Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Hr Block 2011 Tax Software

Free Taxes OnlineFile State Taxes FreeFederal Ez Tax Form 2011H & R Block Free Online TaxesFree Federal Tax Preparation2010 Tax Tables FederalCan I Efile 2012 TaxesAmendPenalty For Filing Taxes LateMilitary Tax Return CalculatorTax Forms 1040ez 2014Tax Forms 1040ezCan I Still File 2012 TaxesWww Myfreetaxes Com Sandiego1040ezAmend A 2011 Tax ReturnH And R BlockTaxcut ComFile 2010 Taxes Online Late TurbotaxFree Efile For State TaxesFree Irs Tax Forms 20122012 Tax Forms 1040ezPrintable Tax Form 1040xIrs 1040 FormHow To File Past TaxesH&r Block Online1040x Form InstructionsHow To Fill 1040nrForm 1040 EzFile Past Year TaxesVita Tax AssistanceFile 2012 Income Tax Free OnlineHttp Www Hrblock ComWww Myfreetaxes Com UnitedwaymhcFree State Tax FormsHrblock Com MyreturnstatusUnemployment Tax FormsFile Taxes Past YearsForm 4868How Long Do I Have To File An Amended Tax Return

Hr Block 2011 Tax Software

Hr block 2011 tax software 5. Hr block 2011 tax software   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Prohibited Tax Shelter TransactionsEntity Level Tax Excess Benefit TransactionsTax on Disqualified Persons Tax on Organization Managers Excess Benefit Transaction Excess Business Holdings Taxable Distributions of Sponsoring Organizations Exception. Hr block 2011 tax software A donor advised fund does not include: Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Excise Taxes on Private Foundations Excise Taxes on Black Lung Benefit Trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements Introduction An excise tax may be imposed on certain tax-exempt organizations. Hr block 2011 tax software Topics - This chapter discusses: Prohibited tax shelter transactions Excess benefit transactions Excess business holdings Taxable distributions of sponsoring organizations Taxes on prohibited benefits distributed from donor advised funds Excise taxes on private foundations Excise taxes on 501(c)(21) black lung benefit trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements of Hospitals Useful Items - You may want to see: Forms (and Instructions) 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code See chapter 6 for more information about getting Form 4720. Hr block 2011 tax software Prohibited Tax Shelter Transactions Section 4965 imposes an excise tax on: Certain tax-exempt entities that are party to prohibited tax shelter transactions, and Any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows or has reason to know that the transaction is a prohibited tax shelter transaction. Hr block 2011 tax software  Additionally, section 6033 provides new disclosure requirements on a tax-exempt entity that is a party to a prohibited tax shelter transaction. Hr block 2011 tax software Tax-exempt entities. Hr block 2011 tax software   Tax-exempt entities that are subject to section 4965 include: Entities described in section 501(c), including but not limited to the following common types of entities: Instrumentalities of the United States described in section 501(c)(1); Churches, hospitals, museums, schools, scientific research organizations, and other charities described in section 501(c)(3); Civic leagues, social welfare organizations, and local associations of employees described in section 501(c)(4); Labor, agricultural, or horticultural organizations described in section 501(c)(5); Business leagues, chambers of commerce, trade associations, and other organizations described in section 501(c)(6); Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9); Credit unions described in section 501(c)(14); Insurance companies described in section 501(c)(15); and Veterans' organizations described in section 501(c)(19). Hr block 2011 tax software Religious or apostolic associations or corporations described in section 501(d). Hr block 2011 tax software Entities described in section 170(c), including states, possessions of the United States, the District of Columbia, political subdivisions of states and political subdivisions of possessions of the United States (but not including the United States). Hr block 2011 tax software Indian tribal governments within the meaning of section 7701(a)(40). Hr block 2011 tax software Entity manager. Hr block 2011 tax software    An entity manager is any person with authority or responsibility similar to that exercised by an officer, director, or trustee, and, for any act, the person that has authority or responsibility with respect to the prohibited transaction. Hr block 2011 tax software Prohibited tax shelter transaction. Hr block 2011 tax software   A prohibited tax shelter transaction is any listed transaction, within the meaning of section 6707A(c)(2), and any prohibited reportable transactions. Hr block 2011 tax software A prohibited reportable transaction is a confidential transaction within the meaning of Regulations section 1. Hr block 2011 tax software 6011-4(b)(3), and a transaction with contractual protection within the meaning of Regulations section 1. Hr block 2011 tax software 6011-4(b)(4). Hr block 2011 tax software See the Instructions for Form 8886 for more information on listed transactions and prohibited reportable transactions. Hr block 2011 tax software Subsequently listed transaction. Hr block 2011 tax software   Any transaction to which the tax-exempt entity is a party and is later determined to be a listed transaction after the entity has become a party to it, is a subsequently listed transaction. Hr block 2011 tax software Entity Level Tax Section 4965(a)(1) imposes an entity level excise tax on any tax-exempt entity described in 1, 2, 3, or 4 above that becomes a party to a prohibited tax shelter transaction or is a party to a subsequently listed transaction (defined earlier). Hr block 2011 tax software The excise tax imposed on a tax-exempt entity applies to tax years in which the entity becomes a party to the prohibited tax shelter transaction and any subsequent tax years. Hr block 2011 tax software The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction. Hr block 2011 tax software To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720. Hr block 2011 tax software For more information about this excise tax, including information about how it is figured, see the Instructions for Form 4720. Hr block 2011 tax software Manager Level Tax Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. Hr block 2011 tax software The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. Hr block 2011 tax software To report this tax, file Form 4720. Hr block 2011 tax software Excess Benefit Transactions Excise tax on excess benefit transactions. Hr block 2011 tax software   A disqualified person who benefits from an excess benefit transaction, such as compensation, fringe benefits, or contract payments from certain section 501(c)(3), 501(c)(4), or 501(c)(29) organizations, must correct the transaction and may have to pay an excise tax under section 4958. Hr block 2011 tax software A manager of the organization may also have to pay an excise tax under section 4958. Hr block 2011 tax software These taxes are reported on Form 4720. Hr block 2011 tax software   The excise taxes are imposed if an applicable tax-exempt organization provides an excess benefit to a disqualified person and that benefit exceeds the value of the benefit received in exchange. Hr block 2011 tax software   There are three taxes under section 4958. Hr block 2011 tax software Disqualified persons are liable for the first two taxes and certain organization managers are liable for the third tax. Hr block 2011 tax software    