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H&r block free file 6. H&r block free file   How To Get Tax Help Table of Contents Low Income Taxpayer Clinics (LITCs). H&r block free file Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. H&r block free file Free help with your tax return. H&r block free file   You can get free help preparing your return nationwide from IRS-certified volunteers. H&r block free file The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. H&r block free file The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. H&r block free file Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. H&r block free file In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. H&r block free file To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. H&r block free file gov, download the IRS2Go app, or call 1-800-906-9887. H&r block free file   As part of the TCE program, AARP offers the Tax-Aide counseling program. H&r block free file To find the nearest AARP Tax-Aide site, visit AARP's website at www. H&r block free file aarp. H&r block free file org/money/taxaide or call 1-888-227-7669. H&r block free file For more information on these programs, go to IRS. H&r block free file gov and enter “VITA” in the search box. H&r block free file Internet. H&r block free file    IRS. H&r block free file gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. H&r block free file Download the free IRS2Go app from the iTunes app store or from Google Play. H&r block free file Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. H&r block free file Check the status of your 2013 refund with the Where's My Refund? application on IRS. H&r block free file gov or download the IRS2Go app and select the Refund Status option. H&r block free file The IRS issues more than 9 out of 10 refunds in less than 21 days. H&r block free file Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. H&r block free file You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. H&r block free file The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. H&r block free file Use the Interactive Tax Assistant (ITA) to research your tax questions. H&r block free file No need to wait on the phone or stand in line. H&r block free file The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. H&r block free file When you reach the response screen, you can print the entire interview and the final response for your records. H&r block free file New subject areas are added on a regular basis. H&r block free file  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. H&r block free file gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. H&r block free file You can use the IRS Tax Map, to search publications and instructions by topic or keyword. H&r block free file The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. H&r block free file When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. H&r block free file Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. H&r block free file You can also ask the IRS to mail a return or an account transcript to you. H&r block free file Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. H&r block free file gov or by calling 1-800-908-9946. H&r block free file Tax return and tax account transcripts are generally available for the current year and the past three years. H&r block free file Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. H&r block free file Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. H&r block free file If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. H&r block free file Check the status of your amended return using Where's My Amended Return? Go to IRS. H&r block free file gov and enter Where's My Amended Return? in the search box. H&r block free file You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. H&r block free file It can take up to 3 weeks from the date you mailed it to show up in our system. H&r block free file Make a payment using one of several safe and convenient electronic payment options available on IRS. H&r block free file gov. H&r block free file Select the Payment tab on the front page of IRS. H&r block free file gov for more information. H&r block free file Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. H&r block free file Figure your income tax withholding with the IRS Withholding Calculator on IRS. H&r block free file gov. H&r block free file Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. H&r block free file Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. H&r block free file gov. H&r block free file Request an Electronic Filing PIN by going to IRS. H&r block free file gov and entering Electronic Filing PIN in the search box. H&r block free file Download forms, instructions and publications, including accessible versions for people with disabilities. H&r block free file Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. H&r block free file gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. H&r block free file An employee can answer questions about your tax account or help you set up a payment plan. H&r block free file Before you visit, check the Office Locator on IRS. H&r block free file gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. H&r block free file If you have a special need, such as a disability, you can request an appointment. H&r block free file Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. H&r block free file Apply for an Employer Identification Number (EIN). H&r block free file Go to IRS. H&r block free file gov and enter Apply for an EIN in the search box. H&r block free file Read the Internal Revenue Code, regulations, or other official guidance. H&r block free file Read Internal Revenue Bulletins. H&r block free file Sign up to receive local and national tax news and more by email. H&r block free file Just click on “subscriptions” above the search box on IRS. H&r block free file gov and choose from a variety of options. H&r block free file    Phone. H&r block free file You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. H&r block free file Download the free IRS2Go app from the iTunes app store or from Google Play. H&r block free file Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. H&r block free file gov, or download the IRS2Go app. H&r block free file Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. H&r block free file The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. H&r block free file Most VITA and TCE sites offer free electronic filing. H&r block free file Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. H&r block free file Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. H&r block free file Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. H&r block free file If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. H&r block free file The IRS issues more than 9 out of 10 refunds in less than 21 days. H&r block free file Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. H&r block free file Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. H&r