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Taxes For Military Members

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Taxes For Military Members

Taxes for military members 3. Taxes for military members   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. Taxes for military members Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. Taxes for military members Certain contracts held by a charitable remainder trust. Taxes for military members Excise Taxes. Taxes for military members Indoor tanning services. Taxes for military members Application for Recognition of ExemptionPolitical activity. Taxes for military members Private delivery service. Taxes for military members Amendments to organizing documents required. Taxes for military members How to show reasonable action and good faith. Taxes for military members Not acting reasonably and in good faith. Taxes for military members Prejudicing the interest of the Government. Taxes for military members Procedure for requesting extension. Taxes for military members More information. Taxes for military members Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. Taxes for military members Grass roots expenditures. Taxes for military members Lobbying nontaxable amount. Taxes for military members Grass roots nontaxable amount. Taxes for military members Organization that no longer qualifies. Taxes for military members Tax on organization. Taxes for military members Tax on managers. Taxes for military members Taxes on organizations. Taxes for military members Taxes on managers. Taxes for military members Political expenditures. Taxes for military members Correction of expenditure. Taxes for military members Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. Taxes for military members Religious. Taxes for military members Charitable. Taxes for military members Scientific. Taxes for military members Testing for public safety. Taxes for military members Literary. Taxes for military members Educational. Taxes for military members Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). Taxes for military members The prevention of cruelty to children or animals. Taxes for military members To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. Taxes for military members A trust is a fund or foundation and will qualify. Taxes for military members However, an individual or a partnership will not qualify. Taxes for military members Examples. Taxes for military members   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. Taxes for military members Child care organizations. Taxes for military members   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. Taxes for military members Instrumentalities. Taxes for military members   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Taxes for military members Examples of a qualifying instrumentality might include state schools, universities, or hospitals. Taxes for military members However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. Taxes for military members A state or municipality itself does not qualify for exemption. Taxes for military members Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. Taxes for military members Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. Taxes for military members Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. Taxes for military members Fundraising events. Taxes for military members   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. Taxes for military members This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. Taxes for military members   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. Taxes for military members If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. Taxes for military members You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. Taxes for military members See Disclosure of Quid Pro Quo Contributions in chapter 2. Taxes for military members Exemption application not filed. Taxes for military members   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. Taxes for military members Separate fund—contributions that are deductible. Taxes for military members   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Taxes for military members   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. Taxes for military members A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. Taxes for military members Personal benefit contracts. Taxes for military members   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. Taxes for military members   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. Taxes for military members Certain annuity contracts. Taxes for military members   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). Taxes for military members Certain contracts held by a charitable remainder trust. Taxes for military members   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. Taxes for military members Excise tax. Taxes for military members   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. Taxes for military members The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. Taxes for military members Excise Taxes. Taxes for military members   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Taxes for military members Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. Taxes for military members Indoor tanning services. Taxes for military members   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. Taxes for military members For more information, go to IRS. Taxes for military members gov and select Affordable Care Act Tax Provisions. Taxes for military members Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. Taxes for military members For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. Taxes for military members See the organization headings that follow for specific information your organization may need to provide. Taxes for military members Form 1023. Taxes for military members   Your organization must file its application for recognition of exemption on Form 1023. Taxes for military members See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. Taxes for military members Some organizations are not required to file Form 1023. Taxes for military members See Organizations Not Required To File Form 1023, later. Taxes for military members    Additional information to help you complete your application can be found online. Taxes for military members Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. Taxes for military members See Exemption Requirements - Section 501(c)(3) Organizations. Taxes for military members   Form 1023 and accompanying statements must show that all of the following are true. Taxes for military members The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. Taxes for military members ) specified in the introduction to this chapter. Taxes for military members No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. Taxes for military members You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. Taxes for military members The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. Taxes for military members See Political activity, next, and Lobbying Expenditures , near the end of this chapter. Taxes for military members Political activity. Taxes for military members   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Taxes for military members Such participation or intervention includes the publishing or distributing of statements. Taxes for military members   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Taxes for military members Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. Taxes for military members Effective date of exemption. Taxes for military members   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. Taxes for military members These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. Taxes for military members If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. Taxes for military members Otherwise, exemption will be recognized only from the date of receipt. Taxes for military members The date of receipt is the date of the U. Taxes for military members S. Taxes for military members postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. Taxes for military members Private delivery service. Taxes for military members   If a private delivery service designated by the IRS, rather than the U. Taxes for military members S. Taxes for military members Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. Taxes for military members The following private delivery services have been designated by the IRS. Taxes for military members DHL Express (DHL): DHL “Same Day” Service. Taxes for military members Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Taxes for military members United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Taxes for military members M. Taxes for military members , UPS Worldwide Express Plus, and UPS Worldwide Express. Taxes for military members Amendments to organizing documents required. Taxes for military members   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. Taxes for military members If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. Taxes for military members Extensions of time for filing. Taxes for military members   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. Taxes for military members Automatic 12-month extension. Taxes for military members Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. Taxes for military members To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. Taxes for military members 9100-2. Taxes for military members ” Discretionary extensions. Taxes for military members An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. Taxes for military members How to show reasonable action and good faith. Taxes for military members   An organization acted reasonably and showed good faith if at least one of the following is true. Taxes for military members The organization requests relief before its failure to file is discovered by the IRS. Taxes for military members The organization failed to file because of intervening events beyond its control. Taxes for military members The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. Taxes for military members The organization reasonably relied upon the written advice of the IRS. Taxes for military members The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. Taxes for military members An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. Taxes for military members Not acting reasonably and in good faith. Taxes for military members   An organization has not acted reasonably and in good faith under the following circumstances. Taxes for military members It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. Taxes for military members It was informed of the requirement to file and related tax consequences, but chose not to file. Taxes for military members It uses hindsight in requesting relief. Taxes for military members The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. Taxes for military members Prejudicing the interest of the Government. Taxes for military members   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. Taxes for military members Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. Taxes for military members The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. Taxes for military members The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. Taxes for military members Procedure for requesting extension. Taxes for military members   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. Taxes for military members A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. Taxes for military members Any documents relevant to the application. Taxes for military members An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. Taxes for military members If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. Taxes for military members This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Taxes for military members ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. Taxes for military members This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. Taxes for military members The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. Taxes