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How To File Military Taxes

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How To File Military Taxes

How to file military taxes 14. How to file military taxes   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Fuels Used in FarmingBuyer of fuel, including undyed diesel fuel or undyed kerosene. How to file military taxes Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). How to file military taxes Custom application of fertilizer and pesticide. How to file military taxes Fuel not used for farming. How to file military taxes Dyed Diesel Fuel and Dyed Kerosene Fuels Used in Off-Highway Business Use Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines How To Claim a Credit or RefundCredit only. How to file military taxes Claiming a Credit Claiming a Refund Including the Credit or Refund in Income Introduction You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. How to file military taxes You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return. How to file military taxes Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. How to file military taxes The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following. How to file military taxes Use on a farm for farming purposes. How to file military taxes Off-highway business use. How to file military taxes Uses other than as a fuel in a propulsion engine, such as home use. How to file military taxes Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. How to file military taxes See Publication 510, Excise Taxes, for more information. How to file military taxes Topics - This chapter discusses: Fuels used in farming Dyed diesel fuel and dyed kerosene Fuels used in off-highway business use Fuels used for household purposes How to claim a credit or refund Including the credit or refund in income Useful Items - You may want to see: Publication 510 Excise Taxes Form (and Instructions) 720 Quarterly Federal Excise Tax Return 4136 Credit for Federal Tax Paid on Fuels 8849 Claim for Refund of Excise Taxes See chapter 16 for information about getting publications and forms. How to file military taxes Fuels Used in Farming Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. How to file military taxes See Table 14-1 for a list of available fuel tax credits and refunds. How to file military taxes Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. How to file military taxes Farm. How to file military taxes   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. How to file military taxes It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. How to file military taxes A fish farm is an area where fish are grown or raised and not merely caught or harvested. How to file military taxes Table 14-1. How to file military taxes Fuel Tax Credits and Refunds at a Glance Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed. How to file military taxes Fuel Used On a Farm for Farming Purposes Off-Highway Business Use Household Use or Use Other Than as a Fuel1 Gasoline Credit only Credit or refund None Aviation gasoline Credit only None None Undyed diesel fuel and undyed kerosene Credit or refund Credit or refund2 Credit or refund2 Kerosene for use in aviation Credit or refund None None Dyed diesel fuel and dyed kerosene None None None Other Fuels (including alternative fuels)3 Credit or refund Credit or refund None 1For a use other than as fuel in a propulsion engine. How to file military taxes 2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. How to file military taxes See Reg. How to file military taxes 48. How to file military taxes 6427-10 (b)(1) for the definition of a blocked pump. How to file military taxes 3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. How to file military taxes It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass. How to file military taxes Farming purposes. How to file military taxes   As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways. How to file military taxes To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. How to file military taxes To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. How to file military taxes To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. How to file military taxes To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. How to file military taxes For this use to qualify, you must have produced more than half the commodity so treated during the tax year. How to file military taxes The more-than-one-half test applies separately to each commodity. How to file military taxes Commodity means a single raw product. How to file military taxes For example, apples and peaches are two separate commodities. How to file military taxes To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. How to file military taxes Your tree operations are incidental only if they are minor in nature when compared to the total farming operations. How to file military taxes   If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list items (1) or (2), above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. How to file military taxes Therefore, you can still claim the credit or refund for the fuel so used. How to file military taxes However, see Custom application of fertilizer and pesticide, later. How to file military taxes If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services. How to file military taxes Buyer of fuel, including undyed diesel fuel or undyed kerosene. How to file military taxes   If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. How to file military taxes For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used. How to file military taxes Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). How to file military taxes   Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. How to file military taxes However, see Custom application of fertilizer and pesticide, next. How to file military taxes Also see Dyed Diesel Fuel and Dyed Kerosene, later. How to file military taxes Example. How to file military taxes Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. How to file military taxes Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. How to file military taxes In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. How to file military taxes Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. How to file military taxes Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. How to file military taxes No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above. How to file military taxes In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks. How to file military taxes Custom application of fertilizer and pesticide. How to file military taxes   Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. How to file military taxes Generally, the applicator is treated as having used the fuel on a farm for farming purposes. How to file military taxes For applicators using highway vehicles, only the fuel used on the farm is exempt. How to file military taxes Fuel used traveling on the highway to and from the farm is taxable. How to file military taxes Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. How to file military taxes For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. How to file military taxes For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. How