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Form 1040 2012

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Form 1040 2012

Form 1040 2012 Publication 557 - Additional Material Table of Contents Appendix. Form 1040 2012 Sample Articles of Organization, continued Organization Reference Chart Section of 1986 Code Description of organization General nature of activities Application  Form Annual return required to be  filed Contributions  allowable 501(c)(1) Corporations Organized under Act of Congress (including Federal Credit Unions) Instrumentalities of the  United States No Form None Yes, if made for exclusively public purposes 501(c)(2) Title Holding Corporation For Exempt Organization Holding title to property of an  exempt organization 1024 9901 or 990-EZ8 No2 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations Activities of nature implied by description of class of organization 1023 9901 or 990-EZ8, or 990-PF Yes, generally 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees Promotion of community welfare; charitable, educational, or recreational 1024 9901 or 990-EZ8 No, generally 2, 3 501(c)(5) Labor, Agricultural, and Horticultural Organizations Educational or instructive, the  purpose being to improve conditions of work, and to improve products of efficiency 1024 9901 or 990-EZ8 No2 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. Form 1040 2012 Improvement of business  conditions of one or more lines of business 1024 9901 or 990-EZ8 No2 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 9901 or 990-EZ8 No2 501(c)(8) Fraternal Beneficiary Societies  and Associations Lodge providing for payment of life, sickness, accident or other benefits  to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. Form 1040 2012 501(c)(3) purposes 501(c)(9) Voluntary Employees Beneficiary Associations Providing for payment of life, sickness, accident, or other benefits to members 1024 9901 or 990-EZ8 No2 501(c)(10) Domestic Fraternal Societies  and Associations Lodge devoting its net earnings to charitable, fraternal, and other  specified purposes. Form 1040 2012 No life, sickness, or accident benefits to members 1024 9901 or 990-EZ8 Yes, if for certain Sec. Form 1040 2012 501(c)(3) purposes 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of retirement benefits Letter6 9901 or 990-EZ8 No2 501(c)(12) Benevolent Life Insurance Associations, Mutual Ditch or  Irrigation Companies, Mutual or Cooperative Telephone Companies, etc. Form 1040 2012 Activities of a mutually beneficial  nature similar to those implied by the description of class of organization 1024 9901 or 990-EZ8 No2 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9901 or 990-EZ8 Yes, generally 501(c)(14) State-Chartered Credit Unions,  Mutual Reserve Funds Loans to members Letter6 9901 or 990-EZ8 No2 501(c)(15) Mutual Insurance Companies or Associations Providing insurance to members substantially at cost 1024 9901 or 990-EZ8 No2 501(c)(16) Cooperative Organizations to  Finance Crop Operations Financing crop operations in  conjunction with activities of a marketing  or purchasing association Form 1120-C6 9901 or 990-EZ8 No2 501(c)(17) Supplemental Unemployment  Benefit Trusts Provides for payment of  supplemental unemployment compensation benefits 1024 9901 or 990-EZ8 No2 501(c)(18) Employee Funded Pension Trust (created before June 25, 1959) Payment of benefits under a  pension plan funded by employees Letter6 9901 or 990-EZ8 No2 501(c)(19) Post or Organization of Past or  Present Members of the Armed Forces Activities implied by nature of organization 1024 9901 or 990-EZ8 No, generally7 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy their liability for disability or  death due to black lung diseases Letter6 990-BL No4 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the  liability of employers withdrawing from  a multi-employer pension fund Letter6 9901 or 990-EZ8 No5 501(c)(23) Veterans' Organization (created before 1880) To provide insurance and other  benefits to veterans Letter6 9901 or 990-EZ8 No, generally7 501(c)(25) Title Holding Corporations or Trusts with Multiple Parent Corporations Holding title and paying over  income from property to 35 or fewer parents or beneficiaries 1024 9901 or 990-EZ8 No 501(c)(26) State-Sponsored Organization Providing Health Coverage for High-Risk Individuals Provides health care coverage to high-risk individuals Letter6 9901 or 990-EZ8 No 501(c)(27) State-Sponsored Workers' Compensation Reinsurance Organization Reimburses members for losses  under workers' compensation acts Letter6 9901 or 990-EZ8 No 501(c)(28) National Railroad Retirement Investment Trust Manages and invests the assets of the Railroad Retirement Account No Form 99011 No11 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which has received a loan or grant under the CO-OP program Letter and Form 871814 9901 No13 501(d) Religious and Apostolic Associations Regular business activities;  Communal religious community No Form 10659 No2 501(e) Cooperative Hospital Service Organizations Performs cooperative services for hospitals 1023 9901 or 990-EZ8 Yes 501(f) Cooperative Service Organizations  of Operating Educational Organizations Performs collective investment  services for educational organizations 1023 9901 or 990-EZ8 Yes 501(k) Child Care Organizations Provides care for children 1023 9901 or 990-EZ8 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. Form 1040 2012 501(c)(3) organizations 1023 9901 or 990-EZ8 Yes 501(q) Credit Counseling Organization Credit counseling services 1023 102312 No 521(a) Farmers' Cooperative Associations Cooperative marketing and  purchasing for agricultural procedures 1028 1120-C No 527 Political organizations A party, committee, fund,  association, etc. Form 1040 2012 , that directly or indirectly accepts contributions or makes expenditures for political campaigns 8871 1120-POL10 9901 or 990-EZ8 No 1For exceptions to the filing requirement, see chapter 2 and the form instructions. Form 1040 2012 Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. Form 1040 2012 Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. Form 1040 2012    2An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. Form 1040 2012 Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). Form 1040 2012    3Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. Form 1040 2012    4Deductible as a business expense to the extent allowed by section 192. Form 1040 2012    5Deductible as a business expense to the extent allowed by section 194A. Form 1040 2012 6Application is by letter to the address shown on Form 8718. Form 1040 2012 A copy of the organizing document should be attached and the letter should be signed by an officer. Form 1040 2012    7Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. Form 1040 2012    8For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). Form 1040 2012    9Although the organization files a partnership return, all distributions are deemed dividends. Form 1040 2012 The members are not entitled to pass through treatment of the organization's income or expenses. Form 1040 2012    10Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). Form 1040 2012    11Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). Form 1040 2012    12See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). Form 1040 2012 Use Form 1024 if applying for recognition under section 501(c)(4). Form 1040 2012    13See section 501(c)(29) for details. Form 1040 2012    14See Revenue Procedure 2012-11, sec. Form 1040 2012 4. Form 1040 2012 01, 2012-7 I. Form 1040 2012 R. Form 1040 2012 B. Form 1040 2012 368, for details. Form 1040 2012 Appendix. Form 1040 2012 Sample Articles of Organization The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. Form 1040 2012 You should bear in mind that requirements for these instruments may vary under applicable state law. Form 1040 2012 See Private Foundations and Public Charities , earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption. Form 1040 2012 DRAFT A  Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify: First: The name of the Corporation shall be . Form 1040 2012 Second: The place in this state where the principal office of the Corporation is to be located is the City of , County. Form 1040 2012 Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Form 1040 2012 Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. Form 1040 2012 No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Form 1040 2012 Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Form 1040 2012   If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of the purposes of this corporation. Form 1040 2012 ” Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Form 1040 2012 Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. Form 1040 2012   In witness whereof, we have hereunto subscribed our names this day of , 20. Form 1040 2012 Appendix. Form 1040 2012 Sample Articles of Organization, continued Draft B The Charitable Trust. Form 1040 2012 Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows: First: This trust shall be called “The Charitable Trust. Form 1040 2012 ” Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Form 1040 2012 Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. Form 1040 2012 The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. Form 1040 2012 Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. Form 1040 2012 No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. Form 1040 2012 No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office. Form 1040 2012 b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. Form 1040 2012 On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Form 1040 2012 The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. Form 1040 2012 Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. Form 1040 2012 The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph. Form 1040 2012 c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which do not participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. Form 1040 2012 It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Form 1040 2012 d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of. Form 1040 2012 Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. Form 1040 2012 An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. Form 1040 2012 All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees. Form 1040 2012 Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. Form 1040 2012 The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. Form 1040 2012 Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. Form 1040 2012 Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. Form 1040 2012  None of the trustees shall be required to furnish any bond or surety. Form 1040 2012 None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. Form 1040 2012  The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. Form 1040 2012 A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. Form 1040 2012  The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter. Form 1040 2012 Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers. Form 1040 2012 a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority would not be considered proper and although all of the trust funds are invested in the securities of one company. Form 1040 2012 No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security. Form 1040 2012 b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust. Form 1040 2012 c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust. Form 1040 2012 d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage. Form 1040 2012 e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities. Form 1040 2012 f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees. Form 1040 2012 Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise. Form 1040 2012 Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office. Form 1040 2012 Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. Form 1040 2012 Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. Form 1040 2012 No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. Form 1040 2012 No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust. Form 1040 2012 Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . Form 1040 2012 Trustee Trustee Prev  Up  Next   Home   More Online Publications
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Forms and Publications About Your Appeal Rights

