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Irs E File 2013

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Irs E File 2013

Irs e file 2013 3. Irs e file 2013   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. Irs e file 2013 Dual use of assets or facilities. Irs e file 2013 Exploitation of exempt functions. Irs e file 2013 ExamplesExceptions. Irs e file 2013 Excluded Trade or Business ActivitiesQualified sponsorship payment. Irs e file 2013 Advertising. Irs e file 2013 Exception for contingent payments. Irs e file 2013 Exception for periodicals. Irs e file 2013 Exception for conventions and trade shows. Irs e file 2013 Legal definition. Irs e file 2013 Legal where played. Irs e file 2013 No for-profit games where played. Irs e file 2013 Unrelated business income. Irs e file 2013   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. Irs e file 2013   Certain trade or business activities are not treated as an unrelated trade or business. Irs e file 2013 See Excluded Trade or Business Activities, later. Irs e file 2013 Trade or business. Irs e file 2013   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. Irs e file 2013 An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. Irs e file 2013   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. Irs e file 2013 Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. Irs e file 2013 Regularly conducted. Irs e file 2013   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. Irs e file 2013   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. Irs e file 2013 The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. Irs e file 2013 However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. Irs e file 2013 Not substantially related. Irs e file 2013    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). Irs e file 2013 Whether an activity contributes importantly depends in each case on the facts involved. Irs e file 2013   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. Irs e file 2013 For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. Irs e file 2013 The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. Irs e file 2013   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. Irs e file 2013 Selling of products of exempt functions. Irs e file 2013   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. Irs e file 2013 Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. Irs e file 2013   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. Irs e file 2013 For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. Irs e file 2013 But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. Irs e file 2013 , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. Irs e file 2013 Dual use of assets or facilities. Irs e file 2013   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. Irs e file 2013 The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. Irs e file 2013   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. Irs e file 2013 The theater is a principal feature of the museum and operates continuously while the museum is open to the public. Irs e file 2013 If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. Irs e file 2013   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. Irs e file 2013 Exploitation of exempt functions. Irs e file 2013   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. Irs e file 2013 When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. Irs e file 2013 Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. Irs e file 2013   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. Irs e file 2013 Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. Irs e file 2013 Sales commissions. Irs e file 2013   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. Irs e file 2013 Artists' facilities. Irs e file 2013   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. Irs e file 2013 These two activities do not contribute importantly to accomplishing the organization's exempt purpose. Irs e file 2013 Therefore, they are unrelated trades or businesses. Irs e file 2013 Membership list sales. Irs e file 2013   An exempt educational organization regularly sells membership mailing lists to business firms. Irs e file 2013 This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. Irs e file 2013 Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. Irs e file 2013 Hospital facilities. Irs e file 2013   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. Irs e file 2013 The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. Irs e file 2013 The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. Irs e file 2013   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. Irs e file 2013 These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. Irs e file 2013 Book publishing. Irs e file 2013   An exempt organization engages primarily in activities that further its exempt purposes. Irs e file 2013 It also owns the publication rights to a book that does not relate to any of its exempt purposes. Irs e file 2013 The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. Irs e file 2013 These activities constitute a trade or business regularly conducted. Irs e file 2013 Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. Irs e file 2013   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. Irs e file 2013 See Royalties under Exclusions in chapter 4. Irs e file 2013 School handicraft shop. Irs e file 2013   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. Irs e file 2013 The students are paid a percentage of the sales price. Irs e file 2013 In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. Irs e file 2013 The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. Irs e file 2013 Although many local participants are former students of the school, any qualified person may participate in the program. Irs e file 2013 The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. Irs e file 2013 School facilities. Irs e file 2013   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. Irs e file 2013 During the summer, the school operates a tennis club open to the general public. Irs e file 2013 Employees of the school run the club, including collecting membership fees and scheduling court time. Irs e file 2013   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. Irs e file 2013 The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. Irs e file 2013   In both situations, the exempt purpose is the advancement of education. Irs e file 2013 Furnishing tennis facilities in the manner described does not further that exempt purpose. Irs e file 2013 These activities are unrelated trades or businesses. Irs e file 2013 However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. Irs e file 2013 See Rents under Exclusions in chapter 4. Irs e file 2013 Services provided with lease. Irs e file 2013   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. Irs e file 2013 Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. Irs e file 2013 It also provides dressing room, linen, and stadium security services for the professional team. Irs e file 2013   