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New taxes 2. New taxes   Ordinary or Capital Gain or Loss Table of Contents IntroductionSection 1231 transactions. New taxes Topics - This chapter discusses: Useful Items - You may want to see: Capital Assets Noncapital AssetsCommodities derivative dealer. New taxes Sales and Exchanges Between Related PersonsGain Is Ordinary Income Nondeductible Loss Other DispositionsSale of a Business Dispositions of Intangible Property Subdivision of Land Timber Precious Metals and Stones, Stamps, and Coins Coal and Iron Ore Conversion Transactions Introduction You must classify your gains and losses as either ordinary or capital (and your capital gains or losses as either short-term or long-term). New taxes You must do this to figure your net capital gain or loss. New taxes For individuals, a net capital gain may be taxed at a different tax rate than ordinary income. New taxes See Capital Gains Tax Rates in chapter 4. New taxes Your deduction for a net capital loss may be limited. New taxes See Treatment of Capital Losses in chapter 4. New taxes Capital gain or loss. New taxes   Generally, you will have a capital gain or loss if you sell or exchange a capital asset. New taxes You also may have a capital gain if your section 1231 transactions result in a net gain. New taxes Section 1231 transactions. New taxes   Section 1231 transactions are sales and exchanges of property held longer than 1 year and either used in a trade or business or held for the production of rents or royalties. New taxes They also include certain involuntary conversions of business or investment property, including capital assets. New taxes See Section 1231 Gains and Losses in chapter 3 for more information. New taxes Topics - This chapter discusses: Capital assets Noncapital assets Sales and exchanges between  related persons Other dispositions Useful Items - You may want to see: Publication 550 Investment Income and Expenses Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 4797 Sales of Business Property 8594 Asset Acquisition Statement Under Section 1060 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. New taxes Capital Assets Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. New taxes For exceptions, see Noncapital Assets, later. New taxes The following items are examples of capital assets. New taxes Stocks and bonds. New taxes A home owned and occupied by you and your family. New taxes Timber grown on your home property or investment property, even if you make casual sales of the timber. New taxes Household furnishings. New taxes A car used for pleasure or commuting. New taxes Coin or stamp collections. New taxes Gems and jewelry. New taxes Gold, silver, and other metals. New taxes Personal-use property. New taxes   Generally, property held for personal use is a capital asset. New taxes Gain from a sale or exchange of that property is a capital gain. New taxes Loss from the sale or exchange of that property is not deductible. New taxes You can deduct a loss relating to personal-use property only if it results from a casualty or theft. New taxes Investment property. New taxes   Investment property (such as stocks and bonds) is a capital asset, and a gain or loss from its sale or exchange is a capital gain or loss. New taxes This treatment does not apply to property used to produce rental income. New taxes See Business assets, later, under Noncapital Assets. New taxes Release of restriction on land. New taxes   Amounts you receive for the release of a restrictive covenant in a deed to land are treated as proceeds from the sale of a capital asset. New taxes Noncapital Assets A noncapital asset is property that is not a capital asset. New taxes The following kinds of property are not capital assets. New taxes Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business. New taxes Inventories are discussed in Publication 538, Accounting Periods and Methods. New taxes But, see the Tip below. New taxes Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of any properties described in (1), above. New taxes Depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later), even if the property is fully depreciated (or amortized). New taxes Sales of this type of property are discussed in chapter 3. New taxes Real property used in your trade or business or as rental property, even if the property is fully depreciated. New taxes A copyright; a literary, musical, or artistic composition; a letter; a memorandum; or similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs): Created by your personal efforts, Prepared or produced for you (in the case of a letter, memorandum, or similar property), or Received from a person who created the property or for whom the property was prepared under circumstances (for example, by gift) entitling you to the basis of the person who created the property, or for whom it was prepared or produced. New taxes But, see the Tip below. New taxes U. New taxes S. New taxes Government publications you got from the government for free or for less than the normal sales price or that you acquired under circumstances entitling you to the basis of someone who got the publications for free or for less than the normal sales price. New taxes Any commodities derivative financial instrument (discussed later) held by a commodities derivatives dealer unless it meets both of the following requirements. New taxes It is established to the satisfaction of the IRS that the instrument has no connection to the activities of the dealer as a dealer. New taxes The instrument is clearly identified in the dealer's records as meeting (a) by the end of the day on which it was acquired, originated, or entered into. New taxes Any hedging transaction (defined later) that is clearly identified as a hedging transaction by the end of the day on which it was acquired, originated, or entered into. New taxes Supplies of a type you regularly use or consume in the ordinary course of your trade or business. New taxes You can elect to treat as capital assets certain self-created musical compositions or copyrights you sold or exchanged. New taxes See chapter 4 of Publication 550 for details. New taxes Property held mainly for sale to customers. New taxes   Stock in trade, inventory, and other property you hold mainly for sale to customers in your trade or business are not capital assets. New taxes Inventories are discussed in Publication 538. New taxes Business assets. New taxes   Real property and depreciable property used in your trade or business or as rental property (including section 197 intangibles defined later under Dispositions of Intangible Property) are not capital assets. New taxes The sale or disposition of business property is discussed in chapter 3. New taxes Letters and memoranda. New taxes   Letters, memoranda, and similar property (such as drafts of speeches, recordings, transcripts, manuscripts, drawings, or photographs) are not treated as capital assets (as discussed earlier) if your personal efforts created them or if they were prepared or produced for you. New taxes Nor is this property a capital asset if your basis in it is determined by reference to the person who created it or the person for whom it was prepared. New taxes For this purpose, letters and memoranda addressed to you are considered prepared for you. New taxes If letters or memoranda are prepared by persons under your administrative control, they are considered prepared for you whether or not you review them. New taxes Commodities derivative financial instrument. New taxes   A commodities derivative financial instrument is a commodities contract or other financial instrument for commodities (other than a share of corporate stock, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract) the value or settlement price of which is calculated or determined by reference to a specified index (as defined in section 1221(b) of the Internal Revenue Code). New taxes Commodities derivative dealer. New taxes   