block free file The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. H&r block free file Note, the above information is for our automated hotline. H&r block free file Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. H&r block free file Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. H&r block free file You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. H&r block free file It can take up to 3 weeks from the date you mailed it to show up in our system. H&r block free file Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). H&r block free file You should receive your order within 10 business days. H&r block free file Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. H&r block free file If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. H&r block free file Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. H&r block free file The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. H&r block free file These individuals can also contact the IRS through relay services such as the Federal Relay Service. H&r block free file    Walk-in. H&r block free file You can find a selection of forms, publications and services — in-person. H&r block free file Products. H&r block free file You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. H&r block free file Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. H&r block free file Services. H&r block free file You can walk in to your local TAC for face-to-face tax help. H&r block free file An employee can answer questions about your tax account or help you set up a payment plan. H&r block free file Before visiting, use the Office Locator tool on IRS. H&r block free file gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. H&r block free file    Mail. H&r block free file You can send your order for forms, instructions, and publications to the address below. H&r block free file You should receive a response within 10 business days after your request is received. H&r block free file Internal Revenue Service 1201 N. H&r block free file Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. H&r block free file The Taxpayer Advocate Service (TAS) is your voice at the IRS. H&r block free file Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. H&r block free file   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. H&r block free file We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. H&r block free file You face (or your business is facing) an immediate threat of adverse action. H&r block free file You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. H&r block free file   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. H&r block free file Here's why we can help: TAS is an independent organization within the IRS. H&r block free file Our advocates know how to work with the IRS. H&r block free file Our services are free and tailored to meet your needs. H&r block free file We have offices in every state, the District of Columbia, and Puerto Rico. H&r block free file   How can you reach us? If you think TAS can help you, call your local advocate, whose number is in your local directory and at Taxpayer Advocate, or call us toll-free at 1-877-777-4778. H&r block free file   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. H&r block free file If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. H&r block free file Low Income Taxpayer Clinics (LITCs). H&r block free file   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals and tax collection disputes. H&r block free file Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. H&r block free file Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. H&r block free file Prev  Up  Next   Home   More Online Publications
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The H&r Block Free File

H&r block free file Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. H&r block free file Employee-owners. H&r block free file Other rules. H&r block free file Other rules. H&r block free file Property Exchanged for StockNonqualified preferred stock. H&r block free file Liabilities. H&r block free file Election to reduce basis. H&r block free file Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. H&r block free file S. H&r block free file Real Property Interest Accounting MethodsSection 481(a) adjustment. H&r block free file 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. H&r block free file Business formed before 1997. H&r block free file   A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. H&r block free file Business formed after 1996. H&r block free file   The following businesses formed after 1996 are taxed as corporations. H&r block free file A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. H&r block free file A business formed under a state law that refers to it as a joint-stock company or joint-stock association. H&r block free file An insurance company. H&r block free file Certain banks. H&r block free file A business wholly owned by a state or local government. H&r block free file A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). H&r block free file Certain foreign businesses. H&r block free file Any other business that elects to be taxed as a corporation. H&r block free file 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. H&r block free file For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. H&r block free file S corporations. H&r block free file   Some corporations may meet the qualifications for electing to be S corporations. H&r block free file For information on S corporations, see the instructions for Form 1120S, U. H&r block free file S. H&r block free file Income Tax Return for an S Corporation. H&r block free file Personal service corporations. H&r block free file   A corporation is a personal service corporation if it meets all of the following requirements. H&r block free file Its principal activity during the “testing period” is performing personal services (defined later). H&r block free file Generally, the testing period for any tax year is the prior tax year. H&r block free file 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. H&r block free file Its employee-owners substantially perform the services in (1), above. H&r block free file 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. H&r block free file Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. H&r block free file Personal services. H&r block free file   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. H&r block free file Employee-owners. H&r block free file   A person is an employee-owner of a personal service corporation if both of the following apply. H&r block free file 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. H&r block free file He or she owns any stock in the corporation at any time during the testing period. H&r block free file Other rules. H&r block free file   For other rules that apply to personal service corporations see Accounting Periods, later. H&r block free file Closely held corporations. H&r block free file   A corporation