Leasing of the stadium is an unrelated trade or business. Irs e file 2013 In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. Irs e file 2013 Therefore, the income from this lease is rent from real property and unrelated business taxable income. Irs e file 2013 Broadcasting rights. Irs e file 2013   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. Irs e file 2013 Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. Irs e file 2013 An athletic program is considered an integral part of the educational process of a university. Irs e file 2013   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. Irs e file 2013 Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. Irs e file 2013 Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. Irs e file 2013   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. Irs e file 2013 The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. Irs e file 2013   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. Irs e file 2013 The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. Irs e file 2013 Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. Irs e file 2013 Yearbook advertising. Irs e file 2013   An exempt organization receives income from the sale of advertising in its annual yearbook. Irs e file 2013 The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. Irs e file 2013 This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. Irs e file 2013 This advertising activity is an unrelated trade or business. Irs e file 2013 Pet boarding and grooming services. Irs e file 2013   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. Irs e file 2013 These activities do not contribute importantly to its purpose of preventing cruelty to animals. Irs e file 2013 Museum eating facilities. Irs e file 2013   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. Irs e file 2013 Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. Irs e file 2013 The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. Irs e file 2013 Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. Irs e file 2013 Halfway house workshop. Irs e file 2013   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. Irs e file 2013 The profits are applied to the operating costs of the halfway house. Irs e file 2013 The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. Irs e file 2013 Travel tour programs. Irs e file 2013   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. Irs e file 2013 Example 1. Irs e file 2013 A tax-exempt university alumni association provides a travel tour program for its members and their families. Irs e file 2013 The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. Irs e file 2013 It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. Irs e file 2013 The organization provides an employee for each tour as a tour leader. Irs e file 2013 There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. Irs e file 2013 By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. Irs e file 2013 Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. Irs e file 2013 Therefore, the sale of the travel tours is an unrelated trade or business. Irs e file 2013 Example 2. Irs e file 2013 A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. Irs e file 2013 These tours are conducted by teachers and others certified by the state board of education. Irs e file 2013 The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. Irs e file 2013 A tour's study program consists of instruction on subjects related to the location being visited on the tour. Irs e file 2013 Each tour group brings along a library of material related to the subjects being studied on the tour. Irs e file 2013 During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. Irs e file 2013 Examinations are given at the end of each tour. Irs e file 2013 The state board of education awards academic credit for tour participation. Irs e file 2013 Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. Irs e file 2013 Insurance programs. Irs e file 2013   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. Irs e file 2013 Exceptions. Irs e file 2013   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. Irs e file 2013 Magazine publishing. Irs e file 2013   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. Irs e file 2013   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. Irs e file 2013 This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. Irs e file 2013   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. Irs e file 2013 Directory of members. Irs e file 2013   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. Irs e file 2013 Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. Irs e file 2013 The directory contains no commercial advertisement and is sold only to the organization's members. Irs e file 2013   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. Irs e file 2013 Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. Irs e file 2013 The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. Irs e file 2013 This directory differs from the publication discussed next because of its noncommercial characteristics. Irs e file 2013 Sales of advertising space. Irs e file 2013   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. Irs e file 2013 The journal is distributed without charge, mainly to the organization's members. Irs e file 2013   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. Irs e file 2013 Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. Irs e file 2013 A business firm identified in a separate space is further identified in an Index of Advertisers. Irs e file 2013   The organization solicits advertising by personal contacts. Irs e file 2013 Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. Irs e file 2013 The organization also solicits advertising in form letters appealing for corporate and personal contributions. Irs e file 2013   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. Irs e file 2013 Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. Irs e file 2013 Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. Irs e file 2013 However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. Irs e file 2013 In that case, other factors should also be considered in determining whether a commercial benefit can be expected. Irs e file 2013 Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. Irs e file 2013   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. Irs e file 2013 However, the purchaser of a listing cannot expect more than an inconsequential benefit. Irs e file 2013 Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. Irs e file 2013 Publishing legal notices. Irs e file 2013   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. Irs e file 2013 The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. Irs e file 2013 The state designated the bar association's journal as the place to publish the required notices. Irs e file 2013   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. Irs e file 2013 Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. Irs e file 2013 Therefore, the advertising