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Hrblock free tax return Publication 3402 - Main Content Table of Contents What is a Limited Liability Company? Classification of an LLC LLCs Classified as Partnerships LLCs Classified as Disregarded Entities LLCs Classified as Corporations Subsequent Elections How To Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What is a Limited Liability Company? For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. Hrblock free tax return Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. Hrblock free tax return An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. Hrblock free tax return 7701-3. Hrblock free tax return The information in this publication applies to LLCs in general, and different rules may apply to special situations, including banks, insurance companies, or nonprofit organizations that are LLCs or that own LLCs. Hrblock free tax return Check your state's requirements and the federal tax regulations for further information. Hrblock free tax return Classification of an LLC Default classification rules. Hrblock free tax return   An LLC with at least two members is classified as a partnership for federal income tax purposes. Hrblock free tax return An LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes). Hrblock free tax return Also, an LLC's federal tax classification can subsequently change under certain default rules discussed later. Hrblock free tax return Elected classification. Hrblock free tax return   If an LLC does not choose to be classified under the above default classifications, it can elect to be classified as an association taxable as a corporation or as an S corporation. Hrblock free tax return After an LLC has determined its federal tax classification, it can later elect to change that classification. Hrblock free tax return For details, see Subsequent Elections, later. Hrblock free tax return LLCs Classified as Partnerships If an LLC has at least two members and is classified as a partnership, it generally must file Form 1065, U. Hrblock free tax return S. Hrblock free tax return Return of Partnership Income. Hrblock free tax return Generally, an LLC classified as a partnership is subject to the same filing and reporting requirements as partnerships. Hrblock free tax return For certain purposes, members of an LLC are treated as limited partners in a limited partnership. Hrblock free tax return For example, LLC members are treated as limited partners for purposes of material participation under the passive activity limitation rules (see Temporary Regulation section 1. Hrblock free tax return 469-5T(e)). Hrblock free tax return See the Instructions for Form 1065 for reporting rules that apply specifically to LLCs. Hrblock free tax return Member manager. Hrblock free tax return   Only a member manager of an LLC can sign the partnership tax return. Hrblock free tax return And only a member manager can represent the LLC as the tax matters partner under the consolidated audit proceedings in sections 6221 through 6234. Hrblock free tax return A member manager is any owner of an interest in the LLC who, alone or together with others, has the continuing authority to make the management decisions necessary to conduct the business for which the LLC was formed. Hrblock free tax return If there are no elected or designated member managers, each owner is treated as a member manager. Hrblock free tax return Change in default classification. Hrblock free tax return   If the number of members in an LLC classified as a partnership is reduced to only one member, it becomes an entity disregarded as separate from its owner under Regulations section 301. Hrblock free tax return 7701-3(f)(2). Hrblock free tax return However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a disregarded entity will not apply. Hrblock free tax return   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Hrblock free tax return If a partnership that becomes a disregarded entity as a result of a decrease in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed under Subsequent Elections, later, apply. Hrblock free tax return Example 1. Hrblock free tax return Ethel and Francis are members of an LLC classified as a partnership for federal tax purposes. Hrblock free tax return Each holds an equal membership interest. Hrblock free tax return The LLC does not hold any unrealized receivables or substantially appreciated inventory. Hrblock free tax return Ethel sells her entire interest in the LLC to Francis for $10,000. Hrblock free tax return After the sale, the business is continued by the LLC, which is owned solely by Francis. Hrblock free tax return No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Hrblock free tax return The partnership terminates when Francis buys Ethel's entire interest. Hrblock free tax return Ethel must treat the transaction as the sale of a partnership interest and must report gain or loss, if any, resulting from the sale of her partnership interest. Hrblock free tax return For purposes of determining the tax treatment of Francis, the partnership is deemed to make a liquidating distribution of all of its assets to Ethel and Francis, and after this distribution, Francis is treated as acquiring the assets deemed to have been distributed to Ethel in liquidation of Ethel's partnership interest. Hrblock free tax return Francis's basis in the assets attributable to Ethel's one-half interest in the partnership is $10,000, the purchase price for Ethel's partnership interest. Hrblock free tax return Upon the termination of the partnership, Francis is considered to receive a distribution of those assets attributable to Francis's former interest in the partnership. Hrblock free tax return Francis must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by Internal Revenue Code section 731(a). Hrblock free tax return See Partnership Distributions in Publication 541. Hrblock free tax return Example 2. Hrblock free tax return George and Henrietta are members of an LLC classified as a partnership for federal tax purposes. Hrblock free tax return Each holds an equal membership interest. Hrblock free tax return The LLC does not hold any unrealized receivables or substantially appreciated inventory. Hrblock free tax return George and Henrietta each sell their entire interests in the LLC to Ian, an unrelated person, in exchange for $10,000. Hrblock free tax return After the sale, the business is continued by the LLC, which is owned solely by Ian. Hrblock free tax return No entity classification election is made after the sale to treat the LLC as a corporation for federal tax purposes. Hrblock free tax return The partnership terminates when Ian purchases the entire interests of George and Henrietta in the LLC. Hrblock free tax return George and Henrietta must report gain or loss, if any, resulting from the sale of their partnership interests. Hrblock free tax return For purposes of classifying the acquisition by Ian, the partnership is deemed to make a liquidating distribution of its assets to George and Henrietta. Hrblock free tax return Immediately following this distribution, Ian is deemed to acquire, by purchase, all of the former partnership's assets. Hrblock free tax return   For more details on the preceding two examples, see Revenue Ruling 99-6, 1999-6 I. Hrblock free tax return R. Hrblock free tax return B. Hrblock free tax return 6. Hrblock free tax return You can find Revenue Ruling 99-6 at www. Hrblock free tax return irs. Hrblock free tax return gov/pub/irs-irbs/irb99-06. Hrblock free tax return pdf. Hrblock free tax return LLCs Classified as Disregarded Entities If an LLC has only one member and is classified as an entity disregarded as separate from its owner, its income, deductions, gains, losses, and credits are reported on the owner's income tax return. Hrblock free tax return For example, if the owner of the LLC is an individual, the LLC's income and expenses would be reported on the following schedules filed with the owner's Form 1040: Schedule C, Profit or Loss from Business (Sole Proprietorship); Schedule C-EZ, Net Profit From Business (Sole Proprietorship); Schedule E, Supplemental Income and Loss; or