to file military taxes A sample waiver is included as Model Waiver L in the appendix of Publication 510. How to file military taxes A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. How to file military taxes To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. How to file military taxes However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes. How to file military taxes Fuel not used for farming. How to file military taxes   You do not use fuel on a farm for farming purposes when you use it in any of the following ways. How to file military taxes Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment. How to file military taxes For personal use, such as lawn mowing. How to file military taxes In processing, packaging, freezing, or canning operations. How to file military taxes In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. How to file military taxes All-terrain vehicles (ATVs). How to file military taxes   Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. How to file military taxes Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. How to file military taxes If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund. How to file military taxes Dyed Diesel Fuel and Dyed Kerosene If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. How to file military taxes For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. How to file military taxes Excise tax applies to the fuel used by the truck on the highways. How to file military taxes In this situation, undyed (taxed) fuel should be purchased for the truck. How to file military taxes You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. How to file military taxes You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes. How to file military taxes Penalty. How to file military taxes   A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. How to file military taxes The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. How to file military taxes After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. How to file military taxes For more information on this penalty, see Publication 510. How to file military taxes Fuels Used in Off-Highway Business Use You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use. How to file military taxes Off-highway business use. How to file military taxes   This is any use of fuel in a trade or business or in an income-producing activity. How to file military taxes The use must not be in a highway vehicle registered or required to be registered for use on public highways. How to file military taxes Off-highway business use generally does not include any use in a recreational motorboat. How to file military taxes Examples. How to file military taxes   Off-highway business use includes the use of fuels in a trade or business in any of the following ways. How to file military taxes In stationary machines such as generators, compressors, power saws, and similar equipment; For cleaning ; and In forklift trucks, bulldozers, and earthmovers. How to file military taxes   Off-highway nonbusiness (taxable) use of fuel includes: use in minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. How to file military taxes For more information, see Publication 510. How to file military taxes Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. How to file military taxes This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. How to file military taxes Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use. How to file military taxes How To Claim a Credit or Refund You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. How to file military taxes The basic rules for claiming credits and refunds are listed in Table 14-2 . How to file military taxes Table 14-2. How to file military taxes Claiming a Credit or Refund of Excise Taxes This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use. How to file military taxes   Credit Refund Which form to use Form 4136, Credit for Federal Tax Paid on Fuels Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels Type of form Annual Quarterly When to file With your income tax return By the last day of the quarter following the last quarter included in the claim Amount of tax Any amount $750 or more1 1You may carry over an amount less than $750 to the next quarter. How to file military taxes Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. How to file military taxes You do not have to use any special form, but the records should establish the following information. How to file military taxes The total number of gallons bought and used during the period covered by your claim. How to file military taxes The dates of the purchases. How to file military taxes The names and addresses of suppliers and amounts bought from each during the period covered by your claim. How to file military taxes The nontaxable use for which you used the fuel. How to file military taxes The number of gallons used for each nontaxable use. How to file military taxes It is important that your records separately show the number of gallons used for each nontaxable use that qualifies as a claim. How to file military taxes For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records. How to file military taxes Credit or refund. How to file military taxes   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. How to file military taxes If you meet certain requirements, you may claim a refund during the year instead of waiting until you file your income tax return. How to file military taxes Credit only. How to file military taxes   You can claim the following taxes only as a credit on your income tax return. How to file military taxes Tax on gasoline and aviation gasoline you used on a farm for farming purposes. How to file military taxes Tax on fuels (including undyed diesel fuel or undyed kerosene) you used for nontaxable uses if the total for the tax year is less than $750. How to file military taxes Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year. How to file military taxes Claiming a Credit You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. How to file military taxes Do not claim a credit for any excise tax for which you have filed a refund claim. How to file military taxes How to claim a credit. How to file military taxes   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, trust, or farmers' cooperative association. How to file military taxes Individuals. How to file military taxes   You claim the credit on the “Credit for federal tax on fuels” line of your Form 1040. How to file military taxes If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. How to file military taxes Partnership. How to file military taxes   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. How to file military taxes , showing each partner's share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. How to file military taxes Each partner claims the credit on his or her income tax return for the partner's share of the fuel used by the partnership. How to file military taxes An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U. How to file military taxes S. How to file military taxes Return of Income for Electing Large Partnerships. How to file military taxes Other entities. How to file military taxes   Corporations, S