income is unrelated trade or business income. Irs e file 2013   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. Irs e file 2013 This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. Irs e file 2013 Therefore, the publishing of legal notices does not constitute an unrelated trade or business. Irs e file 2013 Museum greeting card sales. Irs e file 2013    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. Irs e file 2013 Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. Irs e file 2013 The cards contain appropriate greetings and are personalized on request. Irs e file 2013   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. Irs e file 2013 It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. Irs e file 2013 As a result, a large number of cards are sold at a significant profit. Irs e file 2013   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. Irs e file 2013 The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. Irs e file 2013 The cards may encourage more people to visit the museum itself to share in its educational programs. Irs e file 2013 The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. Irs e file 2013 Therefore, these sales activities are not an unrelated trade or business. Irs e file 2013 Museum shop. Irs e file 2013   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. Irs e file 2013   The shop also rents originals or reproductions of paintings contained in its collection. Irs e file 2013 All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. Irs e file 2013   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. Irs e file 2013   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. Irs e file 2013 The same is true for the sale of literature relating to art. Irs e file 2013 Therefore, these sales activities are not an unrelated trade or business. Irs e file 2013   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. Irs e file 2013 The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. Irs e file 2013 Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. Irs e file 2013 Therefore, these sales are an unrelated trade or business. Irs e file 2013 Business league's parking and bus services. Irs e file 2013   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. Irs e file 2013 It also operates, as an insubstantial part of its activities, a park and shop plan. Irs e file 2013   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. Irs e file 2013 The merchants cannot offer free or discount parking or bus fares to their customers. Irs e file 2013   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. Irs e file 2013 Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. Irs e file 2013   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. Irs e file 2013 That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. Irs e file 2013   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. Irs e file 2013 This provides a particular service to individual members of the organization and does not further its exempt purpose. Irs e file 2013 Therefore, operating the park and shop plan is an unrelated trade or business. Irs e file 2013 Youth residence. Irs e file 2013   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. Irs e file 2013 The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. Irs e file 2013 The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. Irs e file 2013 The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. Irs e file 2013 Health club program. Irs e file 2013   An exempt charitable organization's purpose is to provide for the welfare of young people. Irs e file 2013 The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. Irs e file 2013 Nominal annual dues are charged for membership in the organization and use of the facilities. Irs e file 2013   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. Irs e file 2013 The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. Irs e file 2013   The health club program is in addition to the general physical fitness program of the organization. Irs e file 2013 Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. Irs e file 2013 Miniature golf course. Irs e file 2013   An exempt youth welfare organization operates a miniature golf course that is open to the general public. Irs e file 2013 The course, which is managed by salaried employees, is substantially similar to commercial courses. Irs e file 2013 The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. Irs e file 2013   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. Irs e file 2013 Sales of hearing aids. Irs e file 2013   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. Irs e file 2013 This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. Irs e file 2013 It is not an unrelated trade or business. Irs e file 2013 Nonpatient laboratory testing. Irs e file 2013   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. Irs e file 2013 However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. Irs e file 2013 Selling endorsements. Irs e file 2013   An exempt scientific organization enjoys an excellent reputation in the field of biological research. Irs e file 2013 It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. Irs e file 2013 Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. Irs e file 2013 Accordingly, the sale of endorsements is an unrelated trade or business. Irs e file 2013 Sponsoring entertainment events. Irs e file 2013   An exempt university has a regular faculty and a regularly enrolled student body. Irs e file 2013 During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. Irs e file 2013 Members of the general public also are admitted. Irs e file 2013 The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. Irs e file 2013 Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. Irs e file 2013 Therefore, the activity is not an unrelated trade or business. Irs e file 2013 Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. Irs e file 2013 Volunteer workforce. Irs e file 2013   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. Irs e file 2013 Example 1. Irs e file 2013 A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. Irs e file 2013 Example 2. Irs e file 2013 A volunteer fire company conducts weekly public dances. Irs e file 2013 Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. Irs e file 2013 However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. Irs e file 2013 Convenience of members. Irs e file 2013   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. Irs e file 2013 For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. Irs e file 2013 Qualified sponsorship activities. Irs e file 2013   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. Irs e file 2013 Qualified sponsorship payment. Irs e file 2013   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. Irs e file 2013 “Use or acknowledgment” does not include advertising the sponsor's products or services. Irs e file 2013 The organization's activities include all its activities, whether or not related to its exempt purposes. Irs e file 2013   