is closely held if all of the following apply. H&r block free file It is not a personal service corporation. H&r block free file 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. H&r block free file “Individual” includes certain trusts and private foundations. H&r block free file Other rules. H&r block free file   For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. H&r block free file 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. H&r block free file This rule applies both to individuals and to groups who transfer property to a corporation. H&r block free file It also applies whether the corporation is being formed or is already operating. H&r block free file It does not apply in the following situations. H&r block free file The corporation is an investment company. H&r block free file You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. H&r block free file 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. H&r block free file 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. H&r block free file For more information, see section 1. H&r block free file 351-3 of the Regulations. H&r block free file Control of a corporation. H&r block free file   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. H&r block free file Example 1. H&r block free file You and Bill Jones buy property for $100,000. H&r block free file You both organize a corporation when the property has a fair market value of $300,000. H&r block free file You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. H&r block free file No gain is recognized by you, Bill, or the corporation. H&r block free file Example 2. H&r block free file 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. H&r block free file This represents only 75% of each class of stock of the corporation. H&r block free file The other 25% was already issued to someone else. H&r block free file You and Bill recognize a taxable gain of $200,000 on the transaction. H&r block free file Services rendered. H&r block free file   The term property does not include services rendered or to be rendered to the issuing corporation. H&r block free file The value of stock received for services is income to the recipient. H&r block free file Example. H&r block free file You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. H&r block free file Right after the exchange, you own 85% of the outstanding stock. H&r block free file No gain is recognized on the exchange of property. H&r block free file However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. H&r block free file Property of relatively small value. H&r block free file   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. H&r block free file   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. H&r block free file Stock received in disproportion to property transferred. H&r block free file   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. H&r block free file If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. H&r block free file 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. H&r block free file Money or other property received. H&r block free file   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. H&r block free file You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. H&r block free file 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. H&r block free file If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. H&r block free file See chapter 3 of Publication 544. H&r block free file No loss is recognized. H&r block free file Nonqualified preferred stock. H&r block free file   Nonqualified preferred stock is treated as property other than stock. H&r block free file Generally, it is preferred stock with any of the following features. H&r block free file The holder has the right to require the issuer or a related person to redeem or buy the stock. H&r block free file The issuer or a related person is required to redeem or buy the stock. H&r block free file 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. H&r block free file The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. H&r block free file For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. H&r block free file Liabilities. H&r block free file   If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. H&r block free file There are two exceptions to this treatment. H&r block free file If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. H&r block free file However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. H&r block free file 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. H&r block free file For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. H&r block free file Example. H&r block free file You transfer property to a corporation for stock. H&r block free file Immediately after the transfer, you control the corporation. H&r block free file You also receive $10,000 in the exchange. H&r block free file Your adjusted basis in the transferred property is $20,000. H&r block free file The stock you receive has a fair market value (FMV) of $16,000. H&r block free file The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. H&r block free file Gain is realized as follows. H&r block free file 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. H&r block free file The recognized gain is limited to $10,000, the cash received. H&r block free file Loss on exchange. H&r block free file   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. H&r block free file For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H&r block free file Basis of stock or other property received. H&r block free file   The basis of the stock you receive is generally the adjusted basis of the property you transfer. H&r block free file Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. H&r block free file 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. H&r block free file 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. H&r block free file    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. H&r block free file 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. H&r block free file The basis of any other property you receive is its fair market value on the date of the trade. H&r block free file Basis of property transferred. H&r block free file   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. H&r block free file However, the increase for the gain recognized may be limited. H&r block free file For more information, see section 362 of the Internal Revenue Code. H&r block free file Election to reduce basis. H&r block free file   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. H&r block free file 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. H&r block free file However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. H&r block free file R. H&r block free file B. H&r block free file 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. H&r block free file    For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. H&r block free file Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. H&r