Schedule F, Profit or Loss From Farming. Hrblock free tax return Employment tax and certain excise taxes. Hrblock free tax return   A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. Hrblock free tax return For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. Hrblock free tax return A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits, and payments on Form 8849. Hrblock free tax return See the employment and excise tax returns for more information. Hrblock free tax return Self-employment tax rule for disregarded entity LLCs. Hrblock free tax return   An individual owner of a single-member LLC classified as a disregarded entity is not an employee of the LLC. Hrblock free tax return Instead, the owner is subject to tax on the net earnings from self-employment of the LLC which is treated in the same manner as a sole-proprietorship. Hrblock free tax return Example 3. Hrblock free tax return LLC is a disregarded entity owned by Irene. Hrblock free tax return LLC has three employees (Kent, Patricia, and Tex) and pays wages. Hrblock free tax return LLC is treated as an entity separate from its owner for purposes of employment taxes. Hrblock free tax return For the wages paid to Kent, Patricia, and Tex, LLC is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. Hrblock free tax return In addition, LLC must file under its name and EIN the applicable employment tax returns; make timely employment tax deposits; and file with the Social Security Administration and furnish to LLC's employees (Kent, Patricia, and Tex) Forms W-2, Wage and Tax Statement. Hrblock free tax return Irene is self-employed for purposes of the self-employment tax. Hrblock free tax return Thus, Irene is subject to self-employment tax on her net earnings from self-employment with respect to LLC's activities. Hrblock free tax return Irene is not an employee of LLC for purposes of employment taxes. Hrblock free tax return Because LLC is treated as a sole proprietorship of Irene for income tax purposes, Irene must report the income and expenses from LLC on her Schedule C. Hrblock free tax return Irene will figure the tax due on her net earnings from self-employment on Schedule SE. Hrblock free tax return Irene can also deduct one-half of her self-employment tax on line 27 of her Form 1040. Hrblock free tax return Taxpayer identification number. Hrblock free tax return   For all income tax purposes, a single-member LLC classified as a disregarded entity must use the owner's social security number (SSN) or EIN. Hrblock free tax return This includes all information returns and reporting related to income tax. Hrblock free tax return For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the LLC must provide the owner's SSN or EIN, not the LLC's EIN. Hrblock free tax return   However, most new single-member LLCs classified as a disregarded entity will need to obtain an EIN for the LLC. Hrblock free tax return An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed above (see Employment tax and certain excise taxes earlier). Hrblock free tax return See Form SS-4, Application for Employer Identification Number, for information on applying for an EIN. Hrblock free tax return Change in default classification. Hrblock free tax return   If a single-member LLC classified as a disregarded entity for income tax purposes acquires an additional member, it becomes a partnership under Regulations section 301. Hrblock free tax return 7701-3(f)(2). Hrblock free tax return However, if the LLC has made an election to be classified as a corporation (discussed later) and that elective classification is in effect at the time of the change in membership, the default classification as a partnership will not apply. Hrblock free tax return   Other tax consequences of a change in membership, such as recognition of gain or loss, are determined by the transactions through which an interest in the LLC is acquired or disposed of. Hrblock free tax return If a disregarded entity that becomes a partnership as a result of an increase in the number of members makes an election to be classified as a corporation, the applicable deemed transactions discussed in Subsequent Elections, later, apply. Hrblock free tax return Example 4. Hrblock free tax return Bart, who is not related to Alain, buys 50% of Alain's interest in an LLC that is a disregarded entity for $5,000. Hrblock free tax return Alain does not contribute any portion of the $5,000 to the LLC. Hrblock free tax return Alain and Bart continue to operate the business of the LLC as co-owners of the LLC. Hrblock free tax return The LLC is converted to a partnership when the new member, Bart, buys an interest in the disregarded entity from the owner, Alain. Hrblock free tax return Bart's buying a 50% interest in Alain's ownership interest in the LLC is treated as Bart's buying a 50% interest in each of the LLC's assets, which are treated as owned directly by Alain for federal income tax purposes. Hrblock free tax return Immediately thereafter, Alain and Bart are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership. Hrblock free tax return Alain recognizes gain or loss from the deemed sale to Bart of the 50% interest in the assets. Hrblock free tax return Neither Alain nor Bart recognizes any gain or loss as a result of the deemed contribution of the assets to the partnership. Hrblock free tax return Example 5. Hrblock free tax return Charles, who is not related to Danielle, contributes $10,000 to an LLC owned by Danielle for a 50% ownership interest in the LLC. Hrblock free tax return The LLC uses all of the contributed cash in its business. Hrblock free tax return Charles and Danielle continue to operate the business of the LLC as co-owners of the LLC. Hrblock free tax return The LLC is converted from a disregarded entity to a partnership when Charles contributes cash to the LLC. Hrblock free tax return Charles's contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. Hrblock free tax return Danielle is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest. Hrblock free tax return Neither Charles nor Danielle recognizes gain or loss as a result of the conversion of the disregarded entity to a partnership. Hrblock free tax return   For more details on the preceding two examples, see Revenue Ruling 99-5, 1999-6 I. Hrblock free tax return R. Hrblock free tax return B. Hrblock free tax return 8. Hrblock free tax return You can find Revenue Ruling 99-5 at www. Hrblock free tax return irs. Hrblock free tax return gov/pub/irs-irbs/irb99-06. Hrblock free tax return pdf. Hrblock free tax return LLCs Classified as Corporations An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. Hrblock free tax return File Form 8832, Entity Classification Election, to elect classification as a C corporation. Hrblock free tax return File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. Hrblock free tax return LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. Hrblock free tax return By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Hrblock free tax return If the LLC elects to be classified as a corporation by filing Form 8832, a copy of the LLC's Form 8832 must be attached to the federal income tax return of each direct and indirect owner of the LLC for the tax year of the owner that includes the date on which the election took effect. Hrblock free tax return Example 6. Hrblock free tax return Classification as a corporation without an S election. Hrblock free tax return Wanda and Sylvester are members of an LLC. Hrblock free tax return They agree that the LLC should be classified as a corporation but do not want to elect to have the LLC be treated as an S corporation. Hrblock free tax return The LLC must file Form 8832. Hrblock free tax return Example 7. Hrblock free tax return Classification as a corporation with an S election. Hrblock free tax return Evelyn and Carol are members of an LLC. Hrblock free tax return They agree that the LLC should be classified as an S corporation. Hrblock free tax return The LLC must file Form 2553 instead of Form 8832. Hrblock free tax return If the LLC is classified as a corporation, it must file a corporation income tax return. Hrblock free tax return