A commodities derivative dealer is a person who regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business. New taxes Hedging transaction. New taxes   A hedging transaction is any transaction you enter into in the normal course of your trade or business primarily to manage any of the following. New taxes Risk of price changes or currency fluctuations involving ordinary property you hold or will hold. New taxes Risk of interest rate or price changes or currency fluctuations for borrowings you make or will make, or ordinary obligations you incur or will incur. New taxes Sales and Exchanges Between Related Persons This section discusses the rules that may apply to the sale or exchange of property between related persons. New taxes If these rules apply, gains may be treated as ordinary income and losses may not be deductible. New taxes See Transfers to Spouse in chapter 1 for rules that apply to spouses. New taxes Gain Is Ordinary Income If a gain is recognized on the sale or exchange of property to a related person, the gain may be ordinary income even if the property is a capital asset. New taxes It is ordinary income if the sale or exchange is a depreciable property transaction or a controlled partnership transaction. New taxes Depreciable property transaction. New taxes   Gain on the sale or exchange of property, including a leasehold or a patent application, that is depreciable property in the hands of the person who receives it is ordinary income if the transaction is either directly or indirectly between any of the following pairs of entities. New taxes A person and the person's controlled entity or entities. New taxes A taxpayer and any trust in which the taxpayer (or his or her spouse) is a beneficiary unless the beneficiary's interest in the trust is a remote contingent interest; that is, the value of the interest computed actuarially is 5% or less of the value of the trust property. New taxes An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest (a bequest for a sum of money). New taxes An employer (or any person related to the employer under rules (1), (2), or (3)) and a welfare benefit fund (within the meaning of section 419(e) of the Internal Revenue Code) that is controlled directly or indirectly by the employer (or any person related to the employer). New taxes Controlled entity. New taxes   A person's controlled entity is either of the following. New taxes A corporation in which more than 50% of the value of all outstanding stock, or a partnership in which more than 50% of the capital interest or profits interest, is directly or indirectly owned by or for that person. New taxes An entity whose relationship with that person is one of the following. New taxes A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. New taxes Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 50%” is substituted for “at least 80%” in that definition. New taxes Two S corporations, if the same persons own more than 50% in value of the outstanding stock of each corporation. New taxes Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. New taxes Controlled partnership transaction. New taxes   A gain recognized in a controlled partnership transaction may be ordinary income. New taxes The gain is ordinary income if it results from the sale or exchange of property that, in the hands of the party who receives it, is a noncapital asset such as trade accounts receivable, inventory, stock in trade, or depreciable or real property used in a trade or business. New taxes   A controlled partnership transaction is a transaction directly or indirectly between either of the following pairs of entities. New taxes A partnership and a person who directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. New taxes Two partnerships, if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. New taxes Determining ownership. New taxes   In the transactions under Depreciable property transaction and Controlled partnership transaction, earlier, use the following rules to determine the ownership of stock or a partnership interest. New taxes Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. New taxes (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. New taxes ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. New taxes Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. New taxes For purposes of applying (1) or (2), above, stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. New taxes But stock or a partnership interest constructively owned by an individual under (2) is not treated as owned by the individual for reapplying (2) to make another person the constructive owner of that stock or partnership interest. New taxes Nondeductible Loss A loss on the sale or exchange of property between related persons is not deductible. New taxes This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. New taxes For the list of related persons, see Related persons next. New taxes If a sale or exchange is between any of these related persons and involves the lump-sum sale of a number of blocks of stock or pieces of property, the gain or loss must be figured separately for each block of stock or piece of property. New taxes The gain on each item is taxable. New taxes The loss on any item is nondeductible. New taxes Gains from the sales of any of these items may not be offset by losses on the sales of any of the other items. New taxes Related persons. New taxes   The following is a list of related persons. New taxes Members of a family, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. New taxes ), and lineal descendants (children, grandchildren, etc. New taxes ). New taxes An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. New taxes Two corporations that are members of the same controlled group as defined in section 267(f) of the Internal Revenue Code. New taxes A trust fiduciary and a corporation if the trust or the grantor of the trust directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. New taxes A grantor and fiduciary, and the fiduciary and beneficiary, of any trust. New taxes Fiduciaries of two different trusts, and the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts. New taxes A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization, or a member of that person's family. New taxes A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest or profits interest in the partnership. New taxes Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation. New taxes Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. New taxes An executor and a beneficiary of an estate unless the sale or exchange is in satisfaction of a pecuniary bequest. New taxes Two partnerships if the same persons directly or indirectly own more than 50% of the capital interests or profits interests in both partnerships. New taxes A person and a partnership if the person directly or indirectly owns more than 50% of the capital interest or profits interest in the partnership. New taxes Partnership interests. New taxes   The nondeductible loss rule does not apply to a sale or exchange of an interest in the partnership between the related persons described in (12) or (13) above. New taxes Controlled groups. New taxes   Losses on transactions between members of the same controlled group described in (3) earlier are deferred rather than denied. New taxes   For more information, see section 267(f) of the Internal Revenue Code. New taxes Ownership of stock or partnership interests. New taxes   In determining whether an individual directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership for a loss on a sale or exchange, the following rules apply. New taxes Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. New taxes (However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more in value of the stock of the corporation. New taxes ) An individual is considered as owning the stock or partnership interest directly or indirectly owned by or for his or her family. New taxes Family includes only