Forms

Offer in Compromise, Form 656-B
A Form 656-B is used to make an offer to compromise your liability for payment of less than the full amount owed.

Claim for Refund and Request for Abatement, Form 843
A Form 843 is submitted to claim a refund (or abatement) of certain overpaid (or over-assessed) taxes, interest, penalties, and additions to tax.

Proposed Assessment of Trust Fund Recovery Penalty, Form 2751
A Form 2751 is used to show the corporate liability data for a proposed trust fund recovery penalty assessment.

Qualifying Children Residency Statement, Form 8836
A Form 8836 is filed with the IRS to show that you and your qualifying child meet the residency test for the earned income credit (EIC).

Collection Appeal Request, Form 9423
A Form 9423 is used to appeal a collection action. Using this form, you may request an appeal of the following actions: notice of federal tax lien, levy, seizure, or termination of an installment agreement.

Request for Appeals Review, Form 12203
This form can be used to request an Appeals review of a proposed IRS adjustment of $25,000 or less per tax year or period.

Request for a Collection Due Process Hearing, Form 12153
A Form 12153 is used to request a collection due process hearing under IRC 6320 and IRC 6330.

Statement of Disagreement, Form 12509
You can use this form to explain why you disagree with the Internal Revenue Service (IRS) Determination concerning relief from joint and several liability for a joint return under Internal Revenue Code sections 6013(e), 6015(b), 6015(c), or 6015(f) in the letter you received with this form.

Publications

Your Rights As a Taxpayer, Publication 1
Explains your rights as a taxpayer and includes information on the examination and collection processes.

Overview of the Appeals Process Brochure, Publication 4227
Explains the mission, overview, and expectations of the appeal process to the taxpayers.

Appeals - Introduction to Alternative Dispute Resolution, Publication 4167
Describes the Fast Track Mediation, Fast Track Settlement and Post-Appeals Mediation programs.

Your Appeal Rights and How to Prepare a Protest If You Don't Agree, Publication 5
Explains your appeal rights and offers information on how to protest an Internal Revenue Agent's examination report.

Collection Appeal Rights, Publication 1660
Explains your appeal rights related to the Collection Due Process & Collection Appeal Program. It also explains collection issues that can be appealed and how to appeal them.

What You Should Know About The IRS Collection Process, Publication 594
Explains what steps the IRS may take to collect overdue taxes. It includes a summary of your rights and responsibilities for paying federal taxes.

The Examination Process, Publication 3498 and 3498A
These publications explain the audit process from the initiation of the examination through the overview of the collection process, including appeals options.