for military members These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Taxes for military members ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. Taxes for military members The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. Taxes for military members The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. Taxes for military members   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. Taxes for military members Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. Taxes for military members More information. Taxes for military members   For more information about these procedures, see Regulations sections 301. Taxes for military members 9100-1, 301. Taxes for military members 9100-2, 301. Taxes for military members 9100-3, Revenue Procedure 2013-4, section 6. Taxes for military members 04, 2013-1 I. Taxes for military members R. Taxes for military members B. Taxes for military members 126, and Revenue Procedure 2013-8, 2013-1 I. Taxes for military members R. Taxes for military members B. Taxes for military members 237. Taxes for military members See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. Taxes for military members Notification from the IRS. Taxes for military members   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. Taxes for military members Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. Taxes for military members These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. Taxes for military members Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). Taxes for military members These organizations are exempt automatically if they meet the requirements of section 501(c)(3). Taxes for military members Filing Form 1023 to establish exemption. Taxes for military members   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. Taxes for military members By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. Taxes for military members A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. Taxes for military members Private foundations. Taxes for military members   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. Taxes for military members Gross receipts test. Taxes for military members   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. Taxes for military members   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. Taxes for military members For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. Taxes for military members The organization must file Form 1023 within 90 days after the end of its second tax year. Taxes for military members   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. Taxes for military members However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. Taxes for military members Example. Taxes for military members   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. Taxes for military members It was incorporated on January 1, 2009, and files returns on a calendar-year basis. Taxes for military members It did not file a Form 1023. Taxes for military members The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. Taxes for military members Therefore, it did not have to file Form 1023 and is exempt for those years. Taxes for military members However, for 2010, 2011, and 2012 the total gross receipts were $15,900. Taxes for military members Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. Taxes for military members If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. Taxes for military members The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. Taxes for military members   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. Taxes for military members See the procedures for this extension discussed earlier. Taxes for military members Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. Taxes for military members This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. Taxes for military members Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. Taxes for military members These conditions for exemption are referred to as the organizational test. Taxes for military members Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Taxes for military members Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). Taxes for military members The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Taxes for military members Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Taxes for military members Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. Taxes for military members In interpreting an organization's articles, the law of the state where the organization was created is controlling. Taxes for military members If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. Taxes for military members The following are examples illustrating the organizational test. Taxes for military members Example 1. Taxes for military members Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). Taxes for military members These articles appropriately limit the organization's purposes. Taxes for military members The organization meets the organizational test. Taxes for military members Example 2. Taxes for military members An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. Taxes for military members The organization will not be properly limited as to its purposes since all research is not scientific. Taxes for military members The organization does not meet the organizational test. Taxes for military members Example 3. Taxes for military members An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). Taxes for military members The organization meets the organizational test. Taxes for military members Example 4. Taxes for military members If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. Taxes for military members Example 5. Taxes for military members If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. Taxes for military members On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. Taxes for military members Example 6. Taxes for military members If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. Taxes for military members Such purposes are vague and may be accomplished other than in an exempt manner. Taxes for military members Example 7. Taxes for military members A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. Taxes for military members A hospital may or may not be exempt depending on the manner in which it is operated. Taxes for military members Example 8. Taxes for military members An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. Taxes for military members Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. Taxes for military members This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. Taxes for military members If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. Taxes for military members Dedication. Taxes for military members   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. Taxes for military members Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. Taxes for military members Distribution. Taxes for military members   Revenue Procedure 82-2, 1982-1 C. Taxes for military members B. Taxes for military members 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. Taxes for military members The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. Taxes for military members   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. Taxes for military members Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. Taxes for military members Sample articles of organization. Taxes for military members   See sample articles of organization in the Appendix in the back of this publication. Taxes for military members Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. Taxes for military members In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. Taxes for military members You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. Taxes for military members If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. Taxes for military members See also Private Schools , discussed later. Taxes for military members Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. Taxes for military members Advocacy of a position. Taxes for military members   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. Taxes for military members The mere presentation of unsupported opinion is not educational. Taxes for military members Method not educational. Taxes for military members   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). Taxes for military members The following factors may indicate that the method is not educational. Taxes for military members The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. Taxes for military members The facts that purport to support the viewpoint are distorted. Taxes for military members The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. Taxes for military members The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. Taxes for military members   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. Taxes for military members Qualifying organizations. Taxes for military members   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. Taxes for military members College book stores, cafeterias, restaurants, etc. Taxes for military members   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. Taxes for military members Alumni association. Taxes for military members   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. Taxes for military members If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . Taxes for military members Athletic organization. Taxes for military members   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. Taxes for military members If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Taxes for military members Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. Taxes for military members If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. Taxes for military members Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. Taxes for military members The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. Taxes for military members (This information also must be projected, so far as may be feasible, for the next academic year. Taxes for military members ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. Taxes for military members A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. Taxes for military members A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. Taxes for military members The public school district and county in which the school is located. Taxes for military members How to determine racial composition. Taxes for military members   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. Taxes for military members Nevertheless, a statement of the method by which the racial composition was determined must be supplied. Taxes for military members The identity of individual students or members of the faculty and administrative staff should not be included with this information. Taxes for military members   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. Taxes for military members Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Taxes for military members Also, the school must circulate information that clearly states the school's admission policies. Taxes for military members A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. Taxes for military members The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. Taxes for military members The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Taxes for military members Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. Taxes for military members A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. Taxes for military members A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. Taxes for military members Policy statement. Taxes for military members   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Taxes for military members Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. Taxes for military members Publicity requirement. Taxes for military members   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Taxes for military members Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. Taxes for military members To satisfy