brothers, sisters, half-brothers, half-sisters, spouse, ancestors, and lineal descendants. New taxes An individual owning (other than by applying (2)) any stock in a corporation is considered to own the stock directly or indirectly owned by or for his or her partner. New taxes For purposes of applying (1), (2), or (3), stock or a partnership interest constructively owned by a person under (1) is treated as actually owned by that person. New taxes But stock or a partnership interest constructively owned by an individual under (2) or (3) is not treated as owned by the individual for reapplying either (2) or (3) to make another person the constructive owner of that stock or partnership interest. New taxes Indirect transactions. New taxes   You cannot deduct your loss on the sale of stock through your broker if under a prearranged plan a related person or entity buys the same stock you had owned. New taxes This does not apply to a cross-trade between related parties through an exchange that is purely coincidental and is not prearranged. New taxes Property received from a related person. New taxes   If, in a purchase or exchange, you received property from a related person who had a loss that was not allowable and you later sell or exchange the property at a gain, you recognize the gain only to the extent it is more than the loss previously disallowed to the related person. New taxes This rule applies only to the original transferee. New taxes Example 1. New taxes Your brother sold stock to you for $7,600. New taxes His cost basis was $10,000. New taxes His loss of $2,400 was not deductible. New taxes You later sell the same stock to an unrelated party for $10,500, realizing a gain of $2,900 ($10,500 − $7,600). New taxes Your recognized gain is only $500, the gain that is more than the $2,400 loss not allowed to your brother. New taxes Example 2. New taxes Assume the same facts as in Example 1, except that you sell the stock for $6,900 instead of $10,500. New taxes Your recognized loss is only $700 ($7,600 − $6,900). New taxes You cannot deduct the loss not allowed to your brother. New taxes Other Dispositions This section discusses rules for determining the treatment of gain or loss from various dispositions of property. New taxes Sale of a Business The sale of a business usually is not a sale of one asset. New taxes Instead, all the assets of the business are sold. New taxes Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss. New taxes A business usually has many assets. New taxes When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. New taxes The gain or loss on each asset is figured separately. New taxes The sale of capital assets results in capital gain or loss. New taxes The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction (discussed in chapter 3). New taxes The sale of inventory results in ordinary income or loss. New taxes Partnership interests. New taxes   An interest in a partnership or joint venture is treated as a capital asset when sold. New taxes The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. New taxes For more information, see Disposition of Partner's Interest in Publication 541. New taxes Corporation interests. New taxes   Your interest in a corporation is represented by stock certificates. New taxes When you sell these certificates, you usually realize capital gain or loss. New taxes For information on the sale of stock, see chapter 4 in Publication 550. New taxes Corporate liquidations. New taxes   Corporate liquidations of property generally are treated as a sale or exchange. New taxes Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. New taxes Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value. New taxes   In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. New taxes For more information, see section 332 of the Internal Revenue Code and the related regulations. New taxes Allocation of consideration paid for a business. New taxes   The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. New taxes Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method (explained later) to allocate the consideration to each business asset transferred. New taxes This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. New taxes It also determines the buyer's basis in the business assets. New taxes Consideration. New taxes   The buyer's consideration is the cost of the assets acquired. New taxes The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets. New taxes Residual method. New taxes   The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. New taxes This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. New taxes Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code. New taxes   A group of assets constitutes a trade or business if either of the following applies. New taxes Goodwill or going concern value could, under any circumstances, attach to them. New taxes The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code. New taxes   The residual method provides for the consideration to be reduced first by the amount of Class I assets (defined below). New taxes The consideration remaining after this reduction must be allocated among the various business assets in a certain order. New taxes See Classes of assets next for the complete order. New taxes Classes of assets. New taxes   The following definitions are the classifications for deemed or actual asset acquisitions. New taxes Allocate the consideration among the assets in the following order. New taxes The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date. New taxes The amount you can allocate to an asset also is subject to any applicable limits under the Internal Revenue Code or general principles of tax law. New taxes Class I assets are cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposit). New taxes Class II assets are certificates of deposit, U. New taxes S. New taxes Government securities, foreign currency, and actively traded personal property, including stock and securities. New taxes Class III assets are accounts receivable, other debt instruments, and assets that you mark to market at least annually for federal income tax purposes. New taxes However, see section 1. New taxes 338-6(b)(2)(iii) of the regulations for exceptions that apply to debt instruments issued by persons related to a target corporation, contingent debt instruments, and debt instruments convertible into stock or other property. New taxes Class IV assets are property of a kind that would properly be included in inventory if on hand at the end of the tax year or property held by the taxpayer primarily for sale to customers in the ordinary course of business. New taxes Class V assets are all assets other than Class I, II, III, IV, VI, and VII assets. New taxes    Note. New taxes Furniture and fixtures, buildings, land, vehicles, and equipment, which constitute all or part of a trade or business are generally Class V assets. New taxes Class VI assets are section 197 intangibles (other than goodwill and going concern value). New taxes Class VII assets are goodwill and going concern value (whether the goodwill or going concern value qualifies as a section 197 intangible). New taxes   If an asset described in one of the classifications described above can be included in more than one class, include it in the lower numbered class. New taxes For example, if an asset is described in both Class II and Class IV, choose Class II. New taxes Example. New taxes The total paid in the sale of the assets of Company SKB is $21,000. New taxes No cash or deposit accounts or similar accounts were sold. New taxes The company's U. New taxes S. New taxes Government securities sold had a fair market value of $3,200. New taxes The only other asset transferred (other than goodwill and going concern value) was inventory with a fair market value of $15,000. New taxes Of the $21,000 paid for the assets of Company SKB, $3,200 is allocated to U. New taxes S. New taxes Government securities, $15,000 to inventory assets, and