Page Last Reviewed or Updated: 07-Jan-2014

The Form 1040 2012

Form 1040 2012 Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. Form 1040 2012 Employee-owners. Form 1040 2012 Other rules. Form 1040 2012 Other rules. Form 1040 2012 Property Exchanged for StockNonqualified preferred stock. Form 1040 2012 Liabilities. Form 1040 2012 Election to reduce basis. Form 1040 2012 Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. Form 1040 2012 S. Form 1040 2012 Real Property Interest Accounting MethodsSection 481(a) adjustment. Form 1040 2012 Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. Form 1040 2012 Business formed before 1997. Form 1040 2012   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. Form 1040 2012 Business formed after 1996. Form 1040 2012   The following businesses formed after 1996 are taxed as corporations. Form 1040 2012 A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. Form 1040 2012 A business formed under a state law that refers to it as a joint-stock company or joint-stock association. Form 1040 2012 An insurance company. Form 1040 2012 Certain banks. Form 1040 2012 A business wholly owned by a state or local government. Form 1040 2012 A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Form 1040 2012 Certain foreign businesses. Form 1040 2012 Any other business that elects to be taxed as a corporation. Form 1040 2012 For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. Form 1040 2012 For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. Form 1040 2012 S corporations. Form 1040 2012   Some corporations may meet the qualifications for electing to be S corporations. Form 1040 2012 For information on S corporations, see the instructions for Form 1120S, U. Form 1040 2012 S. Form 1040 2012 Income Tax Return for an S Corporation. Form 1040 2012 Personal service corporations. Form 1040 2012   A corporation is a personal service corporation if it meets all of the following requirements. Form 1040 2012 Its principal activity during the “testing period” is performing personal services (defined later). Form 1040 2012 Generally, the testing period for any tax year is the prior tax year. Form 1040 2012 If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. Form 1040 2012 Its employee-owners substantially perform the services in (1), above. Form 1040 2012 This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. Form 1040 2012 Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. Form 1040 2012 Personal services. Form 1040 2012   Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. Form 1040 2012 Employee-owners. Form 1040 2012   A person is an employee-owner of a personal service corporation if both of the following apply. Form 1040 2012 He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. Form 1040 2012 He or she owns any stock in the corporation at any time during the testing period. Form 1040 2012 Other rules. Form 1040 2012   For other rules that apply to personal service corporations see Accounting Periods, later. Form 1040 2012 Closely held corporations. Form 1040 2012   A corporation is closely held if all of the following apply. Form 1040 2012 It is not a personal service corporation. Form 1040 2012 At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. Form 1040 2012 “Individual” includes certain trusts and private foundations. Form 1040 2012 Other rules. Form 1040 2012   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. Form 1040 2012 Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. Form 1040 2012 This rule applies both to individuals and to groups who transfer property to a corporation. Form 1040 2012 It also applies whether the corporation is being formed or is already operating. Form 1040 2012 It does not apply in the following situations. Form 1040 2012 The corporation is an investment company. Form 1040 2012 You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. Form 1040 2012 The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. Form 1040 2012 Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. Form 1040 2012 For more information, see section 1. Form 1040 2012 351-3 of the Regulations. Form 1040 2012 Control of a corporation. Form 1040 2012   To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. Form 1040 2012 Example 1. Form 1040 2012 You and Bill Jones buy property for $100,000. Form 1040 2012 You both organize a corporation when the property has a fair market value of $300,000. Form 1040 2012 You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. Form 1040 2012 No gain is recognized by you, Bill, or the corporation. Form 1040 2012 Example 2. Form 1040 2012 You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. Form 1040 2012 This represents only 75% of each class of stock of the corporation. Form 1040 2012 The other 25% was already issued to someone else. Form 1040 2012 You and Bill recognize a taxable gain of $200,000 on the transaction. Form 1040 2012 Services rendered. Form 1040 2012   The term property does not include services rendered or to be rendered to the issuing corporation. Form 1040 2012 The value of stock received for services is income to the recipient. Form 1040 2012 Example. Form 1040 2012 You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. Form 1040 2012 Right after the exchange, you own 85% of the outstanding stock. Form 1040 2012 No gain is recognized on the exchange of property. Form 1040 2012 However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. Form 1040 2012 Property of relatively small value. Form 1040 2012   The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. Form 1040 2012   Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. Form 1040 2012 Stock received in disproportion to property transferred. Form 1040 2012   If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. Form 1040 2012 If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. Form 1040 2012 It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. Form 1040 2012 Money or other property received. Form 1040 2012   If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. Form 1040 2012 You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. Form 1040 2012 The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. Form 1040 2012 If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. Form 1040 2012 See chapter 3 of Publication 544. Form 1040 2012 No loss is recognized. Form 1040 2012 Nonqualified preferred stock. Form 1040 2012   Nonqualified preferred stock is treated as property other than stock. Form 1040 2012 Generally, it is preferred stock with any of the following features. Form 1040 2012 The holder has the right to require the issuer or a related person to redeem or buy the stock. Form 1040 2012 The issuer or a related person is required to redeem or buy the stock. Form 1040 2012 The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. Form 1040 2012 The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. Form 1040 2012 For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. Form 1040 2012 Liabilities. Form 1040 2012   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. Form 1040 2012 There are two exceptions to this treatment. Form 1040 2012 If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. Form 1040 2012 However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. Form 1040 2012 If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. Form 1040 2012 For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. Form 1040 2012 Example. Form 1040 2012 You transfer property to a corporation for stock. Form 1040 2012 Immediately after the transfer, you control the corporation. Form 1040 2012 You also receive $10,000 in the exchange. Form 1040 2012 Your adjusted basis in the transferred property is $20,000. Form 1040 2012 The stock you receive has a fair market value (FMV) of $16,000. Form 1040 2012 The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. Form 1040 2012 Gain is realized as follows. Form 1040 2012 FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000   The liability assumed is not treated as money or other property. Form 1040 2012 The recognized gain is limited to $10,000, the cash received. Form 1040 2012 Loss on exchange. Form 1040 2012   If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. Form 1040 2012 For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Form 1040 2012 Basis of stock or other property received. Form 1040 2012   The basis of the stock you receive is generally the adjusted basis of the property you transfer. Form 1040 2012 Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. Form 1040 2012 Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. Form 1040 2012 Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. Form 1040 2012    Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. Form 1040 2012 This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. Form 1040 2012 The basis of any other property you receive is its fair market value on the date of the trade. Form 1040 2012 Basis of property transferred. Form 1040 2012   A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. Form 1040 2012 However, the increase for the gain recognized may be limited. Form 1040 2012 For more information, see section 362 of the Internal Revenue Code. Form 1040 2012 Election to reduce basis. Form 1040 2012   In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. Form 1040 2012 The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. Form 1040 2012 However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. Form 1040 2012 R. Form 1040 2012 B. Form 1040 2012 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. Form 1040 2012    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. Form 1040 2012 Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. Form 1040 2012 Paid-in capital. Form 1040 2012   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. Form 1040 2012 These contributions are not taxable to the corporation. Form 1040 2012 Basis. Form 1040 2012   The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. Form 1040 2012 However, the increase for the gain recognized may be limited. Form 1040 2012 For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. Form 1040 2012   The basis of property contributed to capital by a person other than a shareholder is zero. Form 1040 2012   If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. Form 1040 2012 If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. Form 1040 2012 Depreciable property. Form 1040 2012 Amortizable property. Form 1040 2012 Property subject to cost depletion but not to percentage depletion. Form 1040 2012 All other remaining properties. Form 1040 2012   Reduce the basis of property in each category to zero before going on to the next category. Form 1040 2012   There may be more than one piece of property in each category. Form 1040 2012 Base the reduction of the basis of each property on the following ratio:   Basis of each piece of property   Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. Form 1040 2012 The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. Form 1040 2012 Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. Form 1040 2012 A corporation generally must make estimated tax payments as it earns or receives income during its tax year. Form 1040 2012 After the end of the year, the corporation must file an income tax return. Form 1040 2012 This section will help you determine when and how to pay and file corporate income taxes. Form 1040 2012 For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. Form 1040 2012 The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. Form 1040 2012 For more information, visit www. Form 1040 2012 irs. Form 1040 2012 gov/newsroom/article/0,,id=108362. Form 1040 2012 00. Form 1040 2012 Income Tax Return This section will help you determine when and how to report a corporation's income tax. Form 1040 2012 Who must file. Form 1040 2012   Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Form 1040 2012 Which form to file. Form 1040 2012   A corporation generally must file Form 1120, U. Form 1040 2012 S. Form 1040 2012 Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. Form 1040 2012 Certain organizations and entities must file special returns. Form 1040 2012 For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. Form 1040 2012 Electronic filing. Form 1040 2012   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. Form 1040 2012 Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. Form 1040 2012 However, in certain instances, these corporations can request a waiver. Form 1040 2012 For more information regarding electronic filing, visit www. Form 1040 2012 irs. Form 1040 2012 gov/efile. Form 1040 2012 When to file. Form 1040 2012   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. Form 1040 2012 A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. Form 1040 2012 A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. Form 1040 2012 Example 1. Form 1040 2012 A corporation's tax year ends December 31. Form 1040 2012 It must file its income tax return by March 15th. Form 1040 2012 Example 2. Form 1040 2012 A corporation's tax year ends June 30. Form 1040 2012 It must file its income tax return by September 15th. Form 1040 2012   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. Form 1040 2012 Extension of time to file. Form 1040 2012   File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. Form 1040 2012 The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. Form 1040 2012   Form 7004 does not extend the time for paying the tax due on the return. Form 1040 2012 Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. Form 1040 2012 The interest is figured from the original due date of the return to the date of payment. Form 1040 2012   For more information, see the instructions for Form 7004. Form 1040 2012 How to pay your taxes. Form 1040 2012   A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. Form 1040 2012 Electronic Federal Tax Payment System (EFTPS). Form 1040 2012   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). Form 1040 2012 For more information on EFTPS and enrollment, visit www. Form 1040 2012 eftps. Form 1040 2012 gov or call 1-800-555-4477. Form 1040 2012 Also see Publication 966, The Secure Way to Pay Your Federal Taxes. Form 1040 2012 Note. Form 1040 2012 Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Form 1040 2012 Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Form 1040 2012 Do not attach an explanation when the corporation's return is filed. Form 1040 2012 See the instructions for your income tax return. Form 1040 2012 Late filing of return. Form 1040 2012    A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. Form 1040 2012 If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. Form 1040 2012 The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. Form 1040 2012 The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. Form 1040 2012 Late payment of tax. Form 1040 2012    A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. Form 1040 2012 The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. Form 1040 2012 Trust fund recovery penalty. Form 1040 2012   If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. Form 1040 2012 The penalty is the full amount of the unpaid trust fund tax. Form 1040 2012 This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. Form 1040 2012   The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. Form 1040 2012   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. Form 1040 2012 A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. Form 1040 2012   Willfully means voluntarily, consciously, and intentionally. Form 1040 2012 A responsible person acts willfully if the person knows the required actions are not taking place. Form 1040 2012   For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. Form 1040 2012 Other penalties. Form 1040 2012   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. Form 1040 2012 See sections 6662, 6662A, and 6663 of the Internal Revenue Code. Form 1040 2012 Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. Form 1040 2012 If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. Form 1040 2012 This section will explain how to avoid this penalty. Form 1040 2012 When to pay estimated tax. Form 1040 2012   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. Form 1040 2012 Example 1. Form 1040 2012 Your corporation's tax year ends December 31. Form 1040 2012 Installment payments are due on April 15, June 15, September 15, and December 15. Form 1040 2012 Example 2. Form 1040 2012 Your corporation's tax year ends June 30. Form 1040 2012 Installment payments are due on October 15, December 15, March 15, and June 15. Form 1040 2012   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. Form 1040 2012 How to figure each required installment. Form 1040 2012   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. Form 1040 2012 You will generally use one of the following two methods to figure each required installment. Form 1040 2012 You should use the method that yields the