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. Irs e file 2013   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. Irs e file 2013 Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. Irs e file 2013 Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. Irs e file 2013   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. Irs e file 2013   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. Irs e file 2013 For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. Irs e file 2013 Advertising. Irs e file 2013   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. Irs e file 2013 For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Irs e file 2013   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. Irs e file 2013   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. Irs e file 2013 In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. Irs e file 2013 Exception for contingent payments. Irs e file 2013   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. Irs e file 2013 However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. Irs e file 2013 Exception for periodicals. Irs e file 2013   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. Irs e file 2013 For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. Irs e file 2013 It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). Irs e file 2013   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. Irs e file 2013 See Sales of advertising space under Examples, earlier in this chapter. Irs e file 2013 Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. Irs e file 2013 Exception for conventions and trade shows. Irs e file 2013   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. Irs e file 2013 The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. Irs e file 2013 Selling donated merchandise. Irs e file 2013   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. Irs e file 2013 For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. Irs e file 2013 Employee association sales. Irs e file 2013   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. Irs e file 2013 This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. Irs e file 2013 Bingo games. Irs e file 2013   Certain bingo games are not included in the term “unrelated trade or business. Irs e file 2013 ” To qualify for this exclusion, the bingo game must meet the following requirements. Irs e file 2013 It meets the legal definition of bingo. Irs e file 2013 It is legal where it is played. Irs e file 2013 It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. Irs e file 2013 Legal definition. Irs e file 2013   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. Irs e file 2013   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. Irs e file 2013 For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. Irs e file 2013 Legal where played. Irs e file 2013   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. Irs e file 2013 The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. Irs e file 2013 No for-profit games where played. Irs e file 2013   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. Irs e file 2013 Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. Irs e file 2013 Example. Irs e file 2013 Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. Irs e file 2013 In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. Irs e file 2013 Several for-profit organizations conduct nightly games. Irs e file 2013 Y conducts weekly bingo games in city S, while X conducts weekly games in county R. Irs e file 2013 Since state law confines the for-profit organizations to city S, local jurisdiction controls. Irs e file 2013 Y's bingo games conducted in city S are an unrelated trade or business. Irs e file 2013 However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. Irs e file 2013 Gambling activities other than bingo. Irs e file 2013   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. Irs e file 2013 Pole rentals. Irs e file 2013   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). Irs e file 2013 A qualified pole rental is the 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 the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. Irs e file 2013 For this purpose, the term rental includes any sale of the right to use the pole (or other structure). Irs e file 2013 Distribution of low cost articles. Irs e file 2013   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. Irs e file 2013 This applies to organizations described in section 501 that are eligible to receive charitable contributions. Irs e file 2013   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. Irs e file 2013   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. Irs e file 2013 The maximum cost of a low cost article is $9. Irs e file 2013 70 for 2011. Irs e file 2013 The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. Irs e file 2013 Exchange or rental of member lists. Irs e file 2013   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. Irs e file 2013 Hospital services. Irs e file 2013   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. Irs e file 2013 This exclusion applies only to services described in section 501(e)(1)(A). Irs e file 2013 Public entertainment activity. Irs e file 2013   An unrelated trade or business does not include a qualified public entertainment activity. Irs e file 2013 A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. Irs e file 2013   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. Irs e file 2013   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. Irs e file 2013 Its conducting qualified public entertainment activities will not affect determination of its exempt status. Irs e file 2013 Convention or trade show activity. Irs e file 2013   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. Irs e file 2013   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. Irs e file 2013   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). Irs e file 2013 The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. Irs e file 2013   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. Irs e file 2013 For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. Irs e file 2013    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. Irs e file 2013 The trade show itself must be a qualified convention and trade show activity. Irs e file 2013 The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. Irs e file 2013 Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. Irs e file 2013 Prev  Up  Next   Home   More Online Publications
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U.S. Commodity Futures Trading Commission (CFTC)

The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets. In pursuit of its mission, the CFTC investigates and prosecutes commodities fraud, including foreign currency schemes, energy manipulation and hedge fund fraud, and works with other federal and state agencies to bring criminal and other actions. The CFTC also engages in public education and outreach by participating in consumer groups and issuing Consumer Advisories and other educational materials.