block free file Paid-in capital. H&r block free file   Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. H&r block free file These contributions are not taxable to the corporation. H&r block free file Basis. H&r block free file   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. H&r block free file However, the increase for the gain recognized may be limited. H&r block free file For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. H&r block free file   The basis of property contributed to capital by a person other than a shareholder is zero. H&r block free file   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. H&r block free file 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. H&r block free file Depreciable property. H&r block free file Amortizable property. H&r block free file Property subject to cost depletion but not to percentage depletion. H&r block free file All other remaining properties. H&r block free file   Reduce the basis of property in each category to zero before going on to the next category. H&r block free file   There may be more than one piece of property in each category. H&r block free file 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. H&r block free file The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. H&r block free file Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. H&r block free file A corporation generally must make estimated tax payments as it earns or receives income during its tax year. H&r block free file After the end of the year, the corporation must file an income tax return. H&r block free file This section will help you determine when and how to pay and file corporate income taxes. H&r block free file 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. H&r block free file The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. H&r block free file For more information, visit www. H&r block free file irs. H&r block free file gov/newsroom/article/0,,id=108362. H&r block free file 00. H&r block free file Income Tax Return This section will help you determine when and how to report a corporation's income tax. H&r block free file Who must file. H&r block free file   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. H&r block free file Which form to file. H&r block free file   A corporation generally must file Form 1120, U. H&r block free file S. H&r block free file Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. H&r block free file Certain organizations and entities must file special returns. H&r block free file For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. H&r block free file Electronic filing. H&r block free file   Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. H&r block free file Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. H&r block free file However, in certain instances, these corporations can request a waiver. H&r block free file For more information regarding electronic filing, visit www. H&r block free file irs. H&r block free file gov/efile. H&r block free file When to file. H&r block free file   Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. H&r block free file A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. H&r block free file A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. H&r block free file Example 1. H&r block free file A corporation's tax year ends December 31. H&r block free file It must file its income tax return by March 15th. H&r block free file Example 2. H&r block free file A corporation's tax year ends June 30. H&r block free file It must file its income tax return by September 15th. H&r block free file   If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. H&r block free file Extension of time to file. H&r block free file   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. H&r block free file 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. H&r block free file   Form 7004 does not extend the time for paying the tax due on the return. H&r block free file Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. H&r block free file The interest is figured from the original due date of the return to the date of payment. H&r block free file   For more information, see the instructions for Form 7004. H&r block free file How to pay your taxes. H&r block free file   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. H&r block free file Electronic Federal Tax Payment System (EFTPS). H&r block free file   Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). H&r block free file For more information on EFTPS and enrollment, visit www. H&r block free file eftps. H&r block free file gov or call 1-800-555-4477. H&r block free file Also see Publication 966, The Secure Way to Pay Your Federal Taxes. H&r block free file Note. H&r block free file Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. H&r block free file 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. H&r block free file Do not attach an explanation when the corporation's return is filed. H&r block free file See the instructions for your income tax return. H&r block free file Late filing of return. H&r block free file    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. H&r block free file 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. H&r block free file The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. H&r block free file The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. H&r block free file Late payment of tax. H&r block free file    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. H&r block free file The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. H&r block free file Trust fund recovery penalty. H&r block free file   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. H&r block free file The penalty is the full amount of the unpaid trust fund tax. H&r block free file This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. H&r block free file   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. H&r block free file   A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. H&r block free file A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. H&r block free file   Willfully means voluntarily, consciously, and intentionally. H&r block free file A responsible person acts willfully if the person knows the required actions are not taking place. H&r block free file   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. H&r block free file Other penalties. H&r block free file   Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. H&r block free file See sections 6662, 6662A, and 6663 of the Internal Revenue Code. H&r block free file Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. H&r block free file If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. H&r block free file This section will explain how to avoid this penalty. H&r block free file When to pay estimated tax. H&r block free file   Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. H&r block free file Example 1. H&r block free file Your corporation's tax