If it is a C corporation, it is taxed on its taxable income and distributions to the members are includible in the members' gross income to the extent of the corporation's earnings and profits (double taxation). Hrblock free tax return If it is an S corporation, the corporation is generally not subject to any income tax and the income, deductions, gains, losses, and credits of the corporation “pass through” to the members. Hrblock free tax return Corporations generally file either: Form 1120, U. Hrblock free tax return S. Hrblock free tax return Corporation Income Tax Return; or Form 1120S, U. Hrblock free tax return S. Hrblock free tax return Income Tax Return for an S Corporation. Hrblock free tax return For more information on the income taxation of corporations and their shareholders, see Publication 542, Corporations. Hrblock free tax return For more information on the income taxation of S corporations and their shareholders, see the Instructions for Form 1120S, U. Hrblock free tax return S. Hrblock free tax return Income Tax Return for an S Corporation. Hrblock free tax return Subsequent Elections An LLC can elect to change its classification. Hrblock free tax return Generally, once an LLC has elected to change its classification, it cannot elect again to change it classification during the 60 months after the effective date of the election. Hrblock free tax return An election by a newly formed LLC that is effective on the date of formation is not considered a change for purposes of this limitation. Hrblock free tax return For more information and exceptions, see Regulations section 301. Hrblock free tax return 7701-3(c) and the Form 8832 instructions. Hrblock free tax return An election to change classification can have significant tax consequences based on the following transactions that are deemed to occur as a result of the election. Hrblock free tax return Partnership to corporation. Hrblock free tax return   An election to change classification from a partnership to a corporation will be treated as if the partnership contributed all of its assets and liabilities to the corporation in exchange for stock and the partnership then immediately liquidated by distributing the stock to its partners. Hrblock free tax return   For more information, see Partnership Distributions in Publication 541 and Property Exchanged for Stock in Publication 542. Hrblock free tax return Corporation to partnership. Hrblock free tax return   An election to change classification from a corporation to a partnership will be treated as if the corporation distributed all of its assets and liabilities to its shareholders in liquidation and the shareholders then immediately contributed all of the distributed assets and liabilities to a new partnership. Hrblock free tax return   For more information, see Contribution of Property in Publication 541 and Distributions to Shareholders in Publication 542. Hrblock free tax return Corporation to disregarded entity. Hrblock free tax return   An election to change classification from a corporation to a disregarded entity will be treated as if the corporation distributed all of its assets and liabilities to its single owner in liquidation. Hrblock free tax return   For more information, see Distributions to Shareholders in Publication 542. Hrblock free tax return Disregarded entity to corporation. Hrblock free tax return   An election to change classification from a disregarded entity to a corporation will be treated as if the owner of the disregarded entity contributed all of the assets and liabilities to the corporation in exchange for stock. Hrblock free tax return   For more information, see Property Exchanged for Stock in Publication 542. Hrblock free tax return How To Get More Information This section describes the help the IRS and other federal agencies offer to taxpayers who operate their own businesses. Hrblock free tax return Internal Revenue Service You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Hrblock free tax return By selecting the method that is best for you, you will have quick and easy access to tax help. Hrblock free tax return Contacting your Taxpayer Advocate. Hrblock free tax return   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Hrblock free tax return   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Hrblock free tax return You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Hrblock free tax return You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Hrblock free tax return For more information, go to www. Hrblock free tax return irs. Hrblock free tax return gov/advocate. Hrblock free tax return Low Income Taxpayer Clinics (LITCs). Hrblock free tax return   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Hrblock free tax return The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Hrblock free tax return Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Hrblock free tax return It is available at www. Hrblock free tax return irs. Hrblock free tax return gov or at your local IRS office. Hrblock free tax return Small business workshops. Hrblock free tax return   Small business workshops are designed to help the small business owner understand and fulfill their federal tax responsibilities. Hrblock free tax return Workshops are sponsored and presented by IRS partners who are federal tax specialists. Hrblock free tax return Workshop topics vary from a general overview of taxes to more specific topics such as recordkeeping and retirement plans. Hrblock free tax return Although most are free, some workshops have fees associated with them. Hrblock free tax return Any fees charged for a workshop are paid to the sponsoring organization, not the IRS. Hrblock free tax return   For more information, visit www. Hrblock free tax return irs. Hrblock free tax return gov/businesses/small. Hrblock free tax return Subscribe to e-news for small businesses. Hrblock free tax return   Join the e-News for Small Businesses mailing list to receive updates, reminders, and other information useful to small business owners and self employed individuals. Hrblock free tax return Visit the website at www. Hrblock free tax return irs. Hrblock free tax return gov/businesses/small and click on “Subscribe to e-News. Hrblock free tax return ” Free tax services. Hrblock free tax return   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Hrblock free tax return It contains a list of free tax publications and describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Hrblock free tax return   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Hrblock free tax return Internet. Hrblock free tax return You can access the IRS website at www. Hrblock free tax return irs. Hrblock free tax return gov 24 hours a day, 7 days a week, to: E-file your return. Hrblock free tax return Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Hrblock free tax return Check the status of your refund. Hrblock free tax return Go to www. Hrblock free tax return irs. Hrblock free tax return gov and click on Where's My Refund. Hrblock free tax return Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Hrblock free tax return If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Hrblock free tax return Have your tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Hrblock free tax return Download forms, instructions, and publications. Hrblock free tax return Order IRS products online. Hrblock free tax return Research your tax questions online. Hrblock free tax return Search publications online by topic or keyword. Hrblock free tax return View Internal Revenue Bulletins (IRBs) published in the last few years. Hrblock free tax return Figure your withholding allowances using the withholding calculator online at www. Hrblock free tax return irs. Hrblock free tax return gov/individuals. Hrblock free tax return Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Hrblock free tax return Sign up to receive local and national tax news by email. Hrblock free tax return Get information on starting and operating a small business. Hrblock free tax return Phone. Hrblock free tax return Many services are available by phone. Hrblock free tax return Ordering forms, instructions, and