Contact the Agency or Department

Website: U.S. Commodity Futures Trading Commission (CFTC)

E-mail:

Address: Three Lafayette Center
1155 21st St., NW

Washington, DC 20581

Phone Number: (202) 418-5000

TTY: (202) 418-5514

The Irs E File 2013

Irs e file 2013 2. Irs e file 2013   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. Irs e file 2013 This chapter will help you determine the source of different types of income you may receive during the tax year. Irs e file 2013 This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. Irs e file 2013 Topics - This chapter discusses: Income source rules, and Community income. Irs e file 2013 Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. Irs e file 2013 S. Irs e file 2013 citizen. Irs e file 2013 If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. Irs e file 2013 S. Irs e file 2013 tax return. Irs e file 2013 You must report these amounts from sources within and outside the United States. Irs e file 2013 Nonresident Aliens A nonresident alien usually is subject to U. Irs e file 2013 S. Irs e file 2013 income tax only on U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 Under limited circumstances, certain foreign source income is subject to U. Irs e file 2013 S. Irs e file 2013 tax. Irs e file 2013 See Foreign Income in chapter 4. Irs e file 2013 The general rules for determining U. Irs e file 2013 S. Irs e file 2013 source income that apply to most nonresident aliens are shown in Table 2-1. Irs e file 2013 The following discussions cover the general rules as well as the exceptions to these rules. Irs e file 2013 Not all items of U. Irs e file 2013 S. Irs e file 2013 source income are taxable. Irs e file 2013 See chapter 3. Irs e file 2013 Interest Income Generally, U. Irs e file 2013 S. Irs e file 2013 source interest income includes the following items. Irs e file 2013 Interest on bonds, notes, or other interest-bearing obligations of U. Irs e file 2013 S. Irs e file 2013 residents or domestic corporations. Irs e file 2013 Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. Irs e file 2013 S. Irs e file 2013 trade or business at any time during the tax year. Irs e file 2013 Original issue discount. Irs e file 2013 Interest from a state, the District of Columbia, or the U. Irs e file 2013 S. Irs e file 2013 Government. Irs e file 2013 The place or manner of payment is immaterial in determining the source of the income. Irs e file 2013 A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. Irs e file 2013 Exceptions. Irs e file 2013   U. Irs e file 2013 S. Irs e file 2013 source interest income does not include the following items. Irs e file 2013 Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. Irs e file 2013 S. Irs e file 2013 possession. Irs e file 2013 However, the interest will be considered U. Irs e file 2013 S. Irs e file 2013 source interest income if either of the following apply. Irs e file 2013 The recipient of the interest is related to the resident alien or domestic corporation. Irs e file 2013 See section 954(d)(3) for the definition of related person. Irs e file 2013 The terms of the obligation are significantly modified after August 9, 2010. Irs e file 2013 Any extension of the term of the obligation is considered a significant modification. Irs e file 2013 Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. Irs e file 2013 Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. Irs e file 2013 Dividends In most cases, dividend income received from domestic corporations is U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 Dividend income from foreign corporations is usually foreign source income. Irs e file 2013 Exceptions to both of these rules are discussed below. Irs e file 2013 A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. Irs e file 2013 Dividend equivalent payments. Irs e file 2013   U. Irs e file 2013 S. Irs e file 2013 source dividends also include all dividend equivalent payments. Irs e file 2013 Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. Irs e file 2013 S. Irs e file 2013 sources. Irs e file 2013    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. Irs e file 2013 You can view this regulation at www. Irs e file 2013 irs. Irs e file 2013 gov/irb/2013-52_IRB/ar08. Irs e file 2013 html. Irs e file 2013 First exception. Irs e file 2013   Dividends received from a domestic corporation are not U. Irs e file 2013 S. Irs e file 2013 source income if the corporation elects to take the American Samoa economic development credit. Irs e file 2013 Second exception. Irs e file 2013   Part of the dividends received from a foreign corporation is U. Irs e file 2013 S. Irs e file 2013 source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. Irs e file 2013 If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Irs e file 2013 Determine the part that is U. Irs e file 2013 S. Irs e file 2013 source income by multiplying the dividend by the following fraction. Irs e file 2013   Foreign corporation's gross income connected with a U. Irs e file 2013 S. Irs e file 2013 trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 They must be paid by a noncorporate resident or U. Irs e file 2013 S. Irs e file 2013 corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. Irs e file 2013 S. Irs e file 2013 trade or business. Irs e file 2013 For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). Irs e file 2013 Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. Irs e file 2013 The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. Irs e file 2013 