this requirement, the school must use one of the following two methods. Taxes for military members Method one. Taxes for military members   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. Taxes for military members Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Taxes for military members When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. Taxes for military members If this method is used, the notice must meet the following printing requirements. Taxes for military members It must appear in a section of the newspaper likely to be read by prospective students and their families. Taxes for military members It must occupy at least 3 column inches. Taxes for military members It must have its title printed in at least 12 point bold face type. Taxes for military members It must have the remaining text printed in at least 8 point type. Taxes for military members The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. Taxes for military members It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. Taxes for military members   Method two. Taxes for military members   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. Taxes for military members If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. Taxes for military members In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. Taxes for military members The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. Taxes for military members Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Taxes for military members Exceptions. Taxes for military members   The publicity requirements will not apply in the following situations. Taxes for military members First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. Taxes for military members These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. Taxes for military members If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. Taxes for military members Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . Taxes for military members   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. Taxes for military members The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. Taxes for military members   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. Taxes for military members Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. Taxes for military members   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. Taxes for military members The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. Taxes for military members In this regard, it is each school's responsibility to determine whether either of the exceptions applies. Taxes for military members Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. Taxes for military members Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. Taxes for military members Facilities and programs. Taxes for military members   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. Taxes for military members Scholarship and loan programs. Taxes for military members   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. Taxes for military members This must be known throughout the general community being served by the school and should be referred to in its publicity. Taxes for military members Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. Taxes for military members Certification. Taxes for military members   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. Taxes for military members   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. Taxes for military members Recordkeeping requirements. Taxes for military members With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. Taxes for military members Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. Taxes for military members Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. Taxes for military members Copies of all materials used by or on behalf of the school to solicit contributions. Taxes for military members Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. Taxes for military members (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. Taxes for military members ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. Taxes for military members However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. Taxes for military members The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Taxes for military members Similarly, the IRS does not require a school to keep records prohibited under state or federal law. Taxes for military members Exceptions. Taxes for military members   The school does not have to independently maintain these records for IRS use if both of the following are true. Taxes for military members Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. Taxes for military members The school maintains copies of these reports from which this information is readily obtainable. Taxes for military members If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. Taxes for military members Failure to maintain records. Taxes for military members   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. Taxes for military members Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. Taxes for military members However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. Taxes for military members Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). Taxes for military members Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. Taxes for military members Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Taxes for military members Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Taxes for military members The rest of this section contains a description of the information to be provided by certain specific organizations. Taxes for military members This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Taxes for military members Each of the following organizations must submit the information described. Taxes for military members Charitable organization supporting education. Taxes for military members   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. Taxes for military members Scholarships. Taxes for military members   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. Taxes for military members Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. Taxes for military members How and by whom the recipients are or will be selected. Taxes for military members If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. Taxes for military members If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. Taxes for military members A copy of the scholarship application form and any brochures or literature describing the scholarship program. Taxes for military members Hospital. Taxes for military members   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. Taxes for military members   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. Taxes for military members You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. Taxes for military members Submit also an appraisal showing the fair rental value of the rented space. Taxes for military members Clinic. Taxes for military members   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. Taxes for military members Home for the aged. Taxes for military members   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. Taxes for military members Community nursing bureau. Taxes for military members   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. Taxes for military members Organization providing loans. Taxes for military members   If you make, or will make, loans for charitable and educational purposes, submit the following information. Taxes for military members An explanation of the circumstances under which such loans are, or will be, made. Taxes for military members Criteria for selection, including the rules of eligibility. Taxes for military members How and by whom the recipients are or will be selected. Taxes for military members Manner of repayment of the loan. Taxes for military members Security required, if any. Taxes for military members Interest charged, if any, and when payable. Taxes for military members Copies in duplicate of the loan application and any brochures or literature describing the loan program. Taxes for military members Public-interest law firms. Taxes for military members   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. Taxes for military members How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. Taxes for military members Whether the organization will accept fees for its services. Taxes for military members A description of the cases litigated or to be litigated and how they benefit the public generally. Taxes for military members Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. Taxes for military members Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. Taxes for military members Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. Taxes for military members Acceptance of attorneys' fees. Taxes for military members   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Taxes for military members Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. Taxes for military members   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. Taxes for military members All fee awards must be paid to the organization and not to its individual staff attorneys. Taxes for military members Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Taxes for military members Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. Taxes for military members   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. Taxes for military members   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. Taxes for military members Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. Taxes for military members That the particular religious beliefs of the organization are truly and sincerely held. Taxes for military members That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. Taxes for military members Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. Taxes for military members If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. Taxes for military members Churches. Taxes for military members   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. Taxes for military members In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. Taxes for military members   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. Taxes for military members Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. Taxes for military members The IRS considers the facts and circumstances of each organization applying for church status. Taxes for military members Convention or association of churches. Taxes for military members   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. Taxes for military members Integrated auxiliaries. Taxes for military members   An organization is an integrated auxiliary of a church if all the following are true. Taxes for military members The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). Taxes for military members It is affiliated with a church or a convention or association of churches. Taxes for military members It is internally supported. Taxes for military members An organization is internally supported unless both of the following are true. Taxes for military members It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). Taxes for military members It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. Taxes for military members Special rule. Taxes for military members   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. Taxes for military members   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. Taxes for military members   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. Taxes for military members Scientific Organizations You must show that your organization's research will be carried on in the public interest. Taxes for military members Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. Taxes for military members Aiding in the scientific education of college or university students. Taxes for military members Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th
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Alivio Tributario en Situaciones de Desastre para Personas y Negocios