Taxes imposed on excess benefit transactions do not apply to a transaction under a written contract that was binding on September 13, 1995, and at all times thereafter before the transaction occurred. Hr block 2011 tax software Tax on Disqualified Persons An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person. Hr block 2011 tax software The disqualified person who benefited from the transaction is liable for the tax. Hr block 2011 tax software See definition of Disqualified person, later at Disqualified person. Hr block 2011 tax software Additional tax on the disqualified person. Hr block 2011 tax software   If the 25% tax is imposed and the excess benefit transaction is not corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed on any disqualified person involved. Hr block 2011 tax software   If a disqualified person makes a payment of less than the full correction amount, the 200% tax is imposed only on the unpaid portion of the correction amount. Hr block 2011 tax software If more than one disqualified person received an excess benefit from an excess benefit transaction, all such disqualified persons are jointly and severally liable for the taxes. Hr block 2011 tax software   To avoid the 200% tax, a disqualified person must correct the excess benefit transaction during the taxable period. Hr block 2011 tax software The 200% tax is abated (refunded if collected) if the excess benefit transaction is corrected within a 90-day correction period beginning on the date a statutory notice of deficiency is issued. Hr block 2011 tax software Taxable period. Hr block 2011 tax software   The taxable period means the period beginning with the date on which the excess benefit transaction occurs and ending on the earlier of: The date a notice of deficiency was mailed to the disqualified person for the initial tax on the excess benefit transaction, or The date on which the initial tax on the excess benefit transaction for the disqualified person is assessed. Hr block 2011 tax software Tax on Organization Managers If tax is imposed on a disqualified person for any excess benefit transaction, an excise tax equal to 10% of the excess benefit is imposed on an organization manager who knowingly participated in an excess benefit transaction, unless such participation was not willful and was due to reasonable cause. Hr block 2011 tax software This tax cannot exceed $20,000 ($10,000 for transactions entered in a tax year beginning before August 18, 2006), for each transaction. Hr block 2011 tax software There is also joint and several liability for this tax. Hr block 2011 tax software A person can be liable for both the tax paid by the disqualified person and the organization manager tax for a particular excess benefit transaction. Hr block 2011 tax software Organization Manager. Hr block 2011 tax software   An organization manager is any officer, director, or trustee of an applicable tax-exempt organization, or any individual having powers or responsibilities similar to officers, directors, or trustees of the organization, regardless of title. Hr block 2011 tax software An organization manager is not considered to have participated in an excess benefit transaction where the manager has opposed the transaction in a manner consistent with the fulfillment of the manager's responsibilities to the organization. Hr block 2011 tax software For example, a director who votes against giving an excess benefit would ordinarily not be subject to the 10% tax. Hr block 2011 tax software A person participates in a transaction knowingly if the person: Has actual knowledge of sufficient facts so that, based solely upon those facts, such transaction would be an excess benefit transaction; Is aware that such a transaction under these circumstances may violate the provisions of federal tax law governing excess benefit transactions; and Negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction, or the manager is in fact aware that it is such a transaction. Hr block 2011 tax software Knowing does not mean having reason to know. Hr block 2011 tax software The organization manager ordinarily will not be considered knowing if, after full disclosure of the factual situation to an appropriate professional, the organization manager relied on the professional's reasoned written opinion on matters within the professional's expertise or if the manager relied on the fact that the requirements for the rebuttable presumption of reasonableness have been satisfied. Hr block 2011 tax software Participation by an organization manager is willful if it is voluntary, conscious, and intentional. Hr block 2011 tax software An organization manager's participation is due to reasonable cause if the manager has exercised responsibility on behalf of the organization with ordinary business care and prudence. Hr block 2011 tax software Excess Benefit Transaction An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. Hr block 2011 tax software The excess benefit transaction rules apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined in whole or in part by the revenues of one or more activities of the organization. Hr block 2011 tax software To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account. Hr block 2011 tax software For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. Hr block 2011 tax software Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts. Hr block 2011 tax software Donor advised fund transactions occurring after August 17, 2006. Hr block 2011 tax software   For a donor advised fund, an excess benefit transaction includes a grant, loan, compensation, or other similar payment from the fund to a: Donor or donor advisor, Family member of a donor, or donor advisor, 35% controlled entity of a donor, or donor advisor, or 35% controlled entity of a family member of a donor, or donor advisor. Hr block 2011 tax software   The excess benefit in this transaction is the amount of the grant, loan, compensation, or other similar payment. Hr block 2011 tax software For additional information, see the Instructions for Form 4720. Hr block 2011 tax software Supporting organization transactions occurring after July 25, 2006. Hr block 2011 tax software   For any supporting organization, defined in section 509(a)(3), an excess benefit transaction includes grants, loans, compensation, or other similar payment provided by the supporting organization to a: Substantial contributor, Family member of a substantial contributor, 35% controlled entity of a substantial contributor, or 35% controlled entity of a family member of a substantial contributor. Hr block 2011 tax software   Additionally, an excess benefit transaction includes any loans provided by the supporting organization to a disqualified person (other than an organization described in section 509(a)(1), (2), or (4)). Hr block 2011 tax software   The excess benefit for substantial contributors and parties related to those contributors includes the amount of the grant, loan, compensation, or other similar payment. Hr block 2011 tax software For additional information, see the Instructions for Form 4720. Hr block 2011 tax software   Excess benefit transaction rules generally do not apply to transactions between a supporting organization and its supported organization described in section 501(c)(4), (5), or (6) in furtherance of charitable purposes. Hr block 2011 tax software Date of Occurrence An excess benefit transaction occurs on the date the disqualified person receives the economic benefit from the organization for federal income tax purposes. Hr block 2011 tax software However, when a single contractual