If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. Irs e file 2013 Compensation (other than certain fringe benefits) is sourced on a time basis. Irs e file 2013 Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Irs e file 2013 Or, you may be permitted to use an alternative basis to determine the source of compensation. Irs e file 2013 See Alternative Basis , later. Irs e file 2013 Multi-level marketing. Irs e file 2013   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. Irs e file 2013 Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. Irs e file 2013 The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. Irs e file 2013 Self-employed individuals. Irs e file 2013   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Irs e file 2013 In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Irs e file 2013 Time Basis Use a time basis to figure your U. Irs e file 2013 S. Irs e file 2013 source compensation (other than the fringe benefits discussed later). Irs e file 2013 Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. Irs e file 2013 The time period for which the compensation is made does not have to be a year. Irs e file 2013 Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Irs e file 2013 Example 1. Irs e file 2013 Christina Brooks, a resident of the Netherlands, worked 240 days for a U. Irs e file 2013 S. Irs e file 2013 company during the tax year. Irs e file 2013 She received $80,000 in compensation. Irs e file 2013 None of it was for fringe benefits. Irs e file 2013 Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. Irs e file 2013 Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 Example 2. Irs e file 2013 Rob Waters, a resident of South Africa, is employed by a corporation. Irs e file 2013 His annual salary is $100,000. Irs e file 2013 None of it is for fringe benefits. Irs e file 2013 During the first quarter of the year he worked entirely within the United States. Irs e file 2013 On April 1, Rob was transferred to Singapore for the remainder of the year. Irs e file 2013 Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. Irs e file 2013 Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. Irs e file 2013 25 × $100,000). Irs e file 2013 All of it is U. Irs e file 2013 S. Irs e file 2013 source income because he worked entirely within the United States during that quarter. Irs e file 2013 The remaining $75,000 is attributable to the last three quarters of the year. Irs e file 2013 During those quarters, he worked 150 days in Singapore and 30 days in the United States. Irs e file 2013 His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. Irs e file 2013 Of this $75,000, $12,500 ($75,000 × 30/180) is U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 Multi-year compensation. Irs e file 2013   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Irs e file 2013 Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. Irs e file 2013   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. Irs e file 2013 For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. Irs e file 2013   The amount of compensation treated as from U. Irs e file 2013 S. Irs e file 2013 sources is figured by multiplying the total multi-year compensation by a fraction. Irs e file 2013 The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. Irs e file 2013 The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. Irs e file 2013 Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. Irs e file 2013 Housing. Irs e file 2013 Education. Irs e file 2013 Local transportation. Irs e file 2013 Tax reimbursement. Irs e file 2013 Hazardous or hardship duty pay as defined in Regulations section 1. Irs e file 2013 861-4(b)(2)(ii)(D)(5). Irs e file 2013 Moving expense reimbursement. Irs e file 2013 The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. Irs e file 2013 Principal place of work. Irs e file 2013   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. Irs e file 2013 Your principal place of work is usually the place where you spend most of your working time. Irs e file 2013 This could be your office, plant, store, shop, or other location. Irs e file 2013 If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. Irs e file 2013   If you have more than one job at any time, your main job location depends on the facts in each case. Irs e file 2013 The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. Irs e file 2013 Housing. Irs e file 2013   The source of a housing fringe benefit is determined based on the location of your principal place of work. Irs e file 2013 A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. Irs e file 2013 Rent. Irs e file 2013 Utilities (except telephone charges). Irs e file 2013 Real and personal property insurance. Irs e file 2013 Occupancy taxes not deductible under section 164 or 216(a). Irs e file 2013 Nonrefundable fees for securing a leasehold. Irs e file 2013 Rental of furniture and accessories. Irs e file 2013 Household repairs. Irs e file 2013 Residential parking. Irs e file 2013 Fair rental value of housing provided in kind by your employer. Irs e file 2013   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. Irs e file 2013 ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. Irs e file 2013 Education. Irs e file 2013   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. Irs e file 2013 An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. Irs e file 2013 Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. Irs e file 2013 Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. Irs e file 2013 Local