English

Las provisiones especiales de impuesto podrían ayudar a los contribuyentes a recuperarse financieramente del impacto de un desastre, especialmente si el Presidente de los Estados Unidos declara su localidad como una Zona de Desastre. Dependiendo de las circunstancias, el IRS puede otorgar tiempo adicional para presentar la declaración federal y pagar los impuestos. Tanto los individuos como los negocios dentro de una zona designada por el Presidente como Zona de Desastre pueden obtener su reembolso más rápido reclamando las pérdidas relacionadas con el desastre en su declaración de impuestos para el año anterior, presentando una declaración enmendada.

 


Pérdidas por hechos fortuitos, desastres y robo, Tema Tributario 515
Cómo Reconstruir Sus Registros

 


Para mayor información:

Agencia Federal para el Manejo de Emergencias (FEMA)
GobiernoUSA.gov sobre Desastres y Emergencias&quot&gtInformación de GobiernoUSA.gov sobre Desastres y Emergencias

 


Publicaciones:

Publicación 547(SPP Hechos Fortuitos, Desastres y Robos
Publicación 584(SP) Registro de Pérdidas por Hechos Fortuitos (Imprevistos), Desastres y Robos (Propiedad de Uso Personal)
Publicación 3067 (SP) - Asistencia del IRS en Desastres
Publicación 1600(SP) Ayuda del IRS para contribuyentes afectados por desastres y pérdidas
Publicación 4492SP - Información para los Contribuyentes Afectados por los Huracanes Katrina, Rita y Wilma

 

 