publications. Hrblock free tax return Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Hrblock free tax return You should receive your order within 10 days. Hrblock free tax return Asking tax questions. Hrblock free tax return Call the IRS with your tax questions at 1-800-829-1040. Hrblock free tax return Solving problems. Hrblock free tax return You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Hrblock free tax return An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Hrblock free tax return Call your local Taxpayer Assistance Center for an appointment. Hrblock free tax return To find the number, go to www. Hrblock free tax return irs. Hrblock free tax return gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Hrblock free tax return TTY/TDD equipment. Hrblock free tax return If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Hrblock free tax return TeleTax topics. Hrblock free tax return Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Hrblock free tax return Refund information. Hrblock free tax return To check the status of your 2009 refund, call 1-800-829-1954 during business hours or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Hrblock free tax return Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. Hrblock free tax return If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Hrblock free tax return Have your 2009 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. Hrblock free tax return Refunds are sent out weekly on Fridays. Hrblock free tax return If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Hrblock free tax return Evaluating the quality of our telephone services. Hrblock free tax return To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Hrblock free tax return One method is for a second IRS representative to listen in on or record random telephone calls. Hrblock free tax return Another is to ask some callers to complete a short survey at the end of the call. Hrblock free tax return Walk-in. Hrblock free tax return Many products and services are available on a walk-in basis. Hrblock free tax return Products. Hrblock free tax return You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Hrblock free tax return Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Hrblock free tax return Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Hrblock free tax return Services. Hrblock free tax return You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Hrblock free tax return An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Hrblock free tax return If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Hrblock free tax return No appointment is necessary—just walk in. Hrblock free tax return If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Hrblock free tax return A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Hrblock free tax return If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. Hrblock free tax return All other issues will be handled without an appointment. Hrblock free tax return To find the number of your local office, go to www. Hrblock free tax return irs. Hrblock free tax return gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Hrblock free tax return Mail. Hrblock free tax return You can send your order for forms, instructions, and publications to the address below. Hrblock free tax return You should receive a response within 10 days after your request is received. Hrblock free tax return Internal Revenue Service1201 N. Hrblock free tax return Mitsubishi MotorwayBloomington, IL 61705–6613 DVD for tax products. Hrblock free tax return You can order Publication 1796, IRS Tax Products DVD, and obtain: Current-year forms, instructions, and publications. Hrblock free tax return Prior-year forms, instructions, and publications. Hrblock free tax return Tax Map: an electronic research tool and finding aid. Hrblock free tax return Tax law frequently asked questions. Hrblock free tax return Tax Topics from the IRS telephone response system. Hrblock free tax return Internal Revenue Code—Title 26 of the U. Hrblock free tax return S. Hrblock free tax return Code. Hrblock free tax return Fill-in, print, and save features for most tax forms. Hrblock free tax return Internal Revenue Bulletins. Hrblock free tax return Toll-free and email technical support. Hrblock free tax return Two releases during the year. Hrblock free tax return – The first release will ship the beginning of January. Hrblock free tax return – The final release will ship the beginning of March. Hrblock free tax return Purchase the DVD from National Technical Information Service (NTIS) at www. Hrblock free tax return irs. Hrblock free tax return gov/cdorders for $30 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the DVD for $30 (plus a $6 handling fee). Hrblock free tax return Small Business Administration The Small Business Administration (SBA) offers training and educational programs, counseling services, financial programs, and contract assistance for small business owners. Hrblock free tax return The SBA also has publications and videos on a variety of business topics. Hrblock free tax return The following briefly describes assistance provided by the SBA. Hrblock free tax return Small Business Development Centers (SBDCs). Hrblock free tax return   SBDCs provide counseling, training, and technical services to current and prospective small business owners who cannot afford the services of a private consultant. Hrblock free tax return Help is available when beginning, improving, or expanding a small business. Hrblock free tax return Business Information Centers (BICs). Hrblock free tax return   BICs offer a small business reference library, management video tapes, and computer technology to help plan a business. Hrblock free tax return BICs also offer one-on-one assistance. Hrblock free tax return Individuals who are in business or are interested in starting a business can use BICs as often as they wish at no charge. Hrblock free tax return Service Corps of Retired Executives (SCORE). Hrblock free tax return   SCORE provides small business counseling and training to current and prospective small business owners. Hrblock free tax return SCORE is made up of current and former business people who offer their expertise and knowledge to help people start, manage, and expand a small business. Hrblock free tax return SCORE also offers a variety of small business workshops. Hrblock free tax return    Internet. Hrblock free tax return You can visit the SBA website at www. Hrblock free tax return sba. Hrblock free tax return gov. Hrblock free tax return While visiting the SBA website, you can find a variety of information of interest to small business owners. Hrblock free tax return    Phone. Hrblock free tax return Call the SBA Answer Desk at 1-800-UASK-SBA (1-800-827-5722) for general information about programs available to assist small business owners. Hrblock free tax return    Walk-in. Hrblock free tax return You can walk in to a Small Business Development Center or Business Information Center to request assistance with your small business. Hrblock free tax return To find the location nearest you, visit the SBA website or call the SBA Answer Desk. Hrblock free tax return Other Federal Agencies Other federal agencies also publish publications and pamphlets to assist small businesses. Hrblock free tax return Most of these are available from the Superintendent of Documents at the Government Printing Office. Hrblock free tax return You can get information and order these publications and pamphlets in several ways. Hrblock free tax return Internet. Hrblock free tax return You can visit the GPO website at www. Hrblock free tax return access. Hrblock free tax return gpo. Hrblock free tax return gov. Hrblock free tax return Mail. Hrblock free tax return Write to the GPO at the following address. Hrblock free tax return Superintendent of DocumentsU. Hrblock free tax return S. Hrblock free tax return Government Printing OfficeP. Hrblock free tax return O. Hrblock free tax return Box 979050St. Hrblock free tax return Louis, MO 63917-9000 Phone. Hrblock free tax return Call the GPO toll-free at 1-866-512-1800 or at 202-512-1800 from the Washington, DC area. Hrblock free tax return Prev  Up  Next   Home   More Online Publications