the remaining $2,800 to goodwill and going concern value. New taxes Agreement. New taxes   The buyer and seller may enter into a written agreement as to the allocation of any consideration or the fair market value of any of the assets. New taxes This agreement is binding on both parties unless the IRS determines the amounts are not appropriate. New taxes Reporting requirement. New taxes   Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. New taxes Use Form 8594, Asset Acquisition Statement Under Section 1060, to provide this information. New taxes Generally, the buyer and seller should each attach Form 8594 to their federal income tax return for the year in which the sale occurred. New taxes See the Instructions for Form 8594. New taxes Dispositions of Intangible Property Intangible property is any personal property that has value but cannot be seen or touched. New taxes It includes such items as patents, copyrights, and the goodwill value of a business. New taxes Gain or loss on the sale or exchange of amortizable or depreciable intangible property held longer than 1 year (other than an amount recaptured as ordinary income) is a section 1231 gain or loss. New taxes The treatment of section 1231 gain or loss and the recapture of amortization and depreciation as ordinary income are explained in chapter 3. New taxes See chapter 8 of Publication 535, Business Expenses, for information on amortizable intangible property and chapter 1 of Publication 946, How To Depreciate Property, for information on intangible property that can and cannot be depreciated. New taxes Gain or loss on dispositions of other intangible property is ordinary or capital depending on whether the property is a capital asset or a noncapital asset. New taxes The following discussions explain special rules that apply to certain dispositions of intangible property. New taxes Section 197 Intangibles Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (after July 25, 1991, if chosen), and held in connection with the conduct of a trade or business or an activity entered into for profit whose costs are amortized over 15 years. New taxes They include the following assets. New taxes Goodwill. New taxes Going concern value. New taxes Workforce in place. New taxes Business books and records, operating systems, and other information bases. New taxes Patents, copyrights, formulas, processes, designs, patterns, know how, formats, and similar items. New taxes Customer-based intangibles. New taxes Supplier-based intangibles. New taxes Licenses, permits, and other rights granted by a governmental unit. New taxes Covenants not to compete entered into in connection with the acquisition of a business. New taxes Franchises, trademarks, and trade names. New taxes See chapter 8 of Publication 535 for a description of each intangible. New taxes Dispositions. New taxes   You cannot deduct a loss from the disposition or worthlessness of a section 197 intangible you acquired in the same transaction (or series of related transactions) as another section 197 intangible you still hold. New taxes Instead, you must increase the adjusted basis of your retained section 197 intangible by the nondeductible loss. New taxes If you retain more than one section 197 intangible, increase each intangible's adjusted basis. New taxes Figure the increase by multiplying the nondeductible loss by a fraction, the numerator (top number) of which is the retained intangible's adjusted basis on the date of the loss and the denominator (bottom number) of which is the total adjusted basis of all retained intangibles on the date of the loss. New taxes   In applying this rule, members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity. New taxes For example, a corporation cannot deduct a loss on the sale of a section 197 intangible if, after the sale, a member of the same controlled group retains other section 197 intangibles acquired in the same transaction as the intangible sold. New taxes Covenant not to compete. New taxes   A covenant not to compete (or similar arrangement) that is a section 197 intangible cannot be treated as disposed of or worthless before you have disposed of your entire interest in the trade or business for which the covenant was entered into. New taxes Members of the same controlled group of corporations and commonly controlled businesses are treated as a single entity in determining whether a member has disposed of its entire interest in a trade or business. New taxes Anti-churning rules. New taxes   Anti-churning rules prevent a taxpayer from converting section 197 intangibles that do not qualify for amortization into property that would qualify for amortization. New taxes However, these rules do not apply to part of the basis of property acquired by certain related persons if the transferor elects to do both the following. New taxes Recognize gain on the transfer of the property. New taxes Pay income tax on the gain at the highest tax rate. New taxes   If the transferor is a partnership or S corporation, the partnership or S corporation (not the partners or shareholders) can make the election. New taxes But each partner or shareholder must pay the tax on his or her share of gain. New taxes   To make the election, you, as the transferor, must attach a statement containing certain information to your income tax return for the year of the transfer. New taxes You must file the tax return by the due date (including extensions). New taxes You must also notify the transferee of the election in writing by the due date of the return. New taxes   If you timely filed your return without making the election, you can make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). New taxes Attach the statement to the amended return and write “Filed pursuant to section 301. New taxes 9100-2” at the top of the statement. New taxes File the amended return at the same address the original return was filed. New taxes For more information about making the election, see Regulations section 1. New taxes 197-2(h)(9). New taxes For information about reporting the tax on your income tax return, see the Instructions for Form 4797. New taxes Patents The transfer of a patent by an individual is treated as a sale or exchange of a capital asset held longer than 1 year. New taxes This applies even if the payments for the patent are made periodically during the transferee's use or are contingent on the productivity, use, or disposition of the patent. New taxes For information on the treatment of gain or loss on the transfer of capital assets, see chapter 4. New taxes This treatment applies to your transfer of a patent if you meet all the following conditions. New taxes You are the holder of the patent. New taxes You transfer the patent other than by gift, inheritance, or devise. New taxes You transfer all substantial rights to the patent or an undivided interest in all such rights. New taxes You do not transfer the patent to a related person. New taxes Holder. New taxes   You are the holder of a patent if you are either of the following. New taxes The individual whose effort created the patent property and who qualifies as the original and first inventor. New taxes The individual who bought an interest in the patent from the inventor before the invention was tested and operated successfully under operating conditions and who is neither related to, nor the employer of, the inventor. New taxes All substantial rights. New taxes   All substantial rights to patent property are all rights that have value when they are transferred. New taxes A security interest (such as a lien), or a reservation calling for forfeiture for nonperformance, is not treated as a substantial right for these rules and may be kept by you as the holder of the patent. New taxes   All substantial rights to a patent are not transferred if any of the following apply to the transfer. New taxes The rights are limited geographically within a country. New taxes The rights are limited to a period less than