arrangement provides for a series of compensation or other payments to or for the use of a disqualified person during the disqualified person's tax year, any excess benefit transaction with respect to these payments occurs on the last day of the taxpayer's tax year. Hr block 2011 tax software In the case of benefits provided to a qualified pension, profit-sharing, or stock bonus plan, the transaction occurs on the date the benefit is vested. Hr block 2011 tax software In the case of the transfer of property subject to a substantial risk of forfeiture, or in the case of rights to future compensation or property, the transaction occurs on the date the property, or the rights to future compensation or property, is not subject to a substantial risk of forfeiture. Hr block 2011 tax software Where the disqualified person elects to include an amount in gross income in the tax year of transfer under section 83(b), the excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. Hr block 2011 tax software Correcting the excess benefit. Hr block 2011 tax software   An excess benefit transaction is corrected by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than what it would have been if the disqualified person were dealing under the highest fiduciary standards. Hr block 2011 tax software   A disqualified person corrects an excess benefit by making a payment in cash or cash equivalents, excluding payment by a promissory note, equal to the correction amount to the applicable tax-exempt organization. Hr block 2011 tax software The correction amount equals the excess benefit plus the interest on the excess benefit. Hr block 2011 tax software The interest rate can be no lower than the applicable federal rate, compounded annually, for the month the transaction occurred. Hr block 2011 tax software   A disqualified person can, with the agreement of the applicable tax-exempt organization, make a payment by returning the specific property previously transferred in the excess transaction. Hr block 2011 tax software In this case, the disqualified person is treated as making a payment equal to the lesser of: The fair market value of the property on the date the property is returned to the organization, or The fair market value of the property on the date the excess benefit transaction occurred. Hr block 2011 tax software   If the payment resulting from the return of property is less than the correction amount, the disqualified person must make an additional cash payment to the organization equal to the difference. Hr block 2011 tax software   If the payment resulting from the return of the property exceeds the correction amount described above, the organization can make a cash payment to the disqualified person equal to the difference. Hr block 2011 tax software Exception. Hr block 2011 tax software   For a correction of an excess benefit transaction (discussed earlier), no amount repaid in a manner prescribed by the Secretary can be held in a donor advised fund. Hr block 2011 tax software Applicable Tax-Exempt Organization An applicable tax-exempt organization is a section 501(c)(3), 501(c)(4), or 501(c)(29) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction. Hr block 2011 tax software An applicable tax-exempt organization does not include: A private foundation as defined in section 509(a), A governmental entity that is: Exempt from (or not subject to) taxation without regard to section 501(a), or Not required to file an annual return, or A foreign organization, recognized by the IRS or by treaty, that receives substantially all of its support (other than gross investment income) from sources outside the United States. Hr block 2011 tax software An organization is not treated as a section 501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination that the organization was not tax-exempt under section 501(a), but only if the determination was not based on private inurement or one or more excess benefit transactions. Hr block 2011 tax software Disqualified Person A disqualified person is: Any person (at any time during the 5-year period ending on the date of the transaction) in a position to exercise substantial influence over the affairs of the organization, A family member of an individual described in 1, and A 35% controlled entity. Hr block 2011 tax software For donor advised funds, sponsoring organizations, and certain supporting organizations occurring after August 17, 2006. Hr block 2011 tax software   The following persons will be considered disqualified persons along with certain family members and 35% controlled entities associated with them. Hr block 2011 tax software Donors of donor advised funds, Investment advisors of sponsoring organizations, and Disqualified persons of a section 509(a)(3) supporting organization that supports the applicable tax-exempt organization. Hr block 2011 tax software For certain supporting organization transactions occurring after July 25, 2006. Hr block 2011 tax software   Substantial contributors to supporting organizations will also be considered disqualified persons with respect to the supporting organizations, along with their family members and 35% controlled entities. Hr block 2011 tax software Investment advisor. Hr block 2011 tax software   Investment advisor means for any sponsoring organization, any person compensated by such organization (but not an employee of such organization) for managing the investment of, or providing investment advice for, assets maintained in donor advised funds owned by such sponsoring organization. Hr block 2011 tax software Substantial contributor. Hr block 2011 tax software   In general, a substantial contributor means any person who contributed or bequeathed an aggregate of more than $5,000 to the organization, if that amount is more than 2% of the total contributions and bequests received by the end of the organization's tax year in which the contribution or bequest is received. Hr block 2011 tax software A substantial contributor includes the grantor of a trust. Hr block 2011 tax software Family members. Hr block 2011 tax software   Family members of a disqualified person include a disqualified person's spouse, brothers or sisters (whether by whole or half-blood), spouses of brothers or sisters (whether by whole or half-blood), ancestors, children (including a legally adopted child), grandchildren, great grandchildren, and spouses of children, grandchildren, and great grandchildren (whether by whole or half-blood). Hr block 2011 tax software 35% controlled entity. Hr block 2011 tax software   A 35% controlled entity is: A corporation in which disqualified persons own more than 35% of the total combined voting power, A partnership in which such persons own more than 35% of the profits interest, or A trust or estate in which such persons own more than 35% of the beneficial interest. Hr block 2011 tax software   In determining the holdings of a business enterprise, any stock or other interest owned directly or indirectly shall apply. Hr block 2011 tax software Persons having substantial influence. Hr block 2011 tax software   Among those who are in a position to exercise substantial influence over the affairs of the organization are, for example, voting members of the governing body, and persons holding the power of: Presidents, chief executives, or chief operating officers. Hr block 2011 tax software Treasurers and chief financial officers. Hr block 2011 tax software Persons with a material financial interest in a provider-sponsored organization. Hr block 2011 tax software Persons not considered to have substantial influence. Hr block 