corporations, farmers' cooperative associations, and trusts make the claim on the appropriate line of their income tax return. How to file military taxes When to claim a credit. How to file military taxes   You can claim a fuel tax credit on your income tax return for the year you used the fuel. How to file military taxes You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. How to file military taxes A claim for credit or refund of an overpayment must generally be filed within the later of: Three years from the date the original return was filed, or Two years from the date the tax was paid. How to file military taxes Claiming a Refund Generally, you may claim a refund of excise taxes on Form 8849. How to file military taxes Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). How to file military taxes The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. How to file military taxes If you file Form 720, you can use its Schedule C for your refund claims for the quarter. How to file military taxes See the Instructions for Form 720. How to file military taxes Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136. How to file military taxes You may file a claim for refund for any quarter of your tax year for which you can claim $750 or more. How to file military taxes This amount is the excise tax on all fuels used for a nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year. How to file military taxes If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. How to file military taxes If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return using Form 4136. How to file military taxes Only one claim can be filed for a quarter. How to file military taxes You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. How to file military taxes You must claim a credit on your income tax return for the tax. How to file military taxes How to file a quarterly claim. How to file military taxes   File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. How to file military taxes Send it to the address shown in the instructions. How to file military taxes If you file Form 720, you can use its Schedule C for your refund claims. How to file military taxes See the Instructions for Form 720. How to file military taxes When to file a quarterly claim. How to file military taxes   You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. How to file military taxes If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier. How to file military taxes    In most situations, the amount claimed as a credit or refund will be less than the amount deducted as fuel tax expense because the Leaking Underground Storage Tank (LUST) tax of $0. How to file military taxes 001 per gallon is generally not subject to credit or refund. How to file military taxes Including the Credit or Refund in Income Include any credit or refund of excise taxes on fuels in your gross income if you claimed the total cost of the fuel (including the excise taxes) as an expense deduction that reduced your income tax liability. How to file military taxes Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting. How to file military taxes Cash method. How to file military taxes   If you use the cash method and file a claim for refund, include the refund amount in gross income for the tax year in which you receive the refund. How to file military taxes If you claim a credit on your income tax return, include the credit amount in gross income for the tax year in which you file Form 4136. How to file military taxes If you file an amended return and claim a credit, include the credit amount in gross income for the tax year in which you receive the credit. How to file military taxes Example. How to file military taxes Sharon Brown, a farmer who uses the cash method, filed her 2012 Form 1040 on March 3, 2013. How to file military taxes On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. How to file military taxes Then, on Form 4136, she claimed the $110 as a credit. How to file military taxes Sharon reports the $110 as other income on line 8b of her 2013 Schedule F. How to file military taxes Accrual method. How to file military taxes   If you use an accrual method, include the amount of credit or refund in gross income for the tax year in which you used the fuels. How to file military taxes It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit. How to file military taxes Example. How to file military taxes Patty Green, a farmer who uses the accrual method, files her 2012 Form 1040 on April 15, 2013. How to file military taxes On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2012. How to file military taxes On Form 4136, Patty claims the $155 as a credit. How to file military taxes She reports the $155 as other income on line 8b of her 2012 Schedule F. How to file military taxes Prev  Up  Next   Home   More Online Publications
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Hurricane Grant Guidelines Now Available

IR-2008-115, Oct. 10, 2008

WASHINGTON — The Internal Revenue Service today released a notice designed to help eligible homeowners who received federal reimbursement grants stemming from Hurricanes Katrina, Rita or Wilma take advantage of a new tax provision.

Notice 2008-95 provides guidelines to homeowners who received these grants, including the Louisiana Road Home Grants and the Mississippi Development Authority Hurricane Katrina Homeowner Grants.

The Housing and Economic Recovery Act, enacted this summer, included the new provision, aimed at helping grant recipients who previously claimed hurricane-related disaster-loss deductions on their main home. The new law gives affected homeowners the option of adjusting previously claimed deductions by treating their federal reimbursement grants as reimbursement for the losses they suffered on their main home from Hurricanes Katrina, Rita or Wilma.

Before this change, homeowners who claimed casualty loss deductions and received grants in a later tax year as reimbursement for the loss were required by law to pay tax on part or all of the grant to compensate for the tax benefit of the prior deduction. While individual circumstances varied, this meant that some taxpayers ended up paying more tax on the grant than they saved by claiming the deduction.

The notice explains how eligible taxpayers can amend prior-year returns to reduce the casualty loss deduction by the amount of the grant, and explains that taxpayers have one year to pay back any resulting tax due, penalty-free and interest-free. To qualify for this relief, these amended returns must be filed by July 30, 2009, and the entire resulting tax due paid by July 30, 2010, in most cases. The notice also provides special instructions for those taxpayers who have already filed an amended return.

Taxpayers should write the words, “Hurricane Grant Relief” in dark, bold letters at the top of their amended return, Form 1040X, and mail it to: Internal Revenue Service Center, Austin, TX 73301-0255. Amended returns cannot be filed electronically.

The IRS cautioned that, although filing an amended return may be a good option for many, it won’t necessarily be the right choice for everyone. The agency urges affected taxpayers and their representatives to consider carefully which option is best under their particular circumstances.