Page Last Reviewed or Updated: 02-Dec-2013

The Taxes For Military Members

Taxes for military members 5. Taxes for military members   Business Income Table of Contents Introduction Kinds of IncomeBartering for Property or Services Real Estate Rents Personal Property Rents Interest and Dividend Income Canceled Debt Other Income Items That Are Not IncomeAmount you can exclude. Taxes for military members Short-term lease. Taxes for military members Retail space. Taxes for military members Qualified long-term real property. Taxes for military members Guidelines for Selected Occupations Accounting for Your Income Introduction This chapter primarily explains business income and how to account for it on your tax return, what items are not considered income, and gives guidelines for selected occupations. Taxes for military members If there is a connection between any income you receive and your business, the income is business income. Taxes for military members A connection exists if it is clear that the payment of income would not have been made if you did not have the business. Taxes for military members You can have business income even if you are not involved in the activity on a regular full-time basis. Taxes for military members Income from work you do on the side in addition to your regular job can be business income. Taxes for military members You report most business income, such as income from selling your products or services, on Schedule C or C-EZ. Taxes for military members But you report the income from the sale of business assets, such as land and office buildings, on other forms instead of Schedule C or C-EZ. Taxes for military members For information on selling business assets, see chapter 3. Taxes for military members Nonemployee compensation. Taxes for military members Business income includes amounts you received in your business that were properly shown on Forms 1099-MISC. Taxes for military members This includes amounts reported as nonemployee compensation in box 7 of the form. Taxes for military members You can find more information in the instructions on the back of the Form 1099-MISC you received. Taxes for military members Kinds of Income You must report on your tax return all income you receive from your business unless it is excluded by law. Taxes for military members In most cases, your business income will be in the form of cash, checks, and credit card charges. Taxes for military members But business income can be in other forms, such as property or services. Taxes for military members These and other types of income are explained next. Taxes for military members If you are a U. Taxes for military members S. Taxes for military members citizen who has business income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt from tax under U. Taxes for military members S. Taxes for military members law. Taxes for military members If you live outside the United States, you may be able to exclude part or all of your foreign-source business income. Taxes for military members For details, see Publication 54, Tax Guide for U. Taxes for military members S. Taxes for military members Citizens and Resident Aliens Abroad. Taxes for military members Bartering for Property or Services Bartering is an exchange of property or services. Taxes for military members You must include in your gross receipts, at the time received, the fair market value of property or services you receive in exchange for something else. Taxes for military members If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as the fair market value unless the value can be shown to be otherwise. Taxes for military members Example 1. Taxes for military members You are a self-employed lawyer. Taxes for military members You perform legal services for a client, a small corporation. Taxes for military members In payment for your services, you receive shares of stock in the corporation. Taxes for military members You must include the fair market value of the shares in income. Taxes for military members Example 2. Taxes for military members You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. Taxes for military members You must include the fair rental value of the apartment in your gross receipts. Taxes for military members Your landlord must include the fair market value of the work of art in his or her rental income. Taxes for military members Example 3. Taxes for military members You are a self-employed accountant. Taxes for military members Both you and a house painter are members of a barter club, an organization that each year gives its members a directory of members and the services each member provides. Taxes for military members Members get in touch with other members directly and bargain for the value of the services to be performed. Taxes for military members In return for accounting services you provided for the house painter's business, the house painter painted your home. Taxes for military members You must include in gross receipts the fair market value of the services you received from the house painter. Taxes for military members The house painter must include the fair market value of your accounting services in his or her gross receipts. Taxes for military members Example 4. Taxes for military members You are a member of a barter club that uses credit units to credit or debit members' accounts for goods or services provided or received. Taxes for military members As soon as units are credited to your account, you can use them to buy goods or services or sell or transfer the units to other members. Taxes for military members You must include the value of credit units you received in your gross receipts for the tax year in which the units are credited to your account. Taxes for military members The dollar value of units received for services by an employee of the club, who can use the units in the same manner as other members, must be included in the employee's gross income for the tax year in which received. Taxes for military members It is wages subject to social security and Medicare taxes (FICA), federal unemployment taxes (FUTA), and income tax withholding. Taxes for military members See Publication 15 (Circular E), Employer's Tax Guide. Taxes for military members Example 5. Taxes for military members You operate a plumbing business and use the cash method of accounting. Taxes for military members You join a barter club and agree to provide plumbing services to any member for a specified number of hours. Taxes for military members Each member has access to a directory that lists the members of the club and the services available. Taxes for military members Members contact each other directly and request services to be performed. Taxes for military members You are not required to provide services unless requested by another member, but you can use as many of the offered services as you wish without paying a fee. Taxes for military members You must include the fair market value of any services you receive from club members in your gross receipts when you receive them even if you have not provided any services to club members. Taxes for military members Information returns. Taxes for military members   If you are involved in a bartering transaction, you may have to file either of the following forms. Taxes for military members Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Taxes for military members Form 1099-MISC, Miscellaneous Income. Taxes for military members For information about these forms, see the General Instructions for Certain Information Returns. Taxes for military members Real Estate Rents If you are a real estate dealer who receives income from renting real property or an owner of a hotel, motel, etc. Taxes for military members , who provides services (maid services, etc. Taxes for military members ) for guests, report the rental income and expenses on Schedule C or C-EZ. Taxes for military members If you are not a real estate dealer or the kind of owner described in the preceding sentence, report the rental income and expenses on Schedule E. Taxes for military members For more information, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxes for military members Real estate dealer. Taxes for military members   You are a real estate dealer if you are engaged in the business of selling real estate to customers with the purpose of making a profit from those sales. Taxes for military members Rent you receive