transportation. Irs e file 2013   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. Irs e file 2013 Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. Irs e file 2013 The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. Irs e file 2013 Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. Irs e file 2013 Tax reimbursement. Irs e file 2013   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. Irs e file 2013 Moving expense reimbursement. Irs e file 2013   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. Irs e file 2013 However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. Irs e file 2013 Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. Irs e file 2013 The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. Irs e file 2013 It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. Irs e file 2013 Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. Irs e file 2013 If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. Irs e file 2013 Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. Irs e file 2013 Your name and social security number (written across the top of the statement). Irs e file 2013 The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. Irs e file 2013 For each item in (2), the alternative basis of allocation of source used. Irs e file 2013 For each item in (2), a computation showing how the alternative allocation was computed. Irs e file 2013 A comparison of the dollar amount of the U. Irs e file 2013 S. Irs e file 2013 compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. Irs e file 2013 Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. Irs e file 2013 This is true whether the vessel or aircraft is owned, hired, or leased. Irs e file 2013 The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. Irs e file 2013 All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. Irs e file 2013 If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. Irs e file 2013 For transportation income from personal services, 50% of the income is U. Irs e file 2013 S. Irs e file 2013 source income if the transportation is between the United States and a U. Irs e file 2013 S. Irs e file 2013 possession. Irs e file 2013 For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. Irs e file 2013 For information on how U. Irs e file 2013 S. Irs e file 2013 source transportation income is taxed, see chapter 4. Irs e file 2013 Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. Irs e file 2013 However, see Activities to be performed outside the United States , later. Irs e file 2013 For example, payments for research or study in the United States made by the United States, a noncorporate U. Irs e file 2013 S. Irs e file 2013 resident, or a domestic corporation, are from U. Irs e file 2013 S. Irs e file 2013 sources. Irs e file 2013 Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. Irs e file 2013 S. Irs e file 2013 agent. Irs e file 2013 Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. Irs e file 2013 Activities to be performed outside the United States. Irs e file 2013   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013    These rules do not apply to amounts paid as salary or other compensation for services. Irs e file 2013 See Personal Services, earlier, for the source rules that apply. Irs e file 2013 Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. Irs e file 2013 S. Irs e file 2013 sources. Irs e file 2013 That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. Irs e file 2013 This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). Irs e file 2013 If you performed services as an employee of the United States, you may receive a distribution from the U. Irs e file 2013 S. Irs e file 2013 Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. Irs e file 2013 Your U. Irs e file 2013 S. Irs e file 2013 source income is the otherwise taxable amount of the distribution that is attributable to your total U. Irs e file 2013 S. Irs e file 2013 Government basic pay other than tax-exempt pay for services performed outside the United States. Irs e file 2013 Rents or Royalties Your U. Irs e file 2013 S. Irs e file 2013 source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. Irs e file 2013 U. Irs e file 2013 S. Irs e file 2013 source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. Irs e file 2013 Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. Irs e file 2013 Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. Irs e file 2013 Natural resources. Irs e file 2013   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. Irs e file 2013 For information on determining that part, see section 1. Irs e file 2013 863-1(b) of the regulations. Irs e file 2013 Table 2-1. Irs e file 2013 Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. Irs e file 2013 S. Irs e file 2013 or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Irs e file 2013 Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. Irs e file 2013 For more information, see section 1. Irs e file 2013 863-1(b) of the regulations. Irs e file 2013 *Exceptions include: a) Dividends paid by a U. Irs e file 2013 S. Irs e file 2013 corporation are foreign source if the corporation elects the  American Samoa economic development credit. Irs e file 2013  b) Part of a dividend paid by a foreign corporation is U. Irs e file 2013 S. Irs e file 2013 source if at least 25% of the  corporation's gross income is effectively connected with a U. Irs e file 2013 S. Irs e file 2013 trade or business for the  3 tax years before the year in which the dividends