2011 tax software   Persons who are not considered to be in a position to exercise substantial influence over the affairs of an organization include: An employee who receives benefits that total less than the highly compensated amount in section 414(q)(1)(B)(i) and who does not hold the executive or voting powers mentioned earlier in the discussion on Disqualified Person, is not a family member of a disqualified person, and is not a substantial contributor, Tax-exempt organizations described in section 501(c)(3), and Section 501(c)(4) organizations with respect to transactions engaged in with other section 501(c)(4) organizations. Hr block 2011 tax software Facts and circumstances. Hr block 2011 tax software   The determination of whether a person has substantial influence over the affairs of an organization is based on all the facts and circumstances. Hr block 2011 tax software Facts and circumstances that tend to show a person has substantial influence over the affairs of an organization include, but are not limited to, the following. Hr block 2011 tax software The person founded the organization. Hr block 2011 tax software The person is a substantial contributor to the organization under the section 507(d)(2)(A) definition, only taking into account contributions to the organization for the past 5 years. Hr block 2011 tax software The person's compensation is primarily based on revenues derived from activities of the organization that the person controls. Hr block 2011 tax software The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees. Hr block 2011 tax software The person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. Hr block 2011 tax software The person owns a controlling interest (measured by either vote or value) in a corporation, partnership, or trust that is a disqualified person. Hr block 2011 tax software The person is a nonstock organization controlled directly or indirectly by one or more disqualified persons. Hr block 2011 tax software   Facts and circumstances tending to show that a person does not have substantial influence over the affairs of an organization include, but are not limited to, the following. Hr block 2011 tax software The person has taken a bona fide vow of poverty as an employee or agent of a religious organization or on its behalf. Hr block 2011 tax software The person is an independent contractor whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the independent contractor will not economically benefit either directly or indirectly aside from customary fees received for the professional advice rendered. Hr block 2011 tax software Any preferential treatment the person receives based on the size of the person's donation is also offered to others making comparable widely solicited donations. Hr block 2011 tax software The direct supervisor of the person is not a disqualified person. Hr block 2011 tax software The person does not participate in any management decisions affecting the organization as a whole or a discrete segment of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. Hr block 2011 tax software   In the case of multiple organizations affiliated by common control or governing documents, the determination of whether a person does or does not have substantial influence is made separately for each applicable tax-exempt organization. Hr block 2011 tax software A person may be a disqualified person with respect to transactions with more than one organization. Hr block 2011 tax software Reasonable Compensation. Hr block 2011 tax software    Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. Hr block 2011 tax software The section 162 standard will apply in determining the reasonableness of compensation. Hr block 2011 tax software The fact that a bonus or revenue-sharing arrangement is subject to a cap is a relevant factor in determining reasonableness of compensation. Hr block 2011 tax software   To determine the reasonableness of compensation, all items of compensation provided by an applicable tax-exempt organization in exchange for performance of services are taken into account in determining the value of compensation (except for economic benefits that are disregarded under the discussion Disregarded benefits , later). Hr block 2011 tax software Items of compensation include: All forms of cash and noncash compensation, including salary, fees, bonuses, severance payments, and deferred noncash compensation, The payment of liability insurance premiums for, or the payment or reimbursement by the organization of penalties, taxes, or certain expenses under section 4958, unless excludable from income as a de minimis fringe benefit under section 132(a)(4), All other compensatory benefits, whether or not included in gross income for income tax purposes, Taxable and nontaxable fringe benefits, except fringe benefits described in section 132, and Foregone interest on loans. Hr block 2011 tax software    Intent to treat benefits as compensation. Hr block 2011 tax software An economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid. Hr block 2011 tax software   An applicable tax-exempt organization (or entity that it controls) is treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the organization provides written substantiation that is contemporaneous with the transfer of the economic benefits under consideration. Hr block 2011 tax software Ways to provide contemporaneous written substantiation of its intent to provide an economic benefit as compensation include: The organization produces a signed written employment contract, The organization reports the benefit as compensation on an original Form W-2, Form 1099, or Form 990, or on an amended form filed before starting an IRS examination, or The disqualified person reports the benefit as income on the person's original Form 1040, or on an amended form filed before starting an IRS examination. Hr block 2011 tax software Exception. Hr block 2011 tax software   If the economic benefit is excluded from the disqualified person's gross income for income tax purposes, the applicable tax-exempt organization is not required to indicate its intent to provide an economic benefit as compensation for services. Hr block 2011 tax software Rebuttable presumption that a transaction is not an excess benefit transaction. Hr block 2011 tax software   Payments under a compensation arrangement are presumed to be reasonable and the transfer of property (or right to use property) is presumed to be at fair market value, if the following three conditions are met. Hr block 2011 tax software The transaction is approved in advance by an authorized body of the organization (or an entity it controls) which is composed of individuals who do not have a conflict of interest concerning the transaction. Hr block 2011 tax software Before making its determination, the authorized body obtained and relied upon appropriate data as to comparability. Hr block 2011 tax software (There is a special safe harbor for small organizations. Hr block 2011 tax software If the organization has gross receipts of less than $1 million, appropriate comparability data includes data on compensation paid by three comparable organizations in the same or similar communities for similar services. Hr block 2011 tax software ) The authorized body adequately documents the basis for its determination concurrently with making that determination. Hr block 2011 tax software The documentation should include: The terms of the approved transaction and the date approved, The members of the authorized body who were present during debate on the transaction that was approved and those