from real estate held for sale to customers is subject to SE tax. Taxes for military members However, rent you receive from real estate held for speculation or investment is not subject to SE tax. Taxes for military members Trailer park owner. Taxes for military members   Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants. Taxes for military members    You generally are considered to provide substantial services for tenants if they are primarily for the tenants' convenience and normally are not provided to maintain the lots in a condition for occupancy. Taxes for military members Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments. Taxes for military members   Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers. Taxes for military members   Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways. Taxes for military members Hotels, boarding houses, and apartments. Taxes for military members   Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Taxes for military members   Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. Taxes for military members An example of a service that is not normally provided for the convenience of the occupants is maid service. Taxes for military members However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience. Taxes for military members Prepaid rent. Taxes for military members   Advance payments received under a lease that does not put any restriction on their use or enjoyment are income in the year you receive them. Taxes for military members This is true no matter what accounting method or period you use. Taxes for military members Lease bonus. Taxes for military members   A bonus you receive from a lessee for granting a lease is an addition to the rent. Taxes for military members Include it in your gross receipts in the year received. Taxes for military members Lease cancellation payments. Taxes for military members   Report payments you receive from your lessee for canceling a lease in your gross receipts in the year received. Taxes for military members Payments to third parties. Taxes for military members   If your lessee makes payments to someone else under an agreement to pay your debts or obligations, include the payments in your gross receipts when the lessee makes the payments. Taxes for military members A common example of this kind of income is a lessee's payment of your property taxes on leased real property. Taxes for military members Settlement payments. Taxes for military members   Payments you receive in settlement of a lessee's obligation to restore the leased property to its original condition are income in the amount that the payments exceed the adjusted basis of the leasehold improvements destroyed, damaged, removed, or disconnected by the lessee. Taxes for military members Personal Property Rents If you are in the business of renting personal property (equipment, vehicles, formal wear, etc. Taxes for military members ), include the rental amount you receive in your gross receipts on Schedule C or C-EZ. Taxes for military members Prepaid rent and other payments described in the preceding Real Estate Rents discussion can also be received for renting personal property. Taxes for military members If you receive any of those payments, include them in your gross receipts as explained in that discussion. Taxes for military members Interest and Dividend Income Interest and dividends may be considered business income. Taxes for military members Interest. Taxes for military members   Interest received on notes receivable that you have accepted in the ordinary course of business is business income. Taxes for military members Interest received on loans is business income if you are in the business of lending money. Taxes for military members Uncollectible loans. Taxes for military members   If a loan payable to you becomes uncollectible during the tax year and you use an accrual method of accounting, you must include in gross income interest accrued up to the time the loan became uncollectible. Taxes for military members If the accrued interest later becomes uncollectible, you may be able to take a bad debt deduction. Taxes for military members See Bad Debts in chapter 8. Taxes for military members Unstated interest. Taxes for military members   If little or no interest is charged on an installment sale, you may have to treat a part of each payment as unstated interest. Taxes for military members See Unstated Interest and Original Issue Discount (OID) in Publication 537, Installment Sales. Taxes for military members Dividends. Taxes for military members   Generally, dividends are business income to dealers in securities. Taxes for military members For most sole proprietors and statutory employees, however, dividends are nonbusiness income. Taxes for military members If you hold stock as a personal investment separately from your business activity, the dividends from the stock are nonbusiness income. Taxes for military members   If you receive dividends from business insurance premiums you deducted in an earlier year, you must report all or part of the dividend as business income on your return. Taxes for military members To find out how much you have to report, see   Recovery of items previously deducted under Other Income, later. Taxes for military members Canceled Debt The following explains the general rule for including canceled debt in income and the exceptions to the general rule. Taxes for military members General Rule Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes. Taxes for military members Report the canceled amount on line 6 of Schedule C if you incurred the debt in your business. Taxes for military members If the debt is a nonbusiness debt, report the canceled amount on line 21 of Form 1040. Taxes for military members Exceptions The following discussion covers some exceptions to the general rule for canceled debt. Taxes for military members Price reduced after purchase. Taxes for military members   If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally do not have income from the reduction. Taxes for military members Unless you are bankrupt or insolvent, treat the amount of the reduction as a purchase price adjustment and reduce your basis in the property. Taxes for military members Deductible debt. Taxes for military members   You do not realize income from a canceled debt to the extent the payment of the debt would have led to a deduction. Taxes for military members Example. Taxes for military members You get accounting services for your business on credit. Taxes for military members Later, you have trouble paying your business debts, but you are not bankrupt or insolvent. Taxes for military members Your accountant forgives part of the amount you owe for the accounting services. Taxes for military members How you treat the canceled debt depends on your method of accounting. Taxes for military members Cash method — You do not include the canceled debt in income because payment of the debt would have been deductible as a business expense. Taxes for military members Accrual method — You include the canceled debt in income because the expense was deductible when you incurred the debt. Taxes for military members   For information on the cash and accrual methods of accounting, see chapter 2. Taxes for military members Exclusions Do not include canceled debt in income in the following situations. Taxes for military members However, you may be required to file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Taxes for military members For more information, see Form 982. Taxes for military members The cancellation takes place in a bankruptcy case under title 11 of the U. Taxes for military members S. Taxes for military members Code (relating to bankruptcy). Taxes for military members See Publication 908, Bankruptcy Tax Guide. Taxes for military members The cancellation takes place when you are insolvent. Taxes for military members You can exclude the canceled debt to the extent you are insolvent. Taxes for military members See Publication 908. Taxes for military members The canceled debt is a qualified farm debt owed to a qualified person. Taxes for military members See chapter 3 in Publication 225, Farmer's Tax Guide. Taxes for military members The canceled debt is a qualified real property business debt. Taxes for military members This situation is explained later. Taxes for military members The canceled debt is