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The Hrblock Free Tax Return

Hrblock free tax return 4. Hrblock free tax return   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. Hrblock free tax return Line of business. Hrblock free tax return Examples. Hrblock free tax return Improvement of business conditions. Hrblock free tax return Exception for local legislation. Hrblock free tax return De minimis exception. Hrblock free tax return Grass roots lobbying. Hrblock free tax return 501(c)(7) - Social and Recreation ClubsLimited membership. Hrblock free tax return Support. Hrblock free tax return Facilities open to public. Hrblock free tax return Gross receipts from nonmembership sources. Hrblock free tax return Gross receipts. Hrblock free tax return Nontraditional activities. Hrblock free tax return 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. Hrblock free tax return Losses and expenses. Hrblock free tax return Distributions of proceeds. Hrblock free tax return The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. Hrblock free tax return Perpetual care organization. Hrblock free tax return Care of individual plots. Hrblock free tax return 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. Hrblock free tax return 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. Hrblock free tax return Waiver of payment of income. Hrblock free tax return 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Hrblock free tax return Section 501(c)(3) organizations are covered in chapter 3 of this publication. Hrblock free tax return The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. Hrblock free tax return 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). Hrblock free tax return The discussion that follows describes the information you must provide when applying. Hrblock free tax return For application procedures, see chapter 1. Hrblock free tax return To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. Hrblock free tax return In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. Hrblock free tax return If the organization provides an excess benefit to certain persons, an excise tax may be imposed. Hrblock free tax return See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. Hrblock free tax return Examples. Hrblock free tax return   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. Hrblock free tax return Nonprofit operation. Hrblock free tax return   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. Hrblock free tax return However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. Hrblock free tax return Social welfare. Hrblock free tax return   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). Hrblock free tax return   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. Hrblock free tax return It therefore does not qualify as a section 501(c)(4) organization. Hrblock free tax return Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. Hrblock free tax return However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. Hrblock free tax return Political activity. Hrblock free tax return   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. Hrblock free tax return However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. Hrblock free tax return See the discussion in chapter 2 under Political Organization Income Tax Return . Hrblock free tax return Social or recreational activity. Hrblock free tax return   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). Hrblock free tax return Retirement benefit program. Hrblock free tax return   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. Hrblock free tax return It may qualify under another paragraph of section 501(c) depending on all the facts. Hrblock free tax return   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. Hrblock free tax return Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. Hrblock free tax return They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. Hrblock free tax return However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Hrblock free tax return for more information. Hrblock free tax return For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. Hrblock free tax return gov. Hrblock free tax return Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. Hrblock free tax return Volunteer fire companies. Hrblock free tax return   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. Hrblock free tax return   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). Hrblock free tax return In this event, your organization should file Form 1023. Hrblock free tax return Homeowners' associations. Hrblock free tax return   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. Hrblock free tax return The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. Hrblock free tax return Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. Hrblock free tax return Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. Hrblock free tax return   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. Hrblock free tax return It also must show that it does not engage in exterior maintenance of private homes. Hrblock free tax return   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. Hrblock free tax return Other organizations. Hrblock free tax return   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. Hrblock free tax return 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. Hrblock free tax return You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. Hrblock free tax return In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Hrblock free tax return Submit any additional information that may be required, as described in this section. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. Hrblock free tax return However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. Hrblock free tax return For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. Hrblock free tax return Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. Hrblock free tax return To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. Hrblock free tax return In addition, no net earnings of the organization can inure to the benefit of any member. Hrblock free tax return Composition of membership. Hrblock free tax return   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. Hrblock free tax return You must show in your application that your organization has the purposes described in the preceding paragraph. Hrblock free tax return These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. Hrblock free tax return Benefits to members. Hrblock free tax return   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. Hrblock free tax return However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. Hrblock free tax return   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. Hrblock free tax return gov. Hrblock free tax return Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. Hrblock free tax return For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. Hrblock free tax return The term harvesting, in this case, includes fishing and related pursuits. Hrblock free tax return Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. Hrblock free tax return When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. Hrblock free tax return The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. Hrblock free tax return The following list contains some examples of activities that show an agricultural or horticultural purpose. Hrblock free tax return Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. Hrblock free tax return Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. Hrblock free tax return Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. Hrblock free tax return Guarding the purity of a specific breed of livestock. Hrblock free tax return Encouraging improvements in the production of fish on privately owned fish farms. Hrblock free tax return Negotiating with processors for the price to be paid to members for their crops. Hrblock free tax return For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. Hrblock free tax return gov. Hrblock