Page Last Reviewed or Updated: 24-Mar-2014

The How To File Military Taxes

How to file military taxes 2. How to file military taxes   Tax Shelters and Other Reportable Transactions Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Abusive Tax SheltersRules To Curb Abusive Tax Shelters Investor Reporting Penalties Whether To Invest Introduction Investments that yield tax benefits are sometimes called “tax shelters. How to file military taxes ” In some cases, Congress has concluded that the loss of revenue is an acceptable side effect of special tax provisions designed to encourage taxpayers to make certain types of investments. How to file military taxes In many cases, however, losses from tax shelters produce little or no benefit to society, or the tax benefits are exaggerated beyond those intended. How to file military taxes Those cases are called “abusive tax shelters. How to file military taxes ” An investment that is considered a tax shelter is subject to restrictions, including the requirement that it be disclosed, as discussed later. How to file military taxes Topics - This chapter discusses: Abusive Tax Shelters , Rules To Curb Abusive Tax Shelters , Investor Reporting , Penalties , and Whether To Invest . How to file military taxes Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 556 Examination of Returns, Appeal Rights, and Claims for Refund 561 Determining the Value of Donated Property 925 Passive Activity and At-Risk Rules Form (and Instructions) 8275 Disclosure Statement 8275-R Regulation Disclosure Statement 8283 Noncash Charitable Contributions 8886 Reportable Transaction Disclosure Statement See chapter 5, How To Get Tax Help , for information about getting these publications and forms. How to file military taxes Abusive Tax Shelters Abusive tax shelters are marketing schemes involving artificial transactions with little or no economic reality. How to file military taxes They often make use of unrealistic allocations, inflated appraisals, losses in connection with nonrecourse loans, mismatching of income and deductions, financing techniques that do not conform to standard commercial business practices, or mischaracterization of the substance of the transaction. How to file military taxes Despite appearances to the contrary, the taxpayer generally risks little. How to file military taxes Abusive tax shelters commonly involve package deals designed from the start to generate losses, deductions, or credits that will be far more than present or future investment. How to file military taxes Or, they may promise investors from the start that future inflated appraisals will enable them, for example, to reap charitable contribution deductions based on those appraisals. How to file military taxes (But see the appraisal requirements discussed under Rules To Curb Abusive Tax Shelters , later. How to file military taxes ) They are commonly marketed in terms of the ratio of tax deductions allegedly available to each dollar invested. How to file military taxes This ratio (or “write-off”) is frequently said to be several times greater than one-to-one. How to file military taxes Because there are many abusive tax shelters, it is not possible to list all the factors you should consider in determining whether an offering is an abusive tax shelter. How to file military taxes However, you should ask the following questions, which might provide a clue to the abusive nature of the plan. How to file military taxes Do the tax benefits far outweigh the economic benefits? Is this a transaction you would seriously consider, apart from the tax benefits, if you hoped to make a profit? Do shelter assets really exist and, if so, are they insured for less than their purchase price? Is there a nontax justification for the way profits and losses are allocated to partners? Do the facts and supporting documents make economic sense? In that connection, are there sales and resales of the tax shelter property at ever increasing prices? Does the investment plan involve a gimmick, device, or sham to hide the economic reality of the transaction? Does the promoter offer to backdate documents after the close of the year? Are you instructed to backdate checks covering your investment? Is your debt a real debt or are you assured by the promoter that you will never have to pay it? Does this transaction involve laundering United States source income through foreign corporations incorporated in a tax haven and owned by United States shareholders? Rules To Curb Abusive Tax Shelters Congress has enacted a series of income tax laws designed to halt the growth of abusive tax shelters. How to file military taxes These provisions include the following. How to file military taxes Disclosure of reportable transactions. How to file military taxes   You must disclose information for each reportable transaction in which you participate. How to file military taxes See Reportable Transaction Disclosure Statement , later. How to file military taxes   Material advisors with respect to any reportable transaction must disclose information about the transaction on Form 8918, Material Advisor Disclosure Statement. How to file military taxes To determine whether you are a material advisor to a transaction, see the Instructions for Form 8918. How to file military taxes   Material advisors will receive a reportable transaction number for the disclosed reportable transaction. How to file military taxes They must provide this number to all persons to whom they acted as a material advisor. How to file military taxes They must provide the number at the time the transaction is entered into. How to file military taxes If they do not have the number at that time, they must provide it within 60 days from the date the number is mailed to them. How to file military taxes For information on penalties for failure to disclose and failure to maintain lists, see Internal Revenue Code sections 6707, 6707A, and 6708. How to file military taxes Requirement to maintain list. How to file military taxes   Material advisors must maintain a list of persons to whom they provide material aid, assistance, or advice on any reportable transaction. How to file military taxes The list must be available for inspection by the IRS, and the information required to be included on the list generally must be kept for 7 years. How to file military