the remaining life of the patent. New taxes The rights are limited to fields of use within trades or industries and are less than all the rights that exist and have value at the time of the transfer. New taxes The rights are less than all the claims or inventions covered by the patent that exist and have value at the time of the transfer. New taxes Related persons. New taxes   This tax treatment does not apply if the transfer is directly or indirectly between you and a related person as defined earlier in the list under Nondeductible Loss, with the following changes. New taxes Members of your family include your spouse, ancestors, and lineal descendants, but not your brothers, sisters, half-brothers, or half-sisters. New taxes Substitute “25% or more” ownership for “more than 50%. New taxes ”   If you fit within the definition of a related person independent of family status, the brother-sister exception in (1), earlier, does not apply. New taxes For example, a transfer between a brother and a sister as beneficiary and fiduciary of the same trust is a transfer between related persons. New taxes The brother-sister exception does not apply because the trust relationship is independent of family status. New taxes Franchise, Trademark, or Trade Name If you transfer or renew a franchise, trademark, or trade name for a price contingent on its productivity, use, or disposition, the amount you receive generally is treated as an amount realized from the sale of a noncapital asset. New taxes A franchise includes an agreement that gives one of the parties the right to distribute, sell, or provide goods, services, or facilities within a specified area. New taxes Significant power, right, or continuing interest. New taxes   If you keep any significant power, right, or continuing interest in the subject matter of a franchise, trademark, or trade name that you transfer or renew, the amount you receive is ordinary royalty income rather than an amount realized from a sale or exchange. New taxes   A significant power, right, or continuing interest in a franchise, trademark, or trade name includes, but is not limited to, the following rights in the transferred interest. New taxes A right to disapprove any assignment of the interest, or any part of it. New taxes A right to end the agreement at will. New taxes A right to set standards of quality for products used or sold, or for services provided, and for the equipment and facilities used to promote such products or services. New taxes A right to make the recipient sell or advertise only your products or services. New taxes A right to make the recipient buy most supplies and equipment from you. New taxes A right to receive payments based on the productivity, use, or disposition of the transferred item of interest if those payments are a substantial part of the transfer agreement. New taxes Subdivision of Land If you own a tract of land and, to sell or exchange it, you subdivide it into individual lots or parcels, the gain normally is ordinary income. New taxes However, you may receive capital gain treatment on at least part of the proceeds provided you meet certain requirements. New taxes See section 1237 of the Internal Revenue Code. New taxes Timber Standing timber held as investment property is a capital asset. New taxes Gain or loss from its sale is reported as a capital gain or loss on Form 8949, and Schedule D (Form 1040), as applicable. New taxes If you held the timber primarily for sale to customers, it is not a capital asset. New taxes Gain or loss on its sale is ordinary business income or loss. New taxes It is reported in the gross receipts or sales and cost of goods sold items of your return. New taxes Farmers who cut timber on their land and sell it as logs, firewood, or pulpwood usually have no cost or other basis for that timber. New taxes These sales constitute a very minor part of their farm businesses. New taxes In these cases, amounts realized from such sales, and the expenses of cutting, hauling, etc. New taxes , are ordinary farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming. New taxes Different rules apply if you owned the timber longer than 1 year and elect to either: Treat timber cutting as a sale or exchange, or Enter into a cutting contract. New taxes Timber is considered cut on the date when, in the ordinary course of business, the quantity of felled timber is first definitely determined. New taxes This is true whether the timber is cut under contract or whether you cut it yourself. New taxes Under the rules discussed below, disposition of the timber is treated as a section 1231 transaction. New taxes See chapter 3. New taxes Gain or loss is reported on Form 4797. New taxes Christmas trees. New taxes   Evergreen trees, such as Christmas trees, that are more than 6 years old when severed from their roots and sold for ornamental purposes are included in the term timber. New taxes They qualify for both rules discussed below. New taxes Election to treat cutting as a sale or exchange. New taxes   Under the general rule, the cutting of timber results in no gain or loss. New taxes It is not until a sale or exchange occurs that gain or loss is realized. New taxes But if you owned or had a contractual right to cut timber, you can elect to treat the cutting of timber as a section 1231 transaction in the year the timber is cut. New taxes Even though the cut timber is not actually sold or exchanged, you report your gain or loss on the cutting for the year the timber is cut. New taxes Any later sale results in ordinary business income or loss. New taxes See Example, later. New taxes   To elect this treatment, you must: Own or hold a contractual right to cut the timber for a period of more than 1 year before it is cut, and Cut the timber for sale or for use in your trade or business. New taxes Making the election. New taxes   You make the election on your return for the year the cutting takes place by including in income the gain or loss on the cutting and including a computation of the gain or loss. New taxes You do not have to make the election in the first year you cut timber. New taxes You can make it in any year to which the election would apply. New taxes If the timber is partnership property, the election is made on the partnership return. New taxes This election cannot be made on an amended return. New taxes   Once you have made the election, it remains in effect for all later years unless you cancel it. New taxes   If you previously elected to treat the cutting of timber as a sale or exchange, you may revoke this election without the consent of the IRS. New taxes The prior election (and revocation) is disregarded for purposes of making a subsequent election. New taxes See Form T (Timber), Forest Activities Schedule, for more information. New taxes Gain or loss. New taxes   Your gain or loss on the cutting of standing timber is the difference between its adjusted basis for depletion and its fair market value on the first day of your tax year in which it is cut. New taxes   Your adjusted basis for depletion of cut timber is based on the number of units (feet board measure, log scale, or other units) of timber cut during the tax year and considered to be sold or exchanged. New taxes Your adjusted basis for depletion is also based on the depletion unit of timber in the account used for the cut timber, and should be figured in the same manner as shown in section 611 of the Internal Revenue Code and the related regulations. New taxes   Timber depletion is discussed in chapter 9 of Publication 535. New taxes Example. New taxes In April 2013, you had owned 4,000 MBF (1,000 board feet) of standing timber longer than 1 year. New taxes It had an adjusted basis for depletion of $40 per MBF. New taxes You are a calendar year taxpayer. New taxes On January 1, 2013, the timber had a fair market value (FMV) of $350 per MBF. New taxes It was cut in April for sale. New taxes On your 2013 tax return, you elect to treat the cutting of the timber