free tax return 501(c)(6) - Business Leagues, etc. Hrblock free tax return If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. Hrblock free tax return For a discussion of the procedure to follow, see chapter 1. Hrblock free tax return Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). Hrblock free tax return In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. Hrblock free tax return It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. Hrblock free tax return A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Hrblock free tax return Trade associations and professional associations are considered business leagues. Hrblock free tax return Chamber of commerce. Hrblock free tax return   A chamber of commerce usually is composed of the merchants and traders of a city. Hrblock free tax return Board of trade. Hrblock free tax return   A board of trade often consists of persons engaged in similar lines of business. Hrblock free tax return For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. Hrblock free tax return   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. Hrblock free tax return Real estate board. Hrblock free tax return   A real estate board consists of members interested in improving the business conditions in the real estate field. Hrblock free tax return It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. Hrblock free tax return Professional football leagues. Hrblock free tax return   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). Hrblock free tax return They are exempt whether or not they administer a pension fund for football players. Hrblock free tax return General purpose. Hrblock free tax return   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. Hrblock free tax return It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Hrblock free tax return Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. Hrblock free tax return Line of business. Hrblock free tax return   This term generally refers either to an entire industry or to all components of an industry within a geographic area. Hrblock free tax return It does not include a group composed of businesses that market a particular brand within an industry. Hrblock free tax return Common business interest. Hrblock free tax return   A common business interest of all members of the organization must be established by the application documents. Hrblock free tax return Examples. Hrblock free tax return   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). Hrblock free tax return Improvement of business conditions. Hrblock free tax return   Generally, this must be shown to be the purpose of the organization. Hrblock free tax return This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Hrblock free tax return Stock or commodity exchange. Hrblock free tax return   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Hrblock free tax return Legislative activity. Hrblock free tax return   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. Hrblock free tax return Deduction not allowed for dues used for political or legislative activities. Hrblock free tax return   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. Hrblock free tax return Influencing legislation. Hrblock free tax return Participating or intervening in a political campaign for, or against, any candidate for public office. Hrblock free tax return Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). Hrblock free tax return Communicating directly with certain executive branch officials to try to influence their official actions or positions. Hrblock free tax return See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. Hrblock free tax return Exception for local legislation. Hrblock free tax return   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. Hrblock free tax return Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. Hrblock free tax return De minimis exception. Hrblock free tax return   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. Hrblock free tax return Grass roots lobbying. Hrblock free tax return   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Hrblock free tax return Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. Hrblock free tax return They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Hrblock free tax return   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. Hrblock free tax return gov. Hrblock free tax return 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. Hrblock free tax return In applying for recognition of exemption, you should submit the information described in this section. Hrblock free tax return Also see chapter 1 for the procedures to follow. Hrblock free tax return Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. Hrblock free tax return Discrimination prohibited. Hrblock free tax return   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. Hrblock free tax return   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. Hrblock free tax return Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. Hrblock free tax return Private benefit prohibited. Hrblock free tax return   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. Hrblock free tax return For purposes of this requirement, it is not necessary that net earnings be actually distributed. Hrblock free tax return Even undistributed earnings can benefit members. Hrblock free tax return Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. Hrblock free tax return However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. Hrblock free tax return Purposes. Hrblock free tax return   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. Hrblock free tax return You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. Hrblock free tax return   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. Hrblock free tax return A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. Hrblock free tax return   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. Hrblock free tax return For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. Hrblock free tax return Limited membership. Hrblock free tax return   The membership in a social club must be limited. Hrblock free tax return To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. Hrblock free tax return   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. Hrblock free tax return Corporate members of a club are not the kind of members contemplated by the law. Hrblock free tax return Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. Hrblock free tax return See Gross receipts from nonmembership sources , later. Hrblock free tax return Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. Hrblock free tax return   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. Hrblock free tax return However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. Hrblock free tax return Support. Hrblock free tax return   In general, your club should be supported solely by membership fees, dues, and assessments. Hrblock free tax return However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. Hrblock free tax return Business activities. Hrblock free tax return   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. Hrblock free tax return However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. Hrblock free tax return Facilities open to public. Hrblock free tax return   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. Hrblock free tax return This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. Hrblock free tax return Gross receipts from nonmembership sources. Hrblock free tax return   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. Hrblock free tax return Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. Hrblock free tax return Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. Hrblock free tax return If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. Hrblock free tax return Gross receipts. Hrblock free tax return   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. Hrblock free tax return These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. Hrblock free tax return Receipts do not include initiation fees and capital contributions. Hrblock free tax return Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. Hrblock free tax return Nontraditional activities. Hrblock free tax return   Activities conducted by a social club need to further its exempt purposes. Hrblock free tax return Traditional business activities are those that further a social club's exempt purposes. Hrblock free tax return Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. Hrblock free tax return Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. Hrblock free tax return Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. Hrblock free tax return Fraternity foundations. Hrblock free tax return   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. Hrblock free tax return 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. Hrblock free tax return The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. Hrblock free tax return , purposes. Hrblock free tax return The procedures to follow in applying for recognition of exemption are described in chapter 1. Hrblock free tax return If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. Hrblock free tax return If so, your organization need not apply for individual recognition of exemption. Hrblock free tax return For more information, see Group Exemption Letter in chapter 1 of this publication. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. Hrblock free tax return Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Hrblock free tax return The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. Hrblock free tax return Lodge system. Hrblock free tax return   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. Hrblock free tax return Payment of benefits. Hrblock free tax return   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. Hrblock free tax return An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. Hrblock free tax return   The benefits must be limited to members and their dependents. Hrblock free tax return If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. Hrblock free tax return Whole-life insurance. Hrblock free tax return   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. Hrblock free tax return Reinsurance pool. Hrblock free tax return   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. Hrblock free tax return Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. Hrblock free tax return The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. Hrblock free tax return S. Hrblock free tax return , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. Hrblock free tax return The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. Hrblock free tax return 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. Hrblock free tax return Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Hrblock free tax return Chapter 1 describes the procedures to follow in applying for exemption. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. Hrblock free tax return Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. Hrblock free tax return A local employees' association must apply for recognition of exemption by filing Form 1024. Hrblock free tax return The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. Hrblock free tax return A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. Hrblock free tax return Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. Hrblock free tax return Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. Hrblock free tax return The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. Hrblock free tax return To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Hrblock free tax return Note. Hrblock free tax return Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. Hrblock free tax return Notice requirement. Hrblock free tax return   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Hrblock free tax return The organization gives notice by filing Form 1024. Hrblock free tax return If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. Hrblock free tax return An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Hrblock free tax return Membership. Hrblock free tax return   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. Hrblock free tax return This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. Hrblock free tax return   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. Hrblock free tax return For example, the owner of a business whose employees are members of the association can be a member. Hrblock free tax return An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. Hrblock free tax return Employees. Hrblock free tax return   Employees include individuals who became entitled to membership because they are or were employees. Hrblock free tax return For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. Hrblock free tax return   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. Hrblock free tax return Conversely, membership is involuntary if the designation as a member is due to employee status. Hrblock free tax return However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. Hrblock free tax return An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. Hrblock free tax return Payment of benefits. Hrblock free tax return   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. Hrblock free tax return The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). Hrblock free tax return Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. Hrblock free tax return Nondiscrimination requirements. Hrblock free tax return   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. Hrblock free tax return However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. Hrblock free tax return   A plan meets the nondiscrimination requirements only if both of the following statements are true. Hrblock free tax return Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. Hrblock free tax return The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. Hrblock free tax return A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. Hrblock free tax return   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. Hrblock free tax return This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. Hrblock free tax return   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. Hrblock free tax return The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. Hrblock free tax return For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). Hrblock free tax return Excluded employees. Hrblock free tax return   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. Hrblock free tax return These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. Hrblock free tax return Highly compensated individual. Hrblock free tax return   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. Hrblock free tax return Go to IRS. Hrblock free tax return gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. Hrblock free tax return However, the employer can choose not to have (3) apply. Hrblock free tax return Aggregation rules. Hrblock free tax return   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. Hrblock free tax return Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. Hrblock free tax return Leased employees are treated as employees of the recipient. Hrblock free tax return One employee. Hrblock free tax return   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). Hrblock free tax return Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. Hrblock free tax return The trust must be a valid, existing trust under local law and must be evidenced by an executed document. Hrblock free tax return A conformed copy of the plan of which the trust is a part should be attached to the application. Hrblock free tax return To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. Hrblock free tax return Note. Hrblock free tax return Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. Hrblock free tax return Notice requirement. Hrblock free tax return   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. Hrblock free tax return The organization gives notice by filing Form 1024. Hrblock free tax return If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. Hrblock free tax return An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . Hrblock