taxes See Regulations section 301. How to file military taxes 6112-1 for more information (including what information is required to be included on the list). How to file military taxes Confidentiality privilege. How to file military taxes   The confidentiality privilege between you and a federally authorized tax practitioner does not apply to written communications made after October 21, 2004, regarding the promotion of your direct or indirect participation in any tax shelter. How to file military taxes Appraisal requirement for donated property. How to file military taxes   If you claim a deduction of more than $5,000 for an item or group of similar items of donated property, you generally must get a qualified appraisal from a qualified appraiser and complete and attach section B of Form 8283 to your return. How to file military taxes If you claim a deduction of more than $500,000 for the donated property, you generally must attach the qualified appraisal to your return. How to file military taxes If you file electronically, see Form 8453, U. How to file military taxes S. How to file military taxes Individual Income Tax Transmittal for an IRS e-file Return, and its instructions. How to file military taxes For more information about appraisals, including exceptions, see Publication 561. How to file military taxes Passive activity loss and credit limits. How to file military taxes   The passive activity loss and credit rules limit the amount of losses and credits that can be claimed from passive activities and limit the amount that can offset nonpassive income, such as certain portfolio income from investments. How to file military taxes For more detailed information about determining and reporting income, losses, and credits from passive activities, see Publication 925. How to file military taxes Interest on penalties. How to file military taxes   If you are assessed an accuracy-related or civil fraud penalty (as discussed under Penalties , later), interest will be imposed on the amount of the penalty from the due date of the return (including any extensions) to the date you pay the penalty. How to file military taxes Accounting method restriction. How to file military taxes   Tax shelters generally cannot use the cash method of accounting. How to file military taxes Uniform capitalization rules. How to file military taxes   The uniform capitalization rules generally apply to producing property or acquiring it for resale. How to file military taxes Under those rules, the direct cost and part of the indirect cost of the property must be capitalized or included in inventory. How to file military taxes For more information, see Publication 538. How to file military taxes Denial of deduction for interest on an underpayment due to a reportable transaction. How to file military taxes   You cannot deduct any interest you paid or accrued on any part of an underpayment of tax due to an understatement arising from a reportable transaction (discussed later) if the relevant facts affecting the tax treatment of the item are not adequately disclosed. How to file military taxes This rule applies to reportable transactions entered into in tax years beginning after October 22, 2004. How to file military taxes Authority for Disallowance of Tax Benefits The IRS has published guidance concluding that the claimed tax benefits of various abusive tax shelters should be disallowed. How to file military taxes The guidance is the conclusion of the IRS on how the law is applied to a particular set of facts. How to file military taxes Guidance is published in the Internal Revenue Bulletin for taxpayers' information and also for use by IRS officials. How to file military taxes So, if your return is examined and an abusive tax shelter is identified and challenged, published guidance dealing with that type of shelter, which disallows certain claimed tax shelter benefits, could serve as the basis for the examining official's challenge of the tax benefits you claimed. How to file military taxes In such a case, the examiner will not compromise even if you or your representative believes you have authority for the positions taken on your tax return. How to file military taxes The courts have generally been unsympathetic to taxpayers involved in abusive tax shelter schemes and have ruled in favor of the IRS in the majority of the cases in which these shelters have been challenged. How to file military taxes Investor Reporting You may be required to file a reportable transaction disclosure statement. How to file military taxes Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction (discussed later) in which you participated. How to file military taxes Generally, you must attach Form 8886 to your return for each tax year in which you participated in the transaction. How to file military taxes Under certain circumstances, a transaction must be disclosed within 90 days of the transaction being identified as a listed transaction or a transaction of interest (discussed later). How to file military taxes In addition, for the first year Form 8886 is attached to your return, you must send a copy of the form to: Internal Revenue Service OTSA Mail Stop 4915 1973 North Rulon White Blvd. How to file military taxes  Ogden, UT 84404 If you file your return electronically, the copy sent to OTSA must show exactly the same information, word for word, provided with the electronically filed return and it must be provided on the official IRS Form 8886 or an exact copy of the form. How to file military taxes If you use a computer-generated or substitute Form 8886, it must be an exact copy of the official IRS form. How to file military taxes If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. How to file military taxes See Penalty for failure to disclose a reportable transaction , later under Penalties. How to file military taxes The following discussion briefly describes reportable transactions. How to file military taxes For more details, see the Instructions for Form 8886. How to file military taxes Reportable transaction. How to file military taxes   A reportable transaction is any of the following. How to file military taxes A listed transaction. How to file military taxes A confidential transaction. How to file military taxes A transaction with contractual protection. How to file military taxes A loss