as a sale or exchange. New taxes You report the difference between the fair market value and your adjusted basis for depletion as a gain. New taxes This amount is reported on Form 4797 along with your other section 1231 gains and losses to figure whether it is treated as capital gain or as ordinary gain. New taxes You figure your gain as follows. New taxes FMV of timber January 1, 2013 $1,400,000 Minus: Adjusted basis for depletion 160,000 Section 1231 gain $1,240,000 The fair market value becomes your basis in the cut timber and a later sale of the cut timber including any by-product or tree tops will result in ordinary business income or loss. New taxes Outright sales of timber. New taxes   Outright sales of timber by landowners qualify for capital gains treatment using rules similar to the rules for certain disposal of timber under a contract with retained economic interest (defined below). New taxes However, for outright sales, the date of disposal is not deemed to be the date the timber is cut because the landowner can elect to treat the payment date as the date of disposal (see below). New taxes Cutting contract. New taxes   You must treat the disposal of standing timber under a cutting contract as a section 1231 transaction if all the following apply to you. New taxes You are the owner of the timber. New taxes You held the timber longer than 1 year before its disposal. New taxes You kept an economic interest in the timber. New taxes   You have kept an economic interest in standing timber if, under the cutting contract, the expected return on your investment is conditioned on the cutting of the timber. New taxes   The difference between the amount realized from the disposal of the timber and its adjusted basis for depletion is treated as gain or loss on its sale. New taxes Include this amount on Form 4797 along with your other section 1231 gains or losses to figure whether it is treated as capital or ordinary gain or loss. New taxes Date of disposal. New taxes   The date of disposal is the date the timber is cut. New taxes However, for outright sales by landowners or if you receive payment under the contract before the timber is cut, you can elect to treat the date of payment as the date of disposal. New taxes   This election applies only to figure the holding period of the timber. New taxes It has no effect on the time for reporting gain or loss (generally when the timber is sold or exchanged). New taxes   To make this election, attach a statement to the tax return filed by the due date (including extensions) for the year payment is received. New taxes The statement must identify the advance payments subject to the election and the contract under which they were made. New taxes   If you timely filed your return for the year you received payment without making the election, you still can make the election by filing an amended return within 6 months after the due date for that year's return (excluding extensions). New taxes Attach the statement to the amended return and write “Filed pursuant to section 301. New taxes 9100-2” at the top of the statement. New taxes File the amended return at the same address the original return was filed. New taxes Owner. New taxes   The owner of timber is any person who owns an interest in it, including a sublessor and the holder of a contract to cut the timber. New taxes You own an interest in timber if you have the right to cut it for sale on your own account or for use in your business. New taxes Tree stumps. New taxes   Tree stumps are a capital asset if they are on land held by an investor who is not in the timber or stump business as a buyer, seller, or processor. New taxes Gain from the sale of stumps sold in one lot by such a holder is taxed as a capital gain. New taxes However, tree stumps held by timber operators after the saleable standing timber was cut and removed from the land are considered by-products. New taxes Gain from the sale of stumps in lots or tonnage by such operators is taxed as ordinary income. New taxes   See Form T (Timber) and its separate instructions for more information about dispositions of timber. New taxes Precious Metals and Stones, Stamps, and Coins Gold, silver, gems, stamps, coins, etc. New taxes , are capital assets except when they are held for sale by a dealer. New taxes Any gain or loss from their sale or exchange generally is a capital gain or loss. New taxes If you are a dealer, the amount received from the sale is ordinary business income. New taxes Coal and Iron Ore You must treat the disposal of coal (including lignite) or iron ore mined in the United States as a section 1231 transaction if both the following apply to you. New taxes You owned the coal or iron ore longer than 1 year before its disposal. New taxes You kept an economic interest in the coal or iron ore. New taxes For this rule, the date the coal or iron ore is mined is considered the date of its disposal. New taxes Your gain or loss is the difference between the amount realized from disposal of the coal or iron ore and the adjusted basis you use to figure cost depletion (increased by certain expenses not allowed as deductions for the tax year). New taxes This amount is included on Form 4797 along with your other section 1231 gains and losses. New taxes You are considered an owner if you own or sublet an economic interest in the coal or iron ore in place. New taxes If you own only an option to buy the coal in place, you do not qualify as an owner. New taxes In addition, this gain or loss treatment does not apply to income realized by an owner who is a co-adventurer, partner, or principal in the mining of coal or iron ore. New taxes The expenses of making and administering the contract under which the coal or iron ore was disposed of and the expenses of preserving the economic interest kept under the contract are not allowed as deductions in figuring taxable income. New taxes Rather, their total, along with the adjusted depletion basis, is deducted from the amount received to determine gain. New taxes If the total of these expenses plus the adjusted depletion basis is more than the amount received, the result is a loss. New taxes Special rule. New taxes   The above treatment does not apply if you directly or indirectly dispose of the iron ore or coal to any of the following persons. New taxes A related person whose relationship to you would result in the disallowance of a loss (see Nondeductible Loss under Sales and Exchanges Between Related Persons, earlier). New taxes An individual, trust, estate, partnership, association, company, or corporation owned or controlled directly or indirectly by the same interests that own or control your business. New taxes Conversion Transactions Recognized gain on the disposition or termination of any position held as part of certain conversion transactions is treated as ordinary income. New taxes This applies if substantially all your expected return is attributable to the time value of your net investment (like interest on a loan) and the transaction is any of the following. New taxes An applicable straddle (generally, any set of offsetting positions with respect to personal property, including stock). New taxes A transaction in which you acquire property and, at or about the same time, you contract to sell the same or substantially identical property at a specified price. New taxes Any other transaction that is marketed and sold as producing capital gain from a transaction in which substantially all of your expected return is due to the time value of your net investment. New taxes For more information, see chapter 4 of Publication 550. New taxes Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Severe Storms, Tornadoes, Straight-line Winds and Flooding in Kentucky

Updated 3/13/2012 to include Grayson, Larue, Ohio, Russell and Trimble counties.
Updated 3/12/2012 to include Magoffin and Wolfe counties.
Updated 3/9/2012 to include Bath, Campbell, Carroll, Grant, Martin, Montgomery and Rowan counties.