who voted on it, The comparability data obtained and relied upon by the authorized body and how the data was obtained, Any actions by a member of the authorized body having conflict of interest, and Documentation of the basis of the determination before the later of the next meeting of the authorized body or 60 days after the final actions of the authorized body are taken, and approval of records as reasonable, accurate, and complete within a reasonable time thereafter. Hr block 2011 tax software Disregarded benefits. Hr block 2011 tax software   The following economic benefits are disregarded for section 4958 purposes. Hr block 2011 tax software Nontaxable fringe benefits that are excluded from income under section 132. Hr block 2011 tax software Benefits provided to a volunteer for the organization if the benefit is provided to the general public in exchange for a membership fee or contribution of $75 or less. Hr block 2011 tax software Benefits provided to a member of an organization due to the payment of a membership fee or to a donor as a result of a deductible contribution, if a significant number of disqualified persons make similar payments or contributions and are offered a similar economic benefit. Hr block 2011 tax software Benefits provided to a person solely as a member of a charitable class that the applicable tax-exempt organization intends to benefit as part of the accomplishment of its exempt purpose. Hr block 2011 tax software A transfer of an economic benefit to or for the use of a governmental unit, as defined in section 170(c)(1), if exclusively for public purposes. Hr block 2011 tax software Special Exception for Initial Contracts      Section 4958 does not apply to any fixed payment made to a person under an initial contract. Hr block 2011 tax software   A fixed payment is an amount of cash or other property specified in the contract, or determined by a fixed formula that is specified in the contract, which is to be paid or transferred in exchange for the provision of specified services or property. Hr block 2011 tax software   A fixed formula can, generally, incorporate an amount that depends upon future specified events or contingencies, as long as no one has discretion when calculating the amount of a payment or deciding whether to make a payment (such as a bonus). Hr block 2011 tax software   An initial contract is a binding written contract between an applicable tax-exempt organization and a person who was not a disqualified person immediately before entering into the contract. Hr block 2011 tax software   A binding written contract, providing it can be terminated or canceled by the applicable tax-exempt organization without the other party's consent (except as a result of substantial nonperformance) and without substantial penalty, is treated as a new contract, as of the earliest date any termination or cancellation would be effective. Hr block 2011 tax software Also, if the parties make a material change to a contract, which includes an extension or renewal of the contract (except for an extension or renewal resulting from the exercise of an option by the disqualified person), or a more than incidental change to the amount payable under the contract, it is treated as a new contract as of the effective date of the material change. Hr block 2011 tax software More information. Hr block 2011 tax software   For more information, see the Instructions to Forms 990 and 4720. Hr block 2011 tax software Excess Business Holdings Private foundations are generally not permitted to hold more than a 20% interest in an unrelated business enterprise. Hr block 2011 tax software They may be subject to an excise tax on the amount of any excess business holdings. Hr block 2011 tax software For purposes of section 4943, for tax years beginning after August 17, 2006, donor advised funds and certain supporting organizations are considered private foundations. Hr block 2011 tax software Donor advised fund. Hr block 2011 tax software   In general, a donor advised fund is a fund or account separately identified by reference to contributions of a donor or donors that is owned and controlled by a sponsoring organization and for which the donor has or expects to have advisory privileges concerning the distribution or investment of the funds. Hr block 2011 tax software Supporting organizations. Hr block 2011 tax software   Only certain supporting organizations are subject to the excess business holdings tax under section 4943. Hr block 2011 tax software These include (1) Type III supporting organizations that are not functionally integrated and (2) Type II supporting organizations that accept any gift or contribution from a person who by himself or in connection with a related party controls the supported organization that the Type II supporting organization supports. Hr block 2011 tax software Taxes. Hr block 2011 tax software   A private foundation that has excess holdings in a business enterprise may become liable for an excise tax based on the amount of holdings. Hr block 2011 tax software The initial tax is 10% (5% for tax years beginning before August 18, 2006) of the value of the excess holdings and is imposed on the last day of each tax year that ends during the taxable period. Hr block 2011 tax software The excess holdings are determined on the day during the tax year when they were the largest. Hr block 2011 tax software   A foundation that fails to correct the excess business holdings becomes liable for an additional tax of 200% of the remaining excess business holdings as of the earlier of tax assessment or mailing of a notice of deficiency. Hr block 2011 tax software   For more information on the tax on excess business holdings, see the Instructions for Form 4720. Hr block 2011 tax software Taxable Distributions of Sponsoring Organizations An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. Hr block 2011 tax software An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution. Hr block 2011 tax software Taxable distribution. Hr block 2011 tax software   A taxable distribution is any distribution from a donor advised fund to any natural person or to any other person if: The distribution is for any purpose other than one specified in section 170(c)(2)(B), or The sponsoring organization maintaining the donor advised fund does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h). Hr block 2011 tax software    However, a taxable distribution does not include a distribution from a donor advised fund to: Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), The sponsoring organization of the donor advised fund, or Any other donor advised fund. Hr block 2011 tax software The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006. Hr block 2011 tax software Sponsoring organization. Hr block 2011 tax software   A sponsoring organization is a section 170(c) organization that is neither a government organization (as referred to in section 170(c)(1) and (2)(A)) nor a private foundation. Hr block 2011 tax software Donor advised fund. Hr block 2011 tax software    A donor advised fund is a fund or account: Which is separately identified by reference to contributions of a donor or donors, Which is owned and controlled by a sponsoring organization, and For which the donor (or any person appointed or designated by the donor) has or expects to have advisory privileges concerning the distribution or investment of the funds held in the donor advised funds or accounts because of the donor's status as a donor. Hr block 2011 tax software Exception. Hr block 2011 tax software A donor advised fund does not include:    