transaction. How to file military taxes A transaction of interest entered into after November 1, 2006. How to file military taxes Note. How to file military taxes Transactions with a brief asset holding period were removed from the definition of reportable transaction for transactions entered into after August 2, 2007. How to file military taxes Listed transaction. How to file military taxes   A listed transaction is the same as, or substantially similar to, one of the types of transactions the IRS has determined to be a tax-avoidance transaction. How to file military taxes These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. How to file military taxes For a list of existing guidance, see Notice 2009-59 in Internal Revenue Bulletin 2009-31, available at www. How to file military taxes irs. How to file military taxes gov/irb/2009-31_IRB/ar07. How to file military taxes html. How to file military taxes Confidential transaction. How to file military taxes   A confidential transaction is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. How to file military taxes A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on your disclosure of the tax treatment or tax structure of the transaction and the limit protects the confidentiality of the advisor's tax strategies. How to file military taxes The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. How to file military taxes Transaction with contractual protection. How to file military taxes   Generally, a transaction with contractual protection is one in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. How to file military taxes For information on exceptions, see Revenue Procedure 2007-20 in Internal Revenue Bulletin 2007-7, available at www. How to file military taxes irs. How to file military taxes gov/irb/2007-07_IRB/ar15. How to file military taxes html. How to file military taxes Loss transaction. How to file military taxes   For individuals, a loss transaction is one that results in a deductible loss if the gross amount of the loss is at least $2 million in a single tax year or $4 million in any combination of tax years. How to file military taxes A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. How to file military taxes   Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886. How to file military taxes For information on other exceptions, see Revenue Procedure 2004-66 in Internal Revenue Bulletin 2004-50, as modified and superseded by Revenue Procedure 2013-11, (or future published guidance) available at www. How to file military taxes irs. How to file military taxes gov/irb/2004-50_IRB/ar11. How to file military taxes html. How to file military taxes Transaction of interest. How to file military taxes   A transaction of interest is a transaction entered into after November 1, 2006, that is the same as, or substantially similar to, one of the types of transactions that the IRS has identified by notice, regulation, or other form of published guidance as a transaction of interest. How to file military taxes The IRS has identified the following transactions of interest. How to file military taxes “Toggling” grantor trusts as described in Notice 2007-73, 2007-36 I. How to file military taxes R. How to file military taxes B. How to file military taxes 545, available at www. How to file military taxes irs. How to file military taxes gov/irb/2007-36_IRB/ar20. How to file military taxes html. How to file military taxes Certain transactions involving contributions of a successor member interest in a limited liability company as described in Notice 2007-72, 2007-36 I. How to file military taxes R. How to file military taxes B. How to file military taxes 544, available at www. How to file military taxes irs. How to file military taxes gov/irb/2007-36_IRB/ar19. How to file military taxes html. How to file military taxes Certain transactions involving the sale or other disposition of all interests in a charitable remainder trust and claiming little or no taxable gain as described in Notice 2008-99, 2008-47 I. How to file military taxes R. How to file military taxes B. How to file military taxes 1194, available at www. How to file military taxes irs. How to file military taxes gov/irb/2008-47_IRB/ar11. How to file military taxes html. How to file military taxes Certain transactions involving a U. How to file military taxes S. How to file military taxes taxpayer owning controlled foreign corporations (CFCs) that hold stock of a lower-tier CFC through a domestic partnership to avoid reporting income as described in Notice 2009-7, 2009-3 I. How to file military taxes R. How to file military taxes B. How to file military taxes 312, available at www. How to file military taxes irs. How to file military taxes gov/irb/2009-03_IRB/ar10. How to file military taxes html. How to file military taxes   For updates to this list, go to www. How to file military taxes irs. How to file military taxes gov/Businesses/Corporations/Abusive-Tax-Shelters-and-Transactions. How to file military taxes Penalties Investing in an abusive tax shelter may lead to substantial expenses. How to file military taxes First, the promoter generally charges a substantial fee. How to file military taxes If your return is examined by the IRS and a tax deficiency is determined, you will be faced with payment of more tax, interest on the underpayment, possibly a 20%, 30%, or even 40% accuracy-related penalty, or a 75% civil fraud penalty. How to file military taxes You may also be subject to the penalty for failure to pay tax. How to file military taxes These penalties are explained in the following paragraphs. How to file military taxes Accuracy-related penalties. How to file military taxes   An accuracy-related penalty of 20% can be imposed for underpayments of tax due to: Negligence or disregard of rules or regulations, Substantial understatement of tax, Substantial valuation misstatement (increased to 40% for gross valuation misstatement), Transaction lacking economic substance (increased to 40% for undisclosed transaction lacking economic substance), or Undisclosed foreign financial asset understatement (40% in all cases). How to file military taxes Except for a transaction lacking economic substance, this penalty will not be imposed if you can show you had reasonable cause for any understatement of tax and that you acted in good