smallest installment payments. Form 1040 2012 Note. Form 1040 2012 In these discussions, “return” generally refers to the corporation's original return. Form 1040 2012 However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. Form 1040 2012 Method 1. Form 1040 2012   Each required installment is 25% of the income tax the corporation will show on its return for the current year. Form 1040 2012 Method 2. Form 1040 2012   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. Form 1040 2012   To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). Form 1040 2012 Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. Form 1040 2012   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. Form 1040 2012 Other methods. Form 1040 2012   If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. Form 1040 2012 The annualized income installment method. Form 1040 2012 The adjusted seasonal installment method. Form 1040 2012 Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. Form 1040 2012 Refiguring required installments. Form 1040 2012   If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. Form 1040 2012 An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. Form 1040 2012 Underpayment penalty. Form 1040 2012   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. Form 1040 2012 The penalty is figured separately for each installment due date. Form 1040 2012 The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. Form 1040 2012 This is true even if the corporation is due a refund when its return is filed. Form 1040 2012 Form 2220. Form 1040 2012   Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. Form 1040 2012   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. Form 1040 2012 The amount of the underpayment. Form 1040 2012 The period during which the underpayment was due and unpaid. Form 1040 2012 The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. Form 1040 2012   A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. Form 1040 2012 However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. Form 1040 2012 The annualized income installment method was used to figure any required installment. Form 1040 2012 The adjusted seasonal installment method was used to figure any required installment. Form 1040 2012 The corporation is a large corporation figuring its first required installment based on the prior year's tax. Form 1040 2012 How to pay estimated tax. Form 1040 2012   A corporation is generally required to use EFTPS to pay its taxes. Form 1040 2012 See Electronic Federal Tax Payment System (EFTPS), earlier. Form 1040 2012 Also see the Instructions for Form 1120-W. Form 1040 2012 Quick refund of overpayments. Form 1040 2012   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. Form 1040 2012 Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. Form 1040 2012 A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. Form 1040 2012 Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. Form 1040 2012 File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. Form 1040 2012 Do not file Form 4466 before the end of the corporation's tax year. Form 1040 2012 An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. Form 1040 2012 The IRS will act on the form within 45 days from the date you file it. Form 1040 2012 U. Form 1040 2012 S. Form 1040 2012 Real Property Interest If a domestic corporation acquires a U. Form 1040 2012 S. Form 1040 2012 real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. Form 1040 2012 The amount paid includes cash, the fair market value of other property, and any assumed liability. Form 1040 2012 If a domestic corporation distributes a U. Form 1040 2012 S. Form 1040 2012 real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. Form 1040 2012 A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. Form 1040 2012 For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. Form 1040 2012 S. Form 1040 2012 Withholding Tax Return for Dispositions by Foreign Persons of U. Form 1040 2012 S. Form 1040 2012 Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. Form 1040 2012 S. Form 1040 2012 Real Property Interests. Form 1040 2012 Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. Form 1040 2012 Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. Form 1040 2012 In all cases, the method used must clearly show taxable income. Form 1040 2012 Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. Form 1040 2012 Accrual method. Form 1040 2012   Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. Form 1040 2012 A corporation engaged in farming operations also must use the accrual method. Form 1040 2012   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. Form 1040 2012 However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. Form 1040 2012   Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. Form 1040 2012   Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. Form 1040 2012   There are exceptions to the economic performance rule for certain items, including recurring expenses. Form 1040 2012 See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. Form 1040 2012 Nonaccrual experience method. Form 1040 2012   Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. Form 1040 2012   This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. Form 1040 2012 Percentage of completion method. Form 1040 2012   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. Form 1040 2012 Mark-to-market accounting method. Form 1040 2012   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. Form 1040 2012 Under this method any security held by a dealer as inventory must be included in inventory at its FMV. Form 1040 2012 Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. Form 1040 2012 Any gain or loss must be taken into account in determining gross income. Form 1040 2012 The gain or loss taken into account is treated as ordinary gain or loss. Form 1040 2012   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. Form 1040 2012 Change in accounting method. Form 1040 2012   A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). Form 1040 2012 The corporation must file Form 3115, Application for Change in Accounting Method. Form 1040 2012 For more information, see Form 3115 and Publication 538. Form 1040 2012 Section 481(a) adjustment. Form 1040 2012   The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. Form 1040 2012 The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Form 1040 2012 However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. Form 1040 2012 The corporation must complete the appropriate lines of Form 3115 to make the election. Form 1040 2012 See the Instructions for Form 3115. Form 1040 2012 Accounting Periods A corporation must figure its taxable income on the basis of a tax year. Form 1040 2012 A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Form 1040 2012 Generally, corporations can use either a calendar year or a fiscal year as its tax year. Form 1040 2012 Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. Form 1040 2012 For more information, see Publication 538. Form 1040 2012 Personal service corporation. Form 1040 2012   A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. Form 1040 2012 See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. Form 1040 2012 Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. Form 1040 2012   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. Form 1040 2012 See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. Form 1040 2012 Change of tax year. Form 1040 2012   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. Form 1040 2012 However, under certain conditions, a corporation can change its tax year without getting the consent. Form 1040 2012 For more information, see Form 1128 and Publication 538. Form 1040 2012 Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Form 1040 2012 Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Form 1040 2012 Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. Form 1040 2012 The corporation should keep copies of all filed returns. Form 1040 2012 They help in preparing future and amended returns and in the calculation of earnings and profits. Form 1040 2012 Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. Form 1040 2012 However, the following special provisions apply only to corporations. Form 1040 2012 Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. Form 1040 2012 However, a corporation can elect to deduct a limited amount of start-up or organizational costs. Form 1040 2012 Any costs not deducted can be amortized. Form 