year ends December 31. H&r block free file Installment payments are due on April 15, June 15, September 15, and December 15. H&r block free file Example 2. H&r block free file Your corporation's tax year ends June 30. H&r block free file Installment payments are due on October 15, December 15, March 15, and June 15. H&r block free file   If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. H&r block free file How to figure each required installment. H&r block free file   Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. H&r block free file You will generally use one of the following two methods to figure each required installment. H&r block free file You should use the method that yields the smallest installment payments. H&r block free file Note. H&r block free file In these discussions, “return” generally refers to the corporation's original return. H&r block free file However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. H&r block free file Method 1. H&r block free file   Each required installment is 25% of the income tax the corporation will show on its return for the current year. H&r block free file Method 2. H&r block free file   Each required installment is 25% of the income tax shown on the corporation's return for the previous year. H&r block free file   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). H&r block free file Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. H&r block free file   See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. H&r block free file Other methods. H&r block free file   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. H&r block free file The annualized income installment method. H&r block free file The adjusted seasonal installment method. H&r block free file 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. H&r block free file Refiguring required installments. H&r block free file   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. H&r block free file An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. H&r block free file Underpayment penalty. H&r block free file   If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. H&r block free file The penalty is figured separately for each installment due date. H&r block free file The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. H&r block free file This is true even if the corporation is due a refund when its return is filed. H&r block free file Form 2220. H&r block free file   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. H&r block free file   If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. H&r block free file The amount of the underpayment. H&r block free file The period during which the underpayment was due and unpaid. H&r block free file The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. H&r block free file   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. H&r block free file 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. H&r block free file The annualized income installment method was used to figure any required installment. H&r block free file The adjusted seasonal installment method was used to figure any required installment. H&r block free file The corporation is a large corporation figuring its first required installment based on the prior year's tax. H&r block free file How to pay estimated tax. H&r block free file   A corporation is generally required to use EFTPS to pay its taxes. H&r block free file See Electronic Federal Tax Payment System (EFTPS), earlier. H&r block free file Also see the Instructions for Form 1120-W. H&r block free file Quick refund of overpayments. H&r block free file   A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. H&r block free file 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. H&r block free file A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. H&r block free file Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. H&r block free file 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. H&r block free file Do not file Form 4466 before the end of the corporation's tax year. H&r block free file An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. H&r block free file The IRS will act on the form within 45 days from the date you file it. H&r block free file U. H&r block free file S. H&r block free file Real Property Interest If a domestic corporation acquires a U. H&r block free file S. H&r block free file real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. H&r block free file The amount paid includes cash, the fair market value of other property, and any assumed liability. H&r block free file If a domestic corporation distributes a U. H&r block free file S. H&r block free file real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. H&r block free file A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. H&r block free file 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. H&r block free file S. H&r block free file Withholding Tax Return for Dispositions by Foreign Persons of U. H&r block free file S. H&r block free file Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. H&r block free file S. H&r block free file Real Property Interests. H&r block free file Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. H&r block free file Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. H&r block free file In all cases, the method used must clearly show taxable income. H&r block free file Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. H&r block free file Accrual method. H&r block free file   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. H&r block free file A corporation engaged in farming operations also must use the accrual method. H&r block free file   If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. H&r block free file 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. H&r block free file   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. H&r block free file   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. H&r block free file   There are exceptions to the economic performance rule for certain items, including recurring expenses. H&r block free file See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. H&r block free file Nonaccrual experience method. H&r block free file   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. H&r block free file   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. H&r block free file Percentage of completion method. H&r block free file   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. H&r block free file Mark-to-market accounting method. H&r block free file   Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. H&r block free file Under this method any security held by a dealer as inventory must be included in inventory at its FMV. H&r block free file 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. H&r block free file Any gain or loss must be taken into account in determining gross income. H&r block free file The gain or loss taken into account is treated as ordinary gain or