faith. How to file military taxes Your failure to disclose a reportable transaction is a strong indication that you failed to act in good faith. How to file military taxes   If you are charged an accuracy-related penalty, interest will be imposed on the amount of the penalty from the due date of the return (including extensions) to the date you pay the penalty. How to file military taxes   The 20% penalties do not apply to any underpayment attributable to a reportable transaction understatement subject to an accuracy-related penalty (discussed later). How to file military taxes Negligence or disregard of rules or regulations. How to file military taxes   The penalty for negligence or disregard of rules or regulations is imposed only on the part of the underpayment due to negligence or disregard of rules or regulations. How to file military taxes The penalty will not be charged if you can show you had reasonable cause for understating your tax and that you acted in good faith. How to file military taxes    Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code. How to file military taxes It also includes any failure to keep adequate books and records. How to file military taxes A return position that has a reasonable basis is not negligence. How to file military taxes   Disregard includes any careless, reckless, or intentional disregard of rules or regulations. How to file military taxes   The penalty for disregard of rules and regulations can be avoided if all the following are true. How to file military taxes You keep adequate books and records. How to file military taxes You have a reasonable basis for your position on the tax issue. How to file military taxes You make an adequate disclosure of your position. How to file military taxes Use Form 8275 to make your disclosure and attach it to your return. How to file military taxes To disclose a position contrary to a regulation, use Form 8275-R. How to file military taxes Use Form 8886 to disclose a reportable transaction (discussed earlier). How to file military taxes Substantial understatement of tax. How to file military taxes   An understatement is considered to be substantial if it is more than the greater of: 10% of the tax required to be shown on the return, or $5,000. How to file military taxes An “understatement” is the amount of tax required to be shown on your return for a tax year minus the amount of tax shown on the return, reduced by any rebates. How to file military taxes The term “rebate” generally means a decrease in the tax shown on your original return as the result of your filing an amended return or claim for refund. How to file military taxes   For items other than tax shelters, you can file Form 8275 or Form 8275-R to disclose items that could cause a substantial understatement of income tax. How to file military taxes In that way, you can avoid the substantial understatement penalty if you have a reasonable basis for your position on the tax issue. How to file military taxes Disclosure of the tax shelter item on a tax return does not reduce the amount of the understatement. How to file military taxes   Also, the understatement penalty will not be imposed if you can show there was reasonable cause for the underpayment caused by the understatement and that you acted in good faith. How to file military taxes An important factor in establishing reasonable cause and good faith will be the extent of your effort to determine your proper tax liability under the law. How to file military taxes Substantial valuation misstatement. How to file military taxes   In general, you are liable for a 20% penalty for a substantial valuation misstatement if all the following are true. How to file military taxes The value or adjusted basis of any property claimed on the return is 150% or more of the correct amount. How to file military taxes You underpaid your tax by more than $5,000 because of the misstatement. How to file military taxes You cannot establish that you had reasonable cause for the underpayment and that you acted in good faith. How to file military taxes   You may be assessed a penalty of 40% for a gross valuation misstatement. How to file military taxes If you misstate the value or the adjusted basis of property by 200% or more of the amount determined to be correct, you will be assessed a penalty of 40%, instead of 20%, of the amount you underpaid because of the gross valuation misstatement. How to file military taxes The penalty rate is also 40% if the property's correct value or adjusted basis is zero. How to file military taxes Transaction lacking economic substance. How to file military taxes   The economic substance doctrine only applies to an individual that entered into a transaction in connection with a trade or business or an activity engaged in for the production of income. How to file military taxes For transactions entered into after March 30, 2010, a transaction has economic substance for you as an individual taxpayer only if: The transaction changes your economic position in a meaningful way (apart from federal income tax effects), or You have a substantial purpose (apart from federal income tax effects) for entering into the transaction. How to file military taxes   For purposes of determining whether economic substance exists, a transaction's profit potential will only be taken into account if the present value of the reasonably expected pre-tax profit from the transaction is substantial compared to the present value of the expected net tax benefits that would be allowed if the transaction were respected. How to file military taxes   If any part of your underpayment is due to any disallowance of claimed tax benefits by reason of a transaction lacking economic substance or failing to meet the requirements of any similar rule of law, that part of your underpayment will be subject to the 20% accuracy-related penalty even if you had a reasonable cause and acted in good faith concerning that part. How to file military taxes   Additionally, the penalty increases to 40% if you do not adequately disclose on your return or in a statement attached to your return the relevant facts affecting the tax treatment of a transaction that lacks economic substance. How to file military taxes Relevant facts include any facts affecting the tax treatment of the transaction. How to file military taxes    