KY-2012-08, March 7, 2012

DETROIT — Victims of the severe storms, tornadoes, straight-line winds and flooding that started on Feb. 29, 2012 in parts of Kentucky may qualify for tax relief from the Internal Revenue Service.

The President has declared Bath, Campbell, Carroll, Grant, Grayson, Johnson, Kenton, Larue, Laurel, Lawrence, Magoffin, Martin, Menifee, Montgomery, Morgan, Ohio, Pendleton, Rowan, Russell, Trimble and Wolfe counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Feb. 29, and on or before May 31, have been postponed to May 31, 2012. This includes the April 17 deadline for filing 2011 individual income tax returns, making income tax payments and making 2011 contributions to an individual retirement account (IRA).  

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Feb. 29, and on or before March 15, as long as the deposits are made by March 15, 2012.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until May 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Feb. 29 and on or before May 31.

The IRS also gives affected taxpayers until May 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Feb. 29 and on or before May 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Feb. 29 and on or before March 15 provided the taxpayer makes these deposits by March 15.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Kentucky, Severe Storms, Tornadoes, Straight-line Winds, and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 800-TAX-FORM (800-829-3676). The IRS toll-free number for general tax questions is 800-829-1040.

Related Information

Page Last Reviewed or Updated: 30-Jan-2014

The New Taxes

New taxes Publication 15-A - Introductory Material Table of Contents Future Developments What's New Reminders Introduction Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 15-A, such as legislation enacted after it was published, go to www. New taxes irs. New taxes gov/pub15a. New taxes What's New Social security and Medicare tax for 2014. New taxes  The social security tax rate is 6. New taxes 2% each for the employee and employer, unchanged from 2013. New taxes The social security wage base limit is $117,000. New taxes The Medicare tax rate is 1. New taxes 45% each for the employee and employer, unchanged from 2013. New taxes There is no wage base limit for Medicare tax. New taxes Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. New taxes Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. New taxes Withholding allowance. New taxes  The 2014 amount for one withholding allowance on an annual basis is $3,950. New taxes Same-sex marriage. New taxes  For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. New taxes For more information, see Revenue Ruling 2013-17, 2013-38 I. New taxes R. New taxes B. New taxes 201, available at www. New taxes irs. New taxes gov/irb/2013-38_IRB/ar07. New taxes html. New taxes Notice 2013-61 provides special administrative procedures for employers to make claims for refunds or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. New taxes Notice 2013-61, 2013-44 I. New taxes R. New taxes B. New taxes 432, is available at www. New taxes irs. New taxes gov/irb/2013-44_IRB/ar10. New taxes html. New taxes Reminders Additional Medicare Tax withholding. New taxes . New taxes  In addition to withholding Medicare tax at 1. New taxes 45%, you must withhold a 0. New taxes 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. New taxes You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. New taxes Additional Medicare Tax is only imposed on the employee. New taxes There is no employer share of Additional Medicare Tax. New taxes All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. New taxes For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. New taxes For more information on Additional Medicare Tax, visit IRS. New taxes gov and enter “Additional Medicare Tax” in the search box. New taxes Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. New taxes  The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. New taxes Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. New taxes For more information, visit IRS. New taxes gov and enter “work opportunity tax credit” in the search box. New taxes COBRA premium assistance credit. New taxes  The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months. New taxes For more information, see COBRA premium assistance credit in Publication 15 (Circular E). New taxes Federal tax deposits must be made by electronic funds transfer. New taxes  You must use electronic funds transfer to make all federal tax deposits. New taxes Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). New taxes If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. New taxes Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. New taxes EFTPS is a free service provided by the Department of Treasury. New taxes Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. New taxes For more information on making federal tax deposits, see How To Deposit in Publication 15 (Circular E). New taxes To get more information about EFTPS or to enroll in EFTPS, visit www. New taxes eftps. New taxes gov or call 1-800-555-4477 or 1-800-733-4829 (TDD). New taxes Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. New taxes You must receive written notice from the IRS to file Form 944. New taxes  If you have been filing Forms 941, Employer's QUARTERLY Federal Tax Return (or Forms 941-SS, Employer's QUARTERLY Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U. New taxes S. New taxes Virgin Islands, or Formularios 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono), and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941, you must contact the IRS to request to file Form 944. New taxes You must receive written notice from the IRS to file Form 944 instead of Forms 941 before you may file this form. New taxes For more information on requesting to file Form 944, visit IRS. New taxes gov and enter “file employment taxes annually” in the search box. New taxes Employers can request to file Forms 941 instead of Form 944. New taxes  If you received notice from the IRS and have been filing Form 944 but would like to file Forms 941 instead, you must contact the IRS to request to file Forms 941. New taxes You must receive written notice from the IRS to file Forms 941 instead of Form 944 before you may file these forms. New taxes For more information on requesting to file Form 944, visit IRS. New taxes gov and enter “file employment taxes annually” in the search box. New taxes Aggregate Form 941 filers. New taxes  Agents must complete Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, when filing an aggregate Form 941. New taxes Aggregate Forms 941 can only be filed by agents approved by the IRS under section 3504 of the Internal Revenue Code. New taxes To request approval to act as an agent for an employer, the agent must file Form 2678, Employer/Payer Appointment of Agent, with the IRS. New taxes Aggregate Form 940 filers. New taxes  Agents must complete Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, when filing an aggregate Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. New taxes Aggregate Forms 940 may only be filed by agents acting on behalf of home care service recipients who receive home care services through a program administered by a federal, state, or local government. New taxes To request approval to act as an agent on behalf of home care service recipients, the agent must file Form 2678 with the IRS. New taxes Electronic filing and payment. New taxes  Now, more than ever before, businesses can enjoy the benefits of filing and paying their federal taxes electronically. New taxes Whether you rely on a tax professional or handle your own taxes, the IRS