loss. H&r block free file   Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. H&r block free file Change in accounting method. H&r block free file   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). H&r block free file The corporation must file Form 3115, Application for Change in Accounting Method. H&r block free file For more information, see Form 3115 and Publication 538. H&r block free file Section 481(a) adjustment. H&r block free file   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. H&r block free file The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. H&r block free file 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. H&r block free file The corporation must complete the appropriate lines of Form 3115 to make the election. H&r block free file See the Instructions for Form 3115. H&r block free file Accounting Periods A corporation must figure its taxable income on the basis of a tax year. H&r block free file A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. H&r block free file Generally, corporations can use either a calendar year or a fiscal year as its tax year. H&r block free file Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. H&r block free file For more information, see Publication 538. H&r block free file Personal service corporation. H&r block free file   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. H&r block free file 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. H&r block free file Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. H&r block free file   If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. H&r block free file See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. H&r block free file Change of tax year. H&r block free file   Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. H&r block free file However, under certain conditions, a corporation can change its tax year without getting the consent. H&r block free file For more information, see Form 1128 and Publication 538. H&r block free file 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. H&r block free file 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. H&r block free file 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. H&r block free file The corporation should keep copies of all filed returns. H&r block free file They help in preparing future and amended returns and in the calculation of earnings and profits. H&r block free file Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. H&r block free file However, the following special provisions apply only to corporations. H&r block free file Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. H&r block free file However, a corporation can elect to deduct a limited amount of start-up or organizational costs. H&r block free file Any costs not deducted can be amortized. H&r block free file Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. H&r block free file Organizational costs are the direct costs of creating the corporation. H&r block free file For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. H&r block free file Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. H&r block free file 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. H&r block free file Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. H&r block free file 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. H&r block free file These rules also deny the deduction of losses on the sale or exchange of property between related persons. H&r block free file Related persons. H&r block free file   For purposes of this rule, the following persons are related to a corporation. H&r block free file Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). H&r block free file An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. H&r block free file 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. H&r block free file An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. H&r block free file 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. H&r block free file 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. H&r block free file Ownership of stock. H&r block free file   To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. H&r block free file 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. H&r block free file An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. H&r block free file Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. H&r block free file 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. H&r block free file To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. H&r block free file 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. H&r block free file Reallocation of income and deductions. H&r block free file   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. H&r block free file Complete liquidations. H&r block free file   The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. H&r block free file More information. H&r block free file   For more information about the related person rules, see Publication 544. H&r block free file 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. H&r block free file If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. H&r block free file Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. H&r block free file A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. H&r block free file A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. H&r block free file For more information regarding the election, see Form 8902. H&r block free file 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. H&r block free file The deduction is allowed for the year in which the property is placed in service. H&r block free file 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. H&r block free file For more information, see section 179C of the Internal Revenue Code and the related Regulations. H&r block free file 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). H&r block free file 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. H&r block free file For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. H&r block free file 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. H&r block free file In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. H&r block free file 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. H&r block free file The deduction is limited to $1. H&r block free file 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. H&r block free file Other rules and limitations apply. H&r block free file The corporation must reduce the basis of any property by any deduction taken. H&r block free file The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. H&r block free file For more information, see section 179D of the Internal Revenue Code. H&r block free file Also see Notice 2006-52, 2006-26 I. H&r block free file R. H&r block free file B. H&r block free file 1175, clarified and amplified by Notice 2008-40, 2008-14 I. H&r block free file R. H&r block free file B. H&r block free file 725, and any successor. H&r