of the period. Fillable state tax forms Life tenant and remainderman. Fillable state tax forms   If one person holds the property for life with the remainder going to another person, the life tenant is entitled to the full amortization for qualifying reforestation costs incurred by the life tenant. Fillable state tax forms Any remainder interest in the property is ignored for amortization purposes. Fillable state tax forms Recapture. Fillable state tax forms   If you dispose of qualified timber property within 10 years after the tax year you incur qualifying reforestation expenses, report any gain as ordinary income up to the amortization you took. Fillable state tax forms See chapter 3 of Publication 544 for more information. Fillable state tax forms How to make the election. Fillable state tax forms   To elect to amortize qualifying reforestation costs, complete Part VI of Form 4562 and attach a statement that contains the following information. Fillable state tax forms A description of the costs and the dates you incurred them. Fillable state tax forms A description of the type of timber being grown and the purpose for which it is grown. Fillable state tax forms Attach a separate statement for each property for which you amortize reforestation costs. Fillable state tax forms   Generally, you must make the election on a timely filed return (including extensions) for the tax year in which you incurred the costs. Fillable state tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable state tax forms Attach Form 4562 and the statement to the amended return and write “Filed pursuant to section 301. Fillable state tax forms 9100-2” on Form 4562. Fillable state tax forms File the amended return at the same address you filed the original return. Fillable state tax forms Revoking the election. Fillable state tax forms   You must get IRS approval to revoke your election to amortize qualifying reforestation costs. Fillable state tax forms Your application to revoke the election must include your name, address, the years for which your election was in effect, and your reason for revoking it. Fillable state tax forms Please provide your daytime telephone number (optional), in case we need to contact you. Fillable state tax forms You, or your duly authorized representative, must sign the application and file it at least 90 days before the due date (without extensions) for filing your income tax return for the first tax year for which your election is to end. Fillable state tax forms    Send the application to: Internal Revenue Service Associate Chief Counsel Passthroughs and Special Industries CC:PSI:6 1111 Constitution Ave. Fillable state tax forms NW, IR-5300 Washington, DC 20224 Geological and Geophysical Costs You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. Fillable state tax forms These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. Fillable state tax forms For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007). Fillable state tax forms If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment. Fillable state tax forms Pollution Control Facilities You can elect to amortize the cost of a certified pollution control facility over 60 months. Fillable state tax forms However, see Atmospheric pollution control facilities for an exception. Fillable state tax forms The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Fillable state tax forms Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. Fillable state tax forms You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. Fillable state tax forms See chapter 3 of Publication 946. Fillable state tax forms A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. Fillable state tax forms The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. Fillable state tax forms The facility must be certified by state and federal certifying authorities. Fillable state tax forms The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Fillable state tax forms Also, it must not significantly change the nature of the manufacturing or production process or facility. Fillable state tax forms The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). Fillable state tax forms The federal certifying authority will describe the nature of the potential cost recovery. Fillable state tax forms You must then reduce the amortizable basis of the facility by this potential recovery. Fillable state tax forms New identifiable treatment facility. Fillable state tax forms   A new identifiable treatment facility is tangible depreciable property that is identifiable as a treatment facility. Fillable state tax forms It does not include a building and its structural components unless the building is exclusively a treatment facility. Fillable state tax forms Atmospheric pollution control facilities. Fillable state tax forms   Certain atmospheric pollution control facilities can be amortized over 84 months. Fillable state tax forms To qualify, the following must apply. Fillable state tax forms The facility must be acquired and placed in service after April 11, 2005. Fillable state tax forms If acquired, the original use must begin with you after April 11, 2005. Fillable state tax forms The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired. Fillable state tax forms If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies. Fillable state tax forms Basis reduction for corporations. Fillable state tax forms   A corporation must reduce the amortizable basis of a pollution control facility by 20% before figuring the amortization deduction. Fillable state tax forms More information. Fillable state tax forms   For more information on the amortization of pollution control facilities, see Code sections 169 and 291(c) and the related regulations. Fillable state tax forms Research and Experimental Costs You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below). Fillable state tax forms If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. Fillable state tax forms The amortization period begins the month you first receive an economic benefit from the costs. Fillable state tax forms For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7. Fillable state tax forms Optional write-off method. Fillable state tax forms   Rather than amortize these costs or deduct them as a current expense, you have the option of deducting (writing off) research and experimental costs ratably over a 10-year period beginning with the tax year in which you incurred the costs. Fillable state tax forms For more information, see Optional Write-off of Certain Tax Preferences , later, and section 59(e) of the Internal Revenue Code. Fillable state tax forms Costs you can amortize. Fillable state tax forms   You can amortize costs chargeable to a capital account (see chapter 1) if you meet both of the following requirements. Fillable state tax forms You paid or incurred the costs in your trade or business. Fillable state tax forms You are not deducting the costs currently. Fillable state tax forms How to make the election. Fillable state tax forms   To elect to amortize research and experimental costs, complete Part VI of Form 4562 and attach it to your income tax return. Fillable state tax forms Generally, you must file the return by the due date (including extensions). Fillable state tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable state tax forms Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Fillable state tax forms 9100-2” on Form 4562. Fillable state tax forms File the amended return at the same address you filed the original return. Fillable state tax forms   Your election is binding for the year it is made and for all later years unless you obtain approval from the IRS to change to a different method. Fillable state tax forms Optional Write-off of Certain Tax Preferences You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. Fillable state tax forms If you make this election, there is no AMT adjustment. Fillable state tax forms The applicable costs and the optional recovery periods are as follows: Circulation costs — 3 years, Intangible drilling and development costs — 60 months, Mining exploration and development costs — 10 years, and Research and experimental costs — 10 years. Fillable state tax forms How to make the election. Fillable state tax forms   To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins: Your name, address, and taxpayer identification number; and The type of cost and the specific amount of the cost for which you are making the election. Fillable state tax forms   Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. Fillable state tax forms However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Fillable state tax forms Attach Form 4562 to the amended return and write “Filed pursuant to section 301. Fillable state tax forms 9100-2” on Form 4562. Fillable state tax forms File the amended return at the same address you filed the original return. Fillable state tax forms Revoking the election. Fillable state tax forms   You must obtain consent from the IRS to revoke your election. Fillable state tax forms Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. Fillable state tax forms The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. Fillable state tax forms If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective. Fillable state tax forms Prev  Up  Next   Home   More Online Publications