offers you convenient programs to make filing and payment easier. New taxes Spend less time and worry about taxes and more time running your business. New taxes Use e-file and the Electronic Federal Tax Payment System (EFTPS) to your benefit. New taxes For e-file, visit www. New taxes irs. New taxes gov/efile for additional information. New taxes For EFTPS, visit www. New taxes eftps. New taxes gov or call EFTPS Customer Service at 1-800-555-4477 or 1-800-733-4829 (TDD). New taxes Electronic submission of Forms W-4, W-4P, W-4S and W-4V. New taxes  You may set up a system to electronically receive any or all of the following forms (and their Spanish versions, if available) from an employee or payee. New taxes Form W-4, Employee's Withholding Allowance Certificate. New taxes Form W-4P, Withholding Certificate for Pension or Annuity Payments. New taxes Form W-4S, Request for Federal Income Tax Withholding From Sick Pay. New taxes Form W-4V, Voluntary Withholding Request. New taxes For each form that you establish an electronic submission system for, you must meet each of the following five requirements. New taxes The electronic system must ensure that the information received by the payer is the information sent by the payee. New taxes The system must document all occasions of user access that result in a submission. New taxes In addition, the design and operation of the electronic system, including access procedures, must make it reasonably certain that the person accessing the system and submitting the form is the person identified on the form. New taxes The electronic system must provide exactly the same information as the paper form. New taxes The electronic submission must be signed with an electronic signature by the payee whose name is on the form. New taxes The electronic signature must be the final entry in the submission. New taxes Upon request, you must furnish a hard copy of any completed electronic form to the IRS and a statement that, to the best of the payer's knowledge, the electronic form was submitted by the named payee. New taxes The hard copy of the electronic form must provide exactly the same information as, but need not be a facsimile of, the paper form. New taxes For Form W-4, the signature must be under penalty of perjury, and must contain the same language that appears on the paper version of the form. New taxes The electronic system must inform the employee that he or she must make a declaration contained in the perjury statement and that the declaration is made by signing the Form W-4. New taxes You must also meet all recordkeeping requirements that apply to the paper forms. New taxes For more information, see: Regulations sections 31. New taxes 3402(f)(5)-1(c) (for Form W-4), and Announcement 99-6 (for Forms W-4P, W-4S, and W-4V). New taxes You can find Announcement 99-6 on page 24 of Internal Revenue Bulletin 1999-4 at www. New taxes irs. New taxes gov/pub/irs-irbs/irb99-04. New taxes pdf. New taxes Additional employment tax information. New taxes  Visit the IRS website at www. New taxes irs. New taxes gov/businesses and click on the Employment Taxes link under Businesses Topics. New taxes Telephone help. New taxes  You can call the IRS Business and Specialty Tax Line with your employment tax questions at 1-800-829-4933. New taxes Help for people with disabilities. New taxes  You may call 1-800-829-4059 (TDD/TTY for persons who are deaf, heard of hearing, or have a speech disability) with any tax question or to order forms and publications. New taxes You may also use this number for assistance with unresolved tax problems. New taxes Furnishing Form W-2 to employees electronically. New taxes  You may set up a system to furnish Form W-2, Wage and Tax Statement, electronically. New taxes Each employee participating must consent (either electronically or by paper document) to receive his or her Form W-2 electronically, and you must notify the employee of all hardware and software requirements to receive the form. New taxes You may not send a Form W-2 electronically to any employee who does not consent or who has revoked consent previously provided. New taxes To furnish Forms W-2 electronically, you must meet the following disclosure requirements and provide a clear and conspicuous statement of each requirement to your employees. New taxes The employee must be informed that he or she will receive a paper Form W-2 if consent is not given to receive it electronically. New taxes The employee must be informed of the scope and duration of the consent. New taxes The employee must be informed of any procedure for obtaining a paper copy of his or her Form W-2 and whether or not the request for a paper statement is treated as a withdrawal of his or her consent to receiving his or her Form W-2 electronically. New taxes The employee must be notified about how to withdraw a consent and the effective date and manner by which the employer will confirm the withdrawn consent. New taxes The employee must also be notified that the withdrawn consent does not apply to the previously issued Forms W-2. New taxes The employee must be informed about any conditions under which electronic Forms W-2 will no longer be furnished (for example, termination of employment). New taxes The employee must be informed of any procedures for updating his or her contact information that enables the employer to provide electronic Forms W-2. New taxes The employer must notify the employee of any changes to the employer's contact information. New taxes You must furnish electronic Forms W-2 by the same due date as the paper Forms W-2. New taxes For more information on furnishing Form W-2 to employees electronically, see Regulations section 31. New taxes 6051-1(j). New taxes Photographs of missing children. New taxes  The IRS is a proud partner with the National Center for Missing and Exploited Children. New taxes Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. New taxes You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. New taxes Introduction This publication supplements Publication 15 (Circular E). New taxes It contains specialized and detailed employment tax information supplementing the basic information provided in Publication 15 (Circular E). New taxes This publication also contains tables for withholding on distributions of Indian gaming profits to tribal members. New taxes Publication 15-B, Employer's Tax Guide to Fringe Benefits, contains information about the employment tax treatment of various types of noncash compensation. New taxes Ordering publications and forms. New taxes   See Ordering Employer Tax Forms and Publications in Publication 15 (Circular E) and How To Get Tax Help , later, for more information on how to obtain forms and publications. New taxes Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 505 Tax Withholding and Estimated Tax 515 Withholding of Tax on Nonresident Aliens and Foreign Entities 583 Starting a Business and Keeping Records 1635 Employer Identification Number: Understanding Your EIN Comments and suggestions. New taxes   We welcome your comments about this publication and your suggestions for future editions. New taxes    You can write to us at the following address: Internal Revenue Service Tax Forms & Publications Division 1111 Constitution Ave. New taxes NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. New taxes Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. New taxes   You can also send us comments from www. New taxes irs. New taxes gov/formspubs. New taxes Click on More Information and then click on Comment on Tax Forms and Publications. New taxes   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax forms, instructions, and publications. New taxes Prev  Up  Next   Home   More Online Publications