block free file Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. H&r block free file These items are known as corporate preference items and they include the following. H&r block free file Gain on the disposition of section 1250 property. H&r block free file For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. H&r block free file Percentage depletion for iron ore and coal (including lignite). H&r block free file For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. H&r block free file Amortization of pollution control facilities. H&r block free file For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. H&r block free file Mineral exploration and development costs. H&r block free file For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. H&r block free file For more information on corporate preference items, see section 291 of the Internal Revenue Code. H&r block free file Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. H&r block free file This section discusses the general rules that apply. H&r block free file The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. H&r block free file For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. H&r block free file Dividends from domestic corporations. H&r block free file   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. H&r block free file 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. H&r block free file Ownership. H&r block free file   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. H&r block free file Small business investment companies. H&r block free file   Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. H&r block free file Dividends from regulated investment companies. H&r block free file   Regulated investment company dividends received are subject to certain limits. H&r block free file Capital gain dividends received from a regulated investment company do not qualify for the deduction. H&r block free file For more information, see section 854 of the Internal Revenue Code. H&r block free file No deduction allowed for certain dividends. H&r block free file   Corporations cannot take a deduction for dividends received from the following entities. H&r block free file A real estate investment trust (REIT). H&r block free file 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. H&r block free file 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. H&r block free file Ex-dividend means the holder has no rights to the dividend. H&r block free file 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. H&r block free file 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. H&r block free file Dividends on deposits. H&r block free file   Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. H&r block free file They do not qualify for this deduction. H&r block free file Limit on deduction for dividends. H&r block free file   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). H&r block free file Figuring the limit. H&r block free file   In figuring the limit, determine taxable income without the following items. H&r block free file The net operating loss deduction. H&r block free file The domestic production activities deduction. H&r block free file The deduction for dividends received. H&r block free file Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). H&r block free file Any capital loss carryback to the tax year. H&r block free file Effect of net operating loss. H&r block free file   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. H&r block free file To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. H&r block free file Example 1. H&r block free file A corporation loses $25,000 from operations. H&r block free file It receives $100,000 in dividends from a 20%-owned corporation. H&r block free file Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. H&r block free file 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). H&r block free file Therefore, the 80% of taxable income limit does not apply. H&r block free file The corporation can deduct the full $80,000. H&r block free file Example 2. H&r block free file Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. H&r block free file Its taxable income is $85,000 before the deduction for dividends received. H&r block free file After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. H&r block free file 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%). H&r block free file 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. H&r block free file The nontaxed part is any dividends-received deduction allowable for the dividends. H&r block free file Extraordinary dividend. H&r block free file   An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. H&r block free file The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. H&r block free file Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. H&r block free file 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. H&r block free file Disqualified preferred stock. H&r block free file   Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. H&r block free file   Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. H&r block free file The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. H&r block free file The issue price of the stock exceeds its liquidation rights or stated redemption price. H&r block free file 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. H&r block free file   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. H&r block free file More information. H&r block free file   For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. H&r block free file 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. H&r block free file 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. H&r block free file 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. H&r block free file Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. H&r block free file Foregone interest. H&r block free file   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. H&r block free file See Below-market loans, in chapter 4 of Publication 535 for more information. H&r block free file Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. H&r block free file The contribution is deductible if made to, or for the use of, a qualified organization. H&r block free file For more information on qualified organizations, see Publication 526, Charitable Contributions. H&r block free file Also see, Exempt Organizations Select Check (EO Select Check) at www. H&r block free file irs. H&r block free file gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. H&r block free file Note. H&r block free file You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. H&r block free file Cash method corporation. H&r block free file   A corporation using the cash method of accounting deducts contributions in the tax year paid. H&r block free file Accrual method corporation. H&r block free file   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. H&r block free file Make the choice by reporting the contribution