A fund or account that makes distributions only to a single identified organization or governmental entity, or Any fund or account for a person described in 3 above that gives advice about which individuals receive grants for travel, study, or similar purposes, if the following three requirements are met: The person's advisory privileges are performed exclusively by such person in their capacity as a committee member of which all the committee members are appointed by the sponsoring organization, No combination of persons with advisory privileges, described in 3 above, or persons related to those in 3 above directly or indirectly control the committee, and All grants from the fund or account are awarded on an objective and nondiscriminatory basis according to a procedure approved in advance by the board of directors of the sponsoring organization. Hr block 2011 tax software The procedure must be designed to ensure that all grants meet the requirements of section 4945(g)(1), (2), or (3). Hr block 2011 tax software Disqualified supporting organization. Hr block 2011 tax software   A disqualified supporting organization includes (1) a Type III supporting organization that is not functionally integrated and (2) any supporting organization where the donor or donor advisor (and any related parties) directly or indirectly controls a supported organization of the supporting organization. Hr block 2011 tax software Tax on sponsoring organization. Hr block 2011 tax software   A tax of 20% of the amount of each taxable distribution is imposed on the sponsoring organization. Hr block 2011 tax software Tax on fund manager. Hr block 2011 tax software   If a tax is imposed on a taxable distribution of the sponsoring organization, a tax of 5% of the distribution will be imposed on any fund manager who agreed to the distribution knowing that it was a taxable distribution. Hr block 2011 tax software Any fund manager who took part in the distribution and is liable for the tax must pay the tax. Hr block 2011 tax software The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. Hr block 2011 tax software If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. Hr block 2011 tax software   For more information on the tax on taxable distributions of sponsoring organizations, see the Instructions for Form 4720. Hr block 2011 tax software Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Prohibited benefit. Hr block 2011 tax software   If any donor, donor advisor, or related party advises the sponsoring organization about making a distribution which results in a donor, donor advisor, or related party receiving (either directly or indirectly) a more than incidental benefit, then such benefit is a prohibited benefit. Hr block 2011 tax software The tax on prohibited benefits applies to distributions occurring in tax years beginning after August 17, 2006. Hr block 2011 tax software Donor advisor. Hr block 2011 tax software   A donor advisor is any person appointed or designated by a donor to advise a sponsoring organization on the distribution or investment of amounts held in the donor's fund or account. Hr block 2011 tax software Related party. Hr block 2011 tax software   A related party includes any family member or 35% controlled entity. Hr block 2011 tax software See the definition of those terms under Disqualified Person , earlier. Hr block 2011 tax software Tax on donor, donor advisor, or related person. Hr block 2011 tax software    A tax of 125% of the benefit resulting from the distribution is imposed on both the party who advised as to the distribution (which might be a donor, donor advisor, or related party) and the party who received such benefit (which might be a donor, donor advisor, or related party). Hr block 2011 tax software The advisor and the party who received the benefit are jointly and severally liable for the tax. Hr block 2011 tax software Tax on fund managers. Hr block 2011 tax software   If a tax is imposed on a prohibited benefit received by a donor, donor advisor, or related person, a tax of 10% of the amount of the prohibited benefit is imposed on any fund manager who agreed to the distribution knowing that it would confer a prohibited benefit. Hr block 2011 tax software Any fund manager who took part in the distribution and is liable for the tax must pay the tax. Hr block 2011 tax software The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. Hr block 2011 tax software If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. Hr block 2011 tax software Exception. Hr block 2011 tax software   If a person engaged in an excess benefit transaction and received a prohibited benefit for the same transaction, the person is taxed under section 4958, and no tax is imposed under section 4967 for a prohibited benefit. Hr block 2011 tax software   For more information on taxes on prohibited benefits distributed from donor advised funds, see the Instructions for Form 4720. Hr block 2011 tax software Excise Taxes on Private Foundations There is an excise tax on the net investment income of most domestic private foundations. Hr block 2011 tax software Capital gains from appreciation are included in the tax base on private foundation net investment income. Hr block 2011 tax software This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. Hr block 2011 tax software Form 990-W is used to calculate the estimated tax. Hr block 2011 tax software In addition, there are several other rules that apply to excise taxes on private foundations. Hr block 2011 tax software These include: Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons, Requirements that the foundation annually distribute income for charitable purposes, Limits on their holdings in any business enterprise (see Excess Business Holdings, earlier), Provisions that investments must not jeopardize the carrying out of exempt purposes, and Provisions to assure that expenditures further the organization's exempt purposes. Hr block 2011 tax software Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons. Hr block 2011 tax software For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF. Hr block 2011 tax software Excise Taxes on Black Lung Benefit Trusts A black lung benefit trust that makes any expenditures, payments, or investments other than those described in chapter 4 under 501(c)(21) - Black Lung Benefit Trusts must pay a tax equal to 10% of the amount of such expenditures. Hr block 2011 tax software If there are any acts of self-dealing between the trust and a disqualified person, a tax equal to 10% of the amount involved is imposed on the disqualified person. Hr block 2011 tax software Both of these excise taxes are reported on Schedule A (Form 990-BL). Hr block 2011 tax software See the Form 990-BL instructions for more information on these taxes and what has to be filed, even if the trust is excepted from filing. Hr block 2011 tax software Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements For tax years beginning after March 23, 2012, new section 4959 imposes an excise tax on hospital organizations which fail to meet certain section 501(r) requirements for each of their hospital facilities. Hr block 2011 tax software These entities must meet section 501(r)(3) requirements at all times during their tax year. Hr block 2011 tax software Section 501(r)(3) requirements pertain to a hospital organization preparing a community health needs assessment (CHNA). Hr block 2011 tax software See Schedule H, Hospitals (Form 990), for details. Hr block 2011 tax software Prev  Up  Next   Home   More Online Publications
Print - Click this link to Print this page

Understanding Your CP75A Notice

We’re auditing your tax return and need documentation to verify the Earned Income Credit (EIC), dependent exemption(s) and filing status you claimed.


What you need to do

  • Read the notice and the enclosed forms carefully. They explain the information you must send to us.
  • Provide copies of supporting documentation to verify the items we're auditing.
  • Complete the response form by indicating which items your supporting documentation addresses and return the form with the documents you are submitting.

You may want to

  • Review this notice with your tax preparer.
  • Call us for assistance at the toll-free telephone number listed in the top right corner of your notice.
  • Review the rules for claiming the Earned Income Credit and make sure that your child meets the four tests: the Relationship, Age, Residency and Joint Return tests, to qualify for EIC. Read more about the qualifying child rules.
  • Find out if you can claim the EIC if you don't have a qualifying child. Find the rules for those without a qualifying child here.

Answers to Common Questions

Why was my return selected for audit?
While most returns are accepted as filed, some are selected for examination. The IRS examines (or audits) some federal tax returns to determine if income, expenses, and credits are being reported accurately. The IRS selects returns for examination using various methods which include random sampling, computerized screening, and comparison of information received by the IRS such as Forms W-2 and 1099. Having your return selected for examination doesn't suggest that you made an error or were dishonest.

Can I claim the credit for my fiancé’s child?
No. You must be married to the child’s parent during the tax year in question to receive the earned income credit.

What do I need to send?
Refer to the Form 886-H you received with your notice. There is a separate form for each item being audited that explains what supporting documentation to send.

What if I can’t provide the requested documentation?
We'll disallow the items being audited and send you an examination report that shows the proposed changes to your tax return.

What if I did not file a tax return claiming the items you are questioning and someone else is using my name and social security number?
Contact us at the number listed on the top right corner of your notice. You can also refer to the IRS Identity Theft resource page for more information.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

Avoid errors that can delay your refund or result in the IRS denying your EITC claim. Find out the most common errors in claiming EITC here.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Hr Block 2011 Tax Software

Hr block 2011 tax software 3. Hr block 2011 tax software   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. Hr block 2011 tax software Leveraged leases. Hr block 2011 tax software Leveraged leases of limited-use property. Hr block 2011 tax software Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. Hr block 2011 tax software It also discusses how to treat other kinds of payments you make that are related to your use of this property. Hr block 2011 tax software These include payments you make for taxes on the property. Hr block 2011 tax software Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. Hr block 2011 tax software In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Hr block 2011 tax software If you have or will receive equity in or title to the property, the rent is not deductible. Hr block 2011 tax software Unreasonable rent. Hr block 2011 tax software   You cannot take a rental deduction for unreasonable rent. Hr block 2011 tax software Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Hr block 2011 tax software Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Hr block 2011 tax software Rent is not unreasonable just because it is figured as a percentage of gross sales. Hr block 2011 tax software For examples of related persons, see Related persons in chapter 2, Publication 544. Hr block 2011 tax software Rent on your home. Hr block 2011 tax software   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Hr block 2011 tax software You must meet the requirements for business use of your home. Hr block 2011 tax software For more information, see Business use of your home in chapter 1. Hr block 2011 tax software Rent paid in advance. Hr block 2011 tax software   Generally, rent paid in your trade or business is deductible in the year paid or accrued. Hr block 2011 tax software If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Hr block 2011 tax software You can deduct the rest of your payment only over the period to which it applies. Hr block 2011 tax software Example 1. Hr block 2011 tax software You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. Hr block 2011 tax software Your rent is $12,000 per year. Hr block 2011 tax software You paid the first year's rent ($12,000) on June 30. Hr block 2011 tax software You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. Hr block 2011 tax software Example 2. Hr block 2011 tax software You are a calendar year taxpayer. Hr block 2011 tax software Last January you leased property for 3 years for $6,000 a year. Hr block 2011 tax software You paid the full $18,000 (3 × $6,000) during the first year of the lease. Hr block 2011 tax software Each year you can deduct only $6,000, the part of the lease that applies to that year. Hr block 2011 tax software Canceling a lease. Hr block 2011 tax software   You generally can deduct as rent an amount you pay to cancel a business lease. Hr block 2011 tax software Lease or purchase. Hr block 2011 tax software   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. Hr block 2011 tax software You must first determine whether your agreement is a lease or a conditional sales contract. Hr block 2011 tax software Payments made under a conditional sales contract are not deductible as rent expense. Hr block 2011 tax software Conditional sales contract. Hr block 2011 tax software   Whether an agreement is a conditional sales contract depends on the intent of the parties. Hr block 2011 tax software Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. Hr block 2011 tax software No single test, or special combination of tests, always applies. Hr block 2011 tax software However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. Hr block 2011 tax software The agreement applies part of each payment toward an equity interest you will receive. Hr block 2011 tax software You get title to the property after you make a stated amount of required payments. Hr block 2011 tax software The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. Hr block 2011 tax software You pay much more than the current fair rental value of the property. Hr block 2011 tax software You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Hr block 2011 tax software Determine this value when you make the agreement. Hr block 2011 tax software You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. Hr block 2011 tax software The agreement designates part of the payments as interest, or that part is easy to recognize as interest. Hr block 2011 tax software Leveraged leases. Hr block 2011 tax software   Leveraged lease transactions may not be considered leases. Hr block 2011 tax software Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. Hr block 2011 tax software Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. Hr block 2011 tax software   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. Hr block 2011 tax software Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. Hr block 2011 tax software Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. Hr block 2011 tax software Internal Revenue Bulletin 2001-19 is available at www. Hr block 2011 tax software irs. Hr block 2011 tax software gov/pub/irs-irbs/irb01-19. Hr block 2011 tax software pdf. Hr block 2011 tax software   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. Hr block 2011 tax software The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. Hr block 2011 tax software The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. Hr block 2011 tax software The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. Hr block 2011 tax software The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. Hr block 2011 tax software The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. Hr block 2011 tax software   The IRS may charge you a user fee for issuing a tax ruling. Hr block 2011 tax software For more information, see Revenue Procedure 2014-1 available at  www. Hr block 2011 tax software irs. Hr block 2011 tax software gov/irb/2014-1_IRB/ar05. Hr block 2011 tax software html. Hr block 2011 tax software Leveraged leases of limited-use property. Hr block 2011 tax software   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. Hr block 2011 tax software Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. Hr block 2011 tax software See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. Hr block 2011 tax software Leases over $250,000. Hr block 2011 tax software   Special rules are provided for certain leases of tangible property. Hr block 2011 tax software The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. Hr block 2011 tax software Rents increase during the lease. Hr block 2011 tax software Rents decrease during the lease. Hr block 2011 tax software Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). Hr block 2011 tax software Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). Hr block 2011 tax software These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). Hr block 2011 tax software   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. Hr block 2011 tax software In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. Hr block 2011 tax software For details, see section 467 of the Internal Revenue Code. Hr block 2011 tax software Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. Hr block 2011 tax software When you can deduct these taxes as additional rent depends on your accounting method. Hr block 2011 tax software Cash method. Hr block 2011 tax software   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. Hr block 2011 tax software Accrual method. Hr block 2011 tax software   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. Hr block 2011 tax software That you have a liability for taxes on the leased property. Hr block 2011 tax software How much the liability is. Hr block 2011 tax software That economic performance occurred. Hr block 2011 tax software   The liability and amount of taxes are determined by state or local law and the lease agreement. Hr block 2011 tax software Economic performance occurs as you use the property. Hr block 2011 tax software Example 1. Hr block 2011 tax software Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. Hr block 2011 tax software Oak leases land for use in its business. Hr block 2011 tax software Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. Hr block 2011 tax software However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. Hr block 2011 tax software Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. Hr block 2011 tax software If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. Hr block 2011 tax software Oak cannot deduct the real estate taxes as rent until the tax bill is issued. Hr block 2011 tax software This is when Oak's liability under the lease becomes fixed. Hr block 2011 tax software Example 2. Hr block 2011 tax software The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. Hr block 2011 tax software As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. Hr block 2011 tax software This is the year in which Oak's liability under the lease becomes fixed. Hr block 2011 tax software Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. Hr block 2011 tax software Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. Hr block 2011 tax software If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. Hr block 2011 tax software For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. Hr block 2011 tax software The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. Hr block 2011 tax software Option to renew. Hr block 2011 tax software   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. Hr block 2011 tax software However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). Hr block 2011 tax software Allocate the lease cost to the original term and any option term based on the facts and circumstances. Hr block 2011 tax software In some cases, it may be appropriate to make the allocation using a present value computation. Hr block 2011 tax software For more information, see Regulations section 1. Hr block 2011 tax software 178-1(b)(5). Hr block 2011 tax software Example 1. Hr block 2011 tax software You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. Hr block 2011 tax software Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. Hr block 2011 tax software Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. Hr block 2011 tax software That is the remaining life of your present lease plus the periods for renewal. Hr block 2011 tax software Example 2. Hr block 2011 tax software The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. Hr block 2011 tax software You can amortize the entire $10,000 over the 20-year remaining life of the original lease. Hr block 2011 tax software The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). Hr block 2011 tax software Cost of a modification agreement. Hr block 2011 tax software   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. Hr block 2011 tax software You must capitalize these payments and amortize them over the remaining period of the lease. Hr block 2011 tax software You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. Hr block 2011 tax software Example. Hr block 2011 tax software You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. Hr block 2011 tax software However, before you occupy it, you decide that you really need less space. Hr block 2011 tax software The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. Hr block 2011 tax software In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. Hr block 2011 tax software   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. Hr block 2011 tax software Your amortization deduction each year will be $150 ($3,000 ÷ 20). Hr block 2011 tax software You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. Hr block 2011 tax software Commissions, bonuses, and fees. Hr block 2011 tax software   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. Hr block 2011 tax software You must amortize these costs over the term of the lease. Hr block 2011 tax software Loss on merchandise and fixtures. Hr block 2011 tax software   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. Hr block 2011 tax software You must capitalize the loss and amortize it over the remaining term of the lease. Hr block 2011 tax software Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). Hr block 2011 tax software Depreciate the property over its appropriate recovery period. Hr block 2011 tax software You cannot amortize the cost over the remaining term of the lease. Hr block 2011 tax software If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. Hr block 2011 tax software For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. Hr block 2011 tax software Assignment of a lease. Hr block 2011 tax software   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. Hr block 2011 tax software If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. Hr block 2011 tax software The rest is for your investment in the permanent improvements. Hr block 2011 tax software   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. Hr block 2011 tax software You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. Hr block 2011 tax software Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Hr block 2011 tax software Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. Hr block 2011 tax software You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. Hr block 2011 tax software Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. Hr block 2011 tax software Uniform capitalization rules. Hr block 2011 tax software   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. Hr block 2011 tax software Produce real property or tangible personal property. Hr block 2011 tax software For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. Hr block 2011 tax software Acquire property for resale. Hr block 2011 tax software However, these rules do not apply to the following property. Hr block 2011 tax software Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. Hr block 2011 tax software Property you produce if you meet either of the following conditions. Hr block 2011 tax software Your indirect costs of producing the property are $200,000 or less. Hr block 2011 tax software You use the cash method of accounting and do not account for inventories. Hr block 2011 tax software Example 1. Hr block 2011 tax software You rent construction equipment to build a storage facility. Hr block 2011 tax software If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. Hr block 2011 tax software You recover your cost by claiming a deduction for depreciation on the building. Hr block 2011 tax software Example 2. Hr block 2011 tax software You rent space in a facility to conduct your business of manufacturing tools. Hr block 2011 tax software If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. Hr block 2011 tax software More information. Hr block 2011 tax software   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. Hr block 2011 tax software Prev  Up  Next   Home   More Online Publications