Any excessive amount of an erroneous claim for an income tax refund or credit (other than a refund or credit related to the earned income credit) that results from a transaction found to be lacking economic substance will not be treated as having a reasonable basis and could be subject to a 20% penalty. How to file military taxes Undisclosed foreign financial asset understatement. How to file military taxes   For tax years beginning after March 18, 2010, you may be liable for a 40% penalty for an understatement of your tax liability due to an undisclosed foreign financial asset. How to file military taxes An undisclosed foreign financial asset is any asset for which an information return, required to be provided under Internal Revenue Code section 6038, 6038B, 6038D, 6046A, or 6048 for any taxable year, is not provided. How to file military taxes The penalty applies to any part of an underpayment related to the following undisclosed foreign financial assets. How to file military taxes Any foreign business you control, reportable on Form 5471, Information Return of U. How to file military taxes S. How to file military taxes Persons With Respect To Certain Foreign Corporations, or Form 8865, Return of U. How to file military taxes S. How to file military taxes Persons With Respect to Certain Foreign Partnerships. How to file military taxes Certain transfers of property to a foreign corporation or partnership, reportable on Form 926, Return by a U. How to file military taxes S. How to file military taxes Transferor of Property to a Foreign Corporation, or certain distributions to a foreign person, reportable on Form 8865. How to file military taxes Your ownership interest in certain foreign financial assets, temporarily reportable on Form 8275 or 8275-R. How to file military taxes    Instead of, or in addition to, Form 8275 or 8275-R, you may have to file Form 8938, Statement of Specified Foreign Financial Assets, with your tax return. How to file military taxes See the Instructions for Form 8938 for details. How to file military taxes    Your acquisition, disposition, or substantial change in ownership interest in a foreign partnership, reportable on Form 8865. How to file military taxes Creation or transfer of money or property to certain foreign trusts, reportable on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. How to file military taxes Penalty for incorrect appraisals. How to file military taxes   The person who prepares an appraisal of the value of property may have to pay a penalty if: He or she knows, or reasonably should have known, that the appraisal would be used in connection with a return or claim for refund; and The claimed value of the property on a return or claim for refund based on that appraisal results in a substantial valuation misstatement or a gross valuation misstatement as discussed earlier. How to file military taxes For details on the penalty amount and exceptions, see Publication 561. How to file military taxes Penalty for failure to disclose a reportable transaction. How to file military taxes   If you fail to include any required information regarding a reportable transaction (discussed earlier) on a return or statement, you may have to pay a penalty of 75% of the decrease in tax shown on your return as a result of such transaction (or that would have resulted if the transaction were respected for federal tax purposes). How to file military taxes For an individual, the minimum penalty is $5,000 and the maximum is $10,000 (or $100,000 for a listed transaction). How to file military taxes This penalty is in addition to any other penalty that may be imposed. How to file military taxes   The IRS may rescind or abate the penalty for failing to disclose a reportable transaction under certain limited circumstances but cannot rescind the penalty for failing to disclose a listed transaction. How to file military taxes For information on rescission, see Revenue Procedure 2007-21 in Internal Revenue Bulletin 2007-9 available at www. How to file military taxes irs. How to file military taxes gov/irb/2007-09_IRB/ar12. How to file military taxes html. How to file military taxes Accuracy-related penalty for a reportable transaction understatement. How to file military taxes   If you have a reportable transaction understatement, you may have to pay a penalty equal to 20% of the amount of that understatement. How to file military taxes This applies to any item due to a listed transaction or other reportable transaction with a significant purpose of avoiding or evading federal income tax. How to file military taxes The penalty is 30% rather than 20% for the part of any reportable transaction understatement if the transaction was not properly disclosed. How to file military taxes You may not have to pay the 20% penalty if you meet the strengthened reasonable cause and good faith exception. How to file military taxes The reasonable cause and good faith exception does not apply to any part of a reportable transaction understatement attributable to one or more transactions that lack economic substance. How to file military taxes   This penalty does not apply to the part of an understatement on which the fraud penalty, gross valuation misstatement penalty, or penalty for nondisclosure of noneconomic substance transactions is imposed. How to file military taxes Civil fraud penalty. How to file military taxes   If any underpayment of tax on your return is due to fraud, a penalty of 75% of the underpayment will be added to your tax. How to file military taxes Joint return. How to file military taxes   The fraud penalty on a joint return applies to a spouse only if some part of the underpayment is due to the fraud of that spouse. How to file military taxes Failure to pay tax. How to file military taxes   If a deficiency is assessed and is not paid within 10 days of the demand for payment, an investor can be penalized with up to a 25% addition to tax if the failure to pay continues. How to file military taxes Whether To Invest In light of the adverse tax consequences and the substantial amount of penalties and interest that will result if the claimed tax benefits are disallowed, you should consider tax shelter investments carefully and seek competent legal and financial advice. How to file military taxes Prev  Up  Next   Home   More Online Publications