qualified principal residence indebtedness which is discharged after 2006. Taxes for military members See Form 982. Taxes for military members If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 through 5 do not apply. Taxes for military members If it takes place when you are insolvent, the exclusions in situations 3 and 4 do not apply to the extent you are insolvent. Taxes for military members Debt. Taxes for military members   For purposes of this discussion, debt includes any debt for which you are liable or which attaches to property you hold. Taxes for military members Qualified real property business debt. Taxes for military members   You can elect to exclude (up to certain limits) the cancellation of qualified real property business debt. Taxes for military members If you make the election, you must reduce the basis of your depreciable real property by the amount excluded. Taxes for military members Make this reduction at the beginning of your tax year following the tax year in which the cancellation occurs. Taxes for military members However, if you dispose of the property before that time, you must reduce its basis immediately before the disposition. Taxes for military members Cancellation of qualified real property business debt. Taxes for military members   Qualified real property business debt is debt (other than qualified farm debt) that meets all the following conditions. Taxes for military members It was incurred or assumed in connection with real property used in a trade or business. Taxes for military members It was secured by such real property. Taxes for military members It was incurred or assumed at either of the following times. Taxes for military members Before January 1, 1993. Taxes for military members After December 31, 1992, if incurred or assumed to acquire, construct, or substantially improve the real property. Taxes for military members It is debt to which you choose to apply these rules. Taxes for military members   Qualified real property business debt includes refinancing of debt described in (3) earlier, but only to the extent it does not exceed the debt being refinanced. Taxes for military members   You cannot exclude more than either of the following amounts. Taxes for military members The excess (if any) of: The outstanding principal of qualified real property business debt (immediately before the cancellation), over The fair market value (immediately before the cancellation) of the business real property that is security for the debt, reduced by the outstanding principal amount of any other qualified real property business debt secured by this property immediately before the cancellation. Taxes for military members The total adjusted bases of depreciable real property held by you immediately before the cancellation. Taxes for military members These adjusted bases are determined after any basis reduction due to a cancellation in bankruptcy, insolvency, or of qualified farm debt. Taxes for military members Do not take into account depreciable real property acquired in contemplation of the cancellation. Taxes for military members Election. Taxes for military members   To make this election, complete Form 982 and attach it to your income tax return for the tax year in which the cancellation occurs. Taxes for military members You must file your return by the due date (including extensions). Taxes for military members If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Taxes for military members For more information, see When To File in the form instructions. Taxes for military members Other Income The following discussion explains how to treat other types of business income you may receive. Taxes for military members Restricted property. Taxes for military members   Restricted property is property that has certain restrictions that affect its value. Taxes for military members If you receive restricted stock or other property for services performed, the fair market value of the property in excess of your cost is included in your income on Schedule C or C-EZ when the restriction is lifted. Taxes for military members However, you can choose to be taxed in the year you receive the property. Taxes for military members For more information on including restricted property in income, see Publication 525, Taxable and Nontaxable Income. Taxes for military members Gains and losses. Taxes for military members   Do not report on Schedule C or C-EZ a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. Taxes for military members Instead, you must report these gains and losses on other forms. Taxes for military members For more information, see chapter 3. Taxes for military members Promissory notes. Taxes for military members   Report promissory notes and other evidences of debt issued to you in a sale or exchange of property that is stock in trade or held primarily for sale to customers on Schedule C or C-EZ. Taxes for military members In general, you report them at their stated principal amount (minus any unstated interest) when you receive them. Taxes for military members Lost income payments. Taxes for military members   If you reduce or stop your business activities, report on Schedule C or C-EZ any payment you receive for the lost income of your business from insurance or other sources. Taxes for military members Report it on Schedule C or C-EZ even if your business is inactive when you receive the payment. Taxes for military members Damages. Taxes for military members   You must include in gross income compensation you receive during the tax year as a result of any of the following injuries connected with your business. Taxes for military members Patent infringement. Taxes for military members Breach of contract or fiduciary duty. Taxes for military members Antitrust injury. Taxes for military members Economic injury. Taxes for military members   You may be entitled to a deduction against the income if it compensates you for actual economic injury. Taxes for military members Your deduction is the smaller of the following amounts. Taxes for military members The amount you receive or accrue for damages in the tax year reduced by the amount you pay or incur in the tax year to recover that amount. Taxes for military members Your loss from the injury that you have not yet deducted. Taxes for military members Punitive damages. Taxes for military members   You must also include punitive damages in income. Taxes for military members Kickbacks. Taxes for military members   If you receive any kickbacks, include them in your income on Schedule C or C-EZ. Taxes for military members However, do not include them if you properly treat them as a reduction of a related expense item, a capital expenditure, or cost of goods sold. Taxes for military members Recovery of items previously deducted. Taxes for military members   If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C or C-EZ. Taxes for military members However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. Taxes for military members If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. Taxes for military members Example. Taxes for military members Joe Smith, a sole proprietor, had gross income of $8,000, a bad debt deduction of $300, and other allowable deductions of $7,700. Taxes for military members He also had 2 personal exemptions for a total of $7,800. Taxes for military members He would not pay income tax even if he did not deduct the bad debt. Taxes for military members Therefore, he will not report as income any part of the $300 he may recover in any future year. Taxes for military members Exception for depreciation. Taxes for military members   This rule does not apply to depreciation. Taxes for military members You recover depreciation using the rules explained next. Taxes for military members Recapture of depreciation. Taxes for military members   In the following situations, you have to recapture the depreciation deduction. Taxes for military members This means you include in income part or all of the depreciation you deducted in previous years. Taxes for military members Listed property. Taxes for military members   If your business use of listed property (explained in chapter 8 under Depreciation ) falls to 50% or less in a tax year after the tax year you placed the property in service, you may have to recapture part of the depreciation deduction. Taxes for military members You do this by including in income on Schedule