are declared. Irs e file 2013 Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. Irs e file 2013 Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. Irs e file 2013 If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. Irs e file 2013 Tax home. Irs e file 2013   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Irs e file 2013 Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. Irs e file 2013 If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Irs e file 2013 If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Irs e file 2013 Inventory property. Irs e file 2013   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Irs e file 2013 Income from the sale of inventory that you purchased is sourced where the property is sold. Irs e file 2013 Generally, this is where title to the property passes to the buyer. Irs e file 2013 For example, income from the sale of inventory in the United States is U. Irs e file 2013 S. Irs e file 2013 source income, whether you purchased it in the United States or in a foreign country. Irs e file 2013   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. Irs e file 2013 For information on making this allocation, see section 1. Irs e file 2013 863-3 of the regulations. Irs e file 2013   These rules apply even if your tax home is not in the United States. Irs e file 2013 Depreciable property. Irs e file 2013   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. Irs e file 2013 You allocate this part of the gain to sources in the United States based on the ratio of U. Irs e file 2013 S. Irs e file 2013 depreciation adjustments to total depreciation adjustments. Irs e file 2013 The rest of this part of the gain is considered to be from sources outside the United States. Irs e file 2013   For this purpose, “U. Irs e file 2013 S. Irs e file 2013 depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. Irs e file 2013 S. Irs e file 2013 sources. Irs e file 2013 However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. Irs e file 2013 S. Irs e file 2013 depreciation adjustments. Irs e file 2013 But there are some exceptions for certain transportation, communications, and other property used internationally. Irs e file 2013   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. Irs e file 2013   A loss is sourced in the same way as the depreciation deductions were sourced. Irs e file 2013 However, if the property was used predominantly in the United States, the entire loss reduces U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. Irs e file 2013 Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. Irs e file 2013 The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. Irs e file 2013 A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. Irs e file 2013 Intangible property. Irs e file 2013   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. Irs e file 2013 The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. Irs e file 2013 This is the same as the source rule for gain from the sale of depreciable property. Irs e file 2013 See Depreciable property , earlier, for details on how to apply this rule. Irs e file 2013   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. Irs e file 2013 If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. Irs e file 2013 If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. Irs e file 2013 Sales through offices or fixed places of business. Irs e file 2013   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. Irs e file 2013   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. Irs e file 2013 S. Irs e file 2013 source income. Irs e file 2013 The income is treated as U. Irs e file 2013 S. Irs e file 2013 source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. Irs e file 2013 This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. Irs e file 2013 Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. Irs e file 2013 S. Irs e file 2013 state, or a U. Irs e file 2013 S. Irs e file 2013 possession, you generally must follow those laws to determine the income of yourself and your spouse for U. Irs e file 2013 S. Irs e file 2013 tax purposes. Irs e file 2013 But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. Irs e file 2013 S. Irs e file 2013 citizen or resident and you do not both choose to be treated as U. Irs e file 2013 S. Irs e file 2013 residents as explained in chapter 1. Irs e file 2013 In these cases, you and your spouse must report community income as explained later. Irs e file 2013 Earned income. Irs e file 2013   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. Irs e file 2013 That spouse must report all of it on his or her separate return. Irs e file 2013 Trade or business income. Irs e file 2013   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. Irs e file 2013 That spouse must report all of it on his or her separate return. Irs e file 2013 Partnership income (or loss). Irs e file 2013   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. Irs e file 2013 The partner must report all of it on his or her separate return. Irs e file 2013 Separate property income. Irs e file 2013   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. Irs e file 2013 That spouse must report all of it on his or her separate return. Irs e file 2013 Use the appropriate community property law to determine what is separate property. Irs e file 2013 Other community income. Irs e file 2013   All other community income is treated as provided by the applicable community property laws. Irs e file 2013 Prev  Up  Next   Home   More Online Publications