1040 2012 Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Form 1040 2012 Organizational costs are the direct costs of creating the corporation. Form 1040 2012 For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. Form 1040 2012 Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. Form 1040 2012 Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. Form 1040 2012 Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. Form 1040 2012 If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. Form 1040 2012 These rules also deny the deduction of losses on the sale or exchange of property between related persons. Form 1040 2012 Related persons. Form 1040 2012   For purposes of this rule, the following persons are related to a corporation. Form 1040 2012 Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). Form 1040 2012 An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. Form 1040 2012 A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. Form 1040 2012 An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. Form 1040 2012 A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. Form 1040 2012 Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. Form 1040 2012 Ownership of stock. Form 1040 2012   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. Form 1040 2012 Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. Form 1040 2012 An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. Form 1040 2012 Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. Form 1040 2012 Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. Form 1040 2012 To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. Form 1040 2012 But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. Form 1040 2012 Reallocation of income and deductions. Form 1040 2012   Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. Form 1040 2012 Complete liquidations. Form 1040 2012   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. Form 1040 2012 More information. Form 1040 2012   For more information about the related person rules, see Publication 544. Form 1040 2012 Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. Form 1040 2012 If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. Form 1040 2012 Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. Form 1040 2012 A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. Form 1040 2012 A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. Form 1040 2012 For more information regarding the election, see Form 8902. Form 1040 2012 Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. Form 1040 2012 The deduction is allowed for the year in which the property is placed in service. Form 1040 2012 A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. Form 1040 2012 For more information, see section 179C of the Internal Revenue Code and the related Regulations. Form 1040 2012 Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). Form 1040 2012 A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. Form 1040 2012 For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. Form 1040 2012 Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. Form 1040 2012 In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. Form 1040 2012 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. Form 1040 2012 The deduction is limited to $1. Form 1040 2012 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. Form 1040 2012 Other rules and limitations apply. Form 1040 2012 The corporation must reduce the basis of any property by any deduction taken. Form 1040 2012 The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. Form 1040 2012 For more information, see section 179D of the Internal Revenue Code. Form 1040 2012 Also see Notice 2006-52, 2006-26 I. Form 1040 2012 R. Form 1040 2012 B. Form 1040 2012 1175, clarified and amplified by Notice 2008-40, 2008-14 I. Form 1040 2012 R. Form 1040 2012 B. Form 1040 2012 725, and any successor. Form 1040 2012 Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. Form 1040 2012 These items are known as corporate preference items and they include the following. Form 1040 2012 Gain on the disposition of section 1250 property. Form 1040 2012 For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. Form 1040 2012 Percentage depletion for iron ore and coal (including lignite). Form 1040 2012 For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. Form 1040 2012 Amortization of pollution control facilities. Form 1040 2012 For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. Form 1040 2012 Mineral exploration and development costs. Form 1040 2012 For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. Form 1040 2012 For more information on corporate preference items, see section 291 of the Internal Revenue Code. Form 1040 2012 Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. Form 1040 2012 This section discusses the general rules that apply. Form 1040 2012 The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. Form 1040 2012 For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. Form 1040 2012 Dividends from domestic corporations. Form 1040 2012   A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. Form 1040 2012 If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. Form 1040 2012 Ownership. Form 1040 2012   Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. Form 1040 2012 Small business investment companies. Form 1040 2012   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. Form 1040 2012 Dividends from regulated investment companies. Form 1040 2012   Regulated investment company dividends received are subject to certain limits. Form 1040 2012 Capital gain dividends received from a regulated investment company do not qualify for the deduction. Form 1040 2012 For more information, see section 854 of the Internal Revenue Code. Form 1040 2012 No deduction allowed for certain dividends. Form 1040 2012   Corporations cannot take a deduction for dividends received from the following entities. Form 1040 2012 A real estate investment trust (REIT). Form 1040 2012 A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. Form 1040 2012 A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. Form 1040 2012 Ex-dividend means the holder has no rights to the dividend. Form 1040 2012 A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. Form 1040 2012 Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Form 1040 2012 Dividends on deposits. Form 1040 2012   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. Form 1040 2012 They do not qualify for this deduction. Form 1040 2012 Limit on deduction for dividends. Form 1040 2012   The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). Form 1040 2012 Figuring the limit. Form 1040 2012   In figuring the limit, determine taxable income without the following items. Form 1040 2012 The net operating loss deduction. Form 1040 2012 The domestic production activities deduction. Form 1040 2012 The deduction for dividends received. Form 1040 2012 Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). Form 1040 2012 Any capital loss carryback to the tax year. Form 1040 2012 Effect of net operating loss. Form 1040 2012   If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. Form 1040 2012 To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. Form 1040 2012 Example 1. Form 1040 2012 A corporation loses $25,000 from operations. Form 1040 2012 It receives $100,000 in dividends from a 20%-owned corporation. Form 1040 2012 Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. Form 1040 2012 If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). Form 1040 2012 Therefore, the 80% of taxable income limit does not apply. Form 1040 2012 The corporation can deduct the full $80,000. Form 1040 2012 Example 2. Form 1040 2012 Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. Form 1040 2012 Its taxable income is $85,000 before the deduction for dividends received. Form 1040 2012 After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. Form 1040 2012 Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). Form 1040 2012 Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. Form 1040 2012 The nontaxed part is any dividends-received deduction allowable for the dividends. Form 1040 2012 Extraordinary dividend. Form 1040 2012   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. Form 1040 2012 The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. Form 1040 2012 Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. Form 1040 2012 Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. Form 1040 2012 Disqualified preferred stock. Form 1040 2012   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. Form 1040 2012   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. Form 1040 2012 The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. Form 1040 2012 The issue price of the stock exceeds its liquidation rights or stated redemption price. Form 1040 2012 The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. Form 1040 2012   These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. Form 1040 2012 More information. Form 1040 2012   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. Form 1040 2012 Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. Form 1040 2012 A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Form 1040 2012 A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. Form 1040 2012 Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Form 1040 2012 Foregone interest. Form 1040 2012   For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Form 1040 2012 See Below-market loans, in chapter 4 of Publication 535 for more information. Form 1040 2012 Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. Form 1040 2012 The contribution is deductible if made to, or for the use of, a qualified organization. Form 1040 2012 For more information on qualified organizations, see Publication 526, Charitable Contributions. Form 1040 2012 Also see, Exempt Organizations Select Check (EO Select Check) at www. Form 1040 2012 irs. Form 1040 2012 gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. Form 1040 2012 Note. Form 1040 2012 You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. Form 1040 2012 Cash method corporation. Form 1040 2012   A corporation using the cash method of accounting deducts contributions in the tax year paid. Form 1040 2012 Accrual method corporation. Form 1040 2012   A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. Form 1040 2012 Make the choice by reporting the contribution on the corporation's return for the tax year. Form 1040 2012 A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. Form 1040 2012 The declaration must include the date the resolution was adopted. Form 1040 2012 Limitations on deduction. Form 1040 2012   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. Form 1040 2012 Figure taxable income for this purpose without the following. Form 1040 2012 The deduction for charitable contributions. Form 1040 2012 The dividends-received deduction. Form 1040 2012 The deduction allowed under section 249 of the Internal Revenue Code. Form 1040 2012 The domestic production activities deduction. Form 1040 2012 Any net operating loss carryback to the tax year. Form 1040 2012 Any capital loss carryback to the tax year. Form 1040 2012 Farmers and ranchers. Form 1040 2012    Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. Form 1040 2012 Carryover of excess contributions. Form 1040 2012   You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. Form 1040 2012 You lose any excess not used within that period. Form 1040 2012 For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. Form 1040 2012 Any excess not used in 2015 is lost. Form 1040 2012 Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). Form 1040 2012 You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. Form 1040 2012 Cash contributions. Form 1040 2012   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. Form 1040 2012 The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. Form 1040 2012 Keep the record of the contribution with the other corporate records. Form 1040 2012 Do not attach the records to the corporation's return. Form 1040 2012 For more information on cash contributions, see Publication 526. Form 1040 2012 Gifts of $250 or more. Form 1040 2012   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. Form 1040 2012 The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. Form 1040 2012 The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. Form 1040 2012 Keep the acknowledgement with other corporate records. Form 1040 2012 Do not attach the acknowledgement to the return. Form 1040 2012 Contributions of property other than cash. Form 1040 2012   If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. Form 1040 2012 In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. Form 1040 2012   Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. Form 1040 2012 For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. Form 1040 2012   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. Form 1040 2012 A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. Form 1040 2012 The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. Form 1040 2012   See Form 8283 for more information. Form 1040 2012 Qualified conservation contributions. Form 1040 2012   If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. Form 1040 2012 For more information, see section 170(h) of the Internal Revenue Code. Form 1040 2012 Contributions of used vehicles. Form 1040 2012   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. Form 1040 2012 The deduction is limited, and other special rules apply. Form 1040 2012 For more information, see Publication 526. Form 1040 2012 Reduction for contributions of certain property. Form 1040 2012   For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. Form 1040 2012   The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. Form 1040 2012 Larger deduction. Form 1040 2012   A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. Form 1040 2012 This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. Form 1040 2012 Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. Form 1040 2012 The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. Form 1040 2012 Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. Form 1040 2012 Contributions to organizations conducting lobbying activities. Form 1040 2012   Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. Form 1040 2012 More information. Form 1040 2012   For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. Form 1040 2012 Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. Form 1040 2012 In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. Form 1040 2012 Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. Form 1040 2012 A capital loss is carried to other years in the following order. Form 1040 2012 3 years prior to the loss year. Form 1040 2012 2 years prior to the loss year. Form 1040 2012 1 year prior to the loss year. Form 1040 2012 Any loss remaining is carried forward for 5 years. Form 1040 2012 When you carry a net capital loss to another tax year, treat it as a short-term loss. Form 1040 2012 It does not retain its original identity as long term or short term. Form 1040 2012 Example. Form 1040 2012 A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. Form 1040 2012 The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. Form 1040 2012 The corporation treats this $6,000 as a short-term loss when carried back or forward. Form 1040 2012 The corporation carries the $6,000 short-term loss back 3 years. Form 1040 2012 In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. Form 1040 2012 It subtracts the $6,000 short-term loss first from the net short-term gain. Form 1040 2012 This results in a net capital gain for year 1 of $7,000. Form 1040 2012 This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. Form 1040 2012 S corporation status. Form 1040 2012   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. Form 1040 2012 Rules for carryover and carryback. Form 1040 2012   When carrying a capital loss from one year to another, the following rules apply. Form 1040 2012 When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. Form 1040 2012 In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. Form 1040 2012 If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. Form 1040 2012 You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. Form 1040 2012 Refunds. Form 1040 2012   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. Form 1040 2012 If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. Form 1040 2012 S. Form 1040 2012 Corporation Income Tax Return, to apply for a refund. Form 1040 2012 Form 1139. Form 1040 2012    A corporation can get a refund faster by using Form 1139. Form 1040 2012 It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. Form 1040 2012 Form 1120X. Form 1040 2012   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. Form 1040 2012 The corporation must file the Form 1120X within 3 years of the due date, includin