C part of the depreciation you deducted in previous years. Taxes for military members Use Part IV of Form 4797, Sales of Business Property, to figure the amount to include on Schedule C. Taxes for military members For more information, see What is the Business-Use Requirement? in chapter 5 of Publication 946, How To Depreciate Property. Taxes for military members That chapter explains how to determine whether property is used more than 50% in your business. Taxes for military members Section 179 property. Taxes for military members   If you take a section 179 deduction (explained in chapter 8 under Depreciation ) for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section 179 deduction. Taxes for military members You do this by including in income on Schedule C part of the deduction you took. Taxes for military members Use Part IV of Form 4797 to figure the amount to include on Schedule C. Taxes for military members See chapter 2 in Publication 946 to find out when you recapture the deduction. Taxes for military members Sale or exchange of depreciable property. Taxes for military members   If you sell or exchange depreciable property at a gain, you may have to treat all or part of the gain due to depreciation as ordinary income. Taxes for military members You figure the income due to depreciation recapture in Part III of Form 4797. Taxes for military members For more information, see chapter 4 in Publication 544, Sales and Other Dispositions of Assets. Taxes for military members Items That Are Not Income In some cases the property or money you receive is not income. Taxes for military members Appreciation. Taxes for military members   Increases in value of your property are not income until you realize the increases through a sale or other taxable disposition. Taxes for military members Consignments. Taxes for military members   Consignments of merchandise to others to sell for you are not sales. Taxes for military members The title of merchandise remains with you, the consignor, even after the consignee possesses the merchandise. Taxes for military members Therefore, if you ship goods on consignment, you have no profit or loss until the consignee sells the merchandise. Taxes for military members Merchandise you have shipped out on consignment is included in your inventory until it is sold. Taxes for military members   Do not include merchandise you receive on consignment in your inventory. Taxes for military members Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use. Taxes for military members Construction allowances. Taxes for military members   If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord if you receive it under both the following conditions. Taxes for military members Under a short-term lease of retail space. Taxes for military members For the purpose of constructing or improving qualified long-term real property for use in your business at that retail space. Taxes for military members Amount you can exclude. Taxes for military members   You can exclude the construction allowance to the extent it does not exceed the amount you spent for construction or improvements. Taxes for military members Short-term lease. Taxes for military members   A short-term lease is a lease (or other agreement for occupancy or use) of retail space for 15 years or less. Taxes for military members The following rules apply in determining whether the lease is for 15 years or less. Taxes for military members Take into account options to renew when figuring whether the lease is for 15 years or less. Taxes for military members But do not take into account any option to renew at fair market value determined at the time of renewal. Taxes for military members Two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar retail space are treated as one lease. Taxes for military members Retail space. Taxes for military members   Retail space is real property leased, occupied, or otherwise used by you as a tenant in your business of selling tangible personal property or services to the general public. Taxes for military members Qualified long-term real property. Taxes for military members   Qualified long-term real property is nonresidential real property that is part of, or otherwise present at, your retail space and that reverts to the landlord when the lease ends. Taxes for military members Exchange of like-kind property. Taxes for military members   If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, no gain or loss is recognized. Taxes for military members This means that the gain is not taxable and the loss is not deductible. Taxes for military members A common type of nontaxable exchange is the trade-in of a business automobile for another business automobile. Taxes for military members For more information, see Form 8824. Taxes for military members Leasehold improvements. Taxes for military members   If a tenant erects buildings or makes improvements to your property, the increase in the value of the property due to the improvements is not income to you. Taxes for military members However, if the facts indicate that the improvements are a payment of rent to you, then the increase in value would be income. Taxes for military members Loans. Taxes for military members   Money borrowed through a bona fide loan is not income. Taxes for military members Sales tax. Taxes for military members   State and local sales taxes imposed on the buyer, which you were required to collect and pay over to state or local governments, are not income. Taxes for military members Guidelines for Selected Occupations This section provides information to determine whether your earnings should be reported on Schedule C (Form 1040) or C-EZ (Form 1040). Taxes for military members Direct seller. Taxes for military members   You must report all income you receive as a direct seller on Schedule C or C-EZ. Taxes for military members This includes any of the following. Taxes for military members Income from sales—payments you receive from customers for products they buy from you. Taxes for military members Commissions, bonuses, or percentages you receive for sales and the sales of others who work under you. Taxes for military members Prizes, awards, and gifts you receive from your selling business. Taxes for military members You must report this income regardless of whether it is reported to you on an information return. Taxes for military members   You are a direct seller if you meet all the following conditions. Taxes for military members You are engaged in one of the following trades or businesses. Taxes for military members Selling or soliciting the sale of consumer products either in a home or other place that is not a permanent retail establishment, or to any buyer on a buy-sell basis or a deposit-commission basis for resale in a home or other place of business that is not a permanent retail establishment. Taxes for military members Delivering or distributing newspapers or shopping news (including any services directly related to that trade or business). Taxes for military members Substantially all your pay (whether paid in cash or not) for services described above is directly related to sales or other output (including performance of services) rather than to the number of hours worked. Taxes for military members Your services are performed under a written contract between you and the person for whom you perform the services, and the contract provides that you will not be treated as an employee for federal tax purposes. Taxes for military members Executor or administrator. Taxes for military members   If you administer a deceased person's estate, your fees are reported on Schedule C or C-EZ if you are one of the following: A professional fiduciary. Taxes for military members A nonprofessional fiduciary (personal representative) and both of the following apply. Taxes for military members The estate includes an active trade or business in which you actively participate. Taxes for military members Your fees are related to the operation of that trade or business. Taxes for military members A nonprofessional fiduciary of a single estate that requires extensive managerial activities on your part for a long period of time, provided these activities are enough to be considered a trade or business. Taxes for military members    If the fees do not meet the above requirements, report them on line 21 of Form 1040. Taxes for military members Fishing