on the corporation's return for the tax year. H&r block free file A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. H&r block free file The declaration must include the date the resolution was adopted. H&r block free file Limitations on deduction. H&r block free file   A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. H&r block free file Figure taxable income for this purpose without the following. H&r block free file The deduction for charitable contributions. H&r block free file The dividends-received deduction. H&r block free file The deduction allowed under section 249 of the Internal Revenue Code. H&r block free file The domestic production activities deduction. H&r block free file Any net operating loss carryback to the tax year. H&r block free file Any capital loss carryback to the tax year. H&r block free file Farmers and ranchers. H&r block free file    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. H&r block free file Carryover of excess contributions. H&r block free file   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. H&r block free file You lose any excess not used within that period. H&r block free file 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. H&r block free file Any excess not used in 2015 is lost. H&r block free file 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). H&r block free file You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. H&r block free file Cash contributions. H&r block free file   A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. H&r block free file 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. H&r block free file Keep the record of the contribution with the other corporate records. H&r block free file Do not attach the records to the corporation's return. H&r block free file For more information on cash contributions, see Publication 526. H&r block free file Gifts of $250 or more. H&r block free file   Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. H&r block free file 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. H&r block free file The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. H&r block free file Keep the acknowledgement with other corporate records. H&r block free file Do not attach the acknowledgement to the return. H&r block free file Contributions of property other than cash. H&r block free file   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. H&r block free file 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. H&r block free file   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. H&r block free file 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. H&r block free file   A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. H&r block free file 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. H&r block free file 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. H&r block free file   See Form 8283 for more information. H&r block free file Qualified conservation contributions. H&r block free file   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. H&r block free file For more information, see section 170(h) of the Internal Revenue Code. H&r block free file Contributions of used vehicles. H&r block free file   A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. H&r block free file The deduction is limited, and other special rules apply. H&r block free file For more information, see Publication 526. H&r block free file Reduction for contributions of certain property. H&r block free file   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. H&r block free file   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. H&r block free file Larger deduction. H&r block free file   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. H&r block free file 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. H&r block free file 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. H&r block free file 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. H&r block free file 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. H&r block free file Contributions to organizations conducting lobbying activities. H&r block free file   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. H&r block free file More information. H&r block free file   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. H&r block free file Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. H&r block free file In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. H&r block free file Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. H&r block free file A capital loss is carried to other years in the following order. H&r block free file 3 years prior to the loss year. H&r block free file 2 years prior to the loss year. H&r block free file 1 year prior to the loss year. H&r block free file Any loss remaining is carried forward for 5 years. H&r block free file When you carry a net capital loss to another tax year, treat it as a short-term loss. H&r block free file It does not retain its original identity as long term or short term. H&r block free file Example. H&r block free file A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. H&r block free file The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. H&r block free file The corporation treats this $6,000 as a short-term loss when carried back or forward. H&r block free file The corporation carries the $6,000 short-term loss back 3 years. H&r block free file 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. H&r block free file It subtracts the $6,000 short-term loss first from the net short-term gain. H&r block free file This results in a net capital gain for year 1 of $7,000. H&r block free file 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. H&r block free file S corporation status. H&r block free file   A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. H&r block free file Rules for carryover and carryback. H&r block free file   When carrying a capital loss from one year to another, the following rules apply. H&r block free file When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. H&r block free file In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. H&r block free file If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. H&r block free file 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. H&r block free file Refunds. H&r block free file   When you carry back a capital loss to an earlier tax year, refigure your tax for that year. H&r block free file 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. H&r block free file S. H&r block free file Corporation Income Tax Return, to apply for a refund. H&r block free file Form 1139. H&r block free file    A corporation can get a refund faster by using Form 1139. H&r block free file 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. H&r block free file Form 1120X. H&r block free file   If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. H&r block free file The corporation must file the Form 1120X within 3 years of the due date, includin