free tax return Types of payments. Hrblock free tax return   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. Hrblock free tax return In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. Hrblock free tax return Diversion of funds. Hrblock free tax return   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). Hrblock free tax return Discrimination in benefits. Hrblock free tax return   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. Hrblock free tax return However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. Hrblock free tax return Prohibited transactions and exemption. Hrblock free tax return   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. Hrblock free tax return It must file the claim on Form 1024. Hrblock free tax return The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. Hrblock free tax return An authorized principal officer of your organization must make this declaration under the penalties of perjury. Hrblock free tax return   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. Hrblock free tax return However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. Hrblock free tax return Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. Hrblock free tax return For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. Hrblock free tax return 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. Hrblock free tax return Benevolent life insurance associations of a purely local character and like organizations. Hrblock free tax return Mutual ditch or irrigation companies and like organizations. Hrblock free tax return Mutual or cooperative telephone companies and like organizations. Hrblock free tax return A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. Hrblock free tax return The information to be provided upon application by each of these organizations is described in this section. Hrblock free tax return For information as to the procedures to follow in applying for exemption, see chapter 1. Hrblock free tax return General requirements. Hrblock free tax return   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. Hrblock free tax return They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. Hrblock free tax return Mutual character. Hrblock free tax return   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. Hrblock free tax return They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. Hrblock free tax return To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. Hrblock free tax return   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. Hrblock free tax return Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. Hrblock free tax return The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. Hrblock free tax return Membership. Hrblock free tax return   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. Hrblock free tax return In a stock company, the stockholders are members. Hrblock free tax return However, a mutual life insurance organization cannot have policyholders other than its members. Hrblock free tax return Losses and expenses. Hrblock free tax return   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. Hrblock free tax return Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. Hrblock free tax return If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. Hrblock free tax return Distributions of proceeds. Hrblock free tax return   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. Hrblock free tax return Such distribution represents a refund in the costs of services rendered to the member. Hrblock free tax return The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Hrblock free tax return Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. Hrblock free tax return Mutual or cooperative telephone company. Hrblock free tax return   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. Hrblock free tax return Mutual or cooperative electric company. Hrblock free tax return   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. Hrblock free tax return   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. Hrblock free tax return Qualified pole rental. Hrblock free tax return   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. Hrblock free tax return   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). Hrblock free tax return The 85% requirement is applied on the basis of an annual accounting period. Hrblock free tax return Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. Hrblock free tax return Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. Hrblock free tax return Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. Hrblock free tax return Example. Hrblock free tax return   The books of an organization reflect the following for the calendar year. Hrblock free tax return Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. Hrblock free tax return   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. Hrblock free tax return   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. Hrblock free tax return   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. Hrblock free tax return Tax treatment of donations. Hrblock free tax return   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. Hrblock free tax return Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. Hrblock free tax return If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. Hrblock free tax return To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. Hrblock free tax return If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. Hrblock free tax return A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. Hrblock free tax return A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. Hrblock free tax return Organizations similar to local benevolent life insurance companies. Hrblock free tax return   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. Hrblock free tax return However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. Hrblock free tax return Burial and funeral benefit insurance organization. Hrblock free tax return   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. Hrblock free tax return An organization that provides its benefits in the form of supplies and service is not a life insurance company. Hrblock free tax return Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. Hrblock free tax return Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. Hrblock free tax return They can serve noncontiguous areas. Hrblock free tax return Like organization. Hrblock free tax return   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. Hrblock free tax return Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. Hrblock free tax return 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. Hrblock free tax return For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. Hrblock free tax return A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. Hrblock free tax return A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. Hrblock free tax return The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. Hrblock free tax return If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. Hrblock free tax return Operating a mortuary is not permitted. Hrblock free tax return However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. Hrblock free tax return How income can be used. Hrblock free tax return   You should show that your organization's earnings are or will be used only in one or more of the following ways. Hrblock free tax return To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. Hrblock free tax return To buy cemetery property. Hrblock free tax return To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. Hrblock free tax return No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. Hrblock free tax return Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. Hrblock free tax return Buying cemetery property. Hrblock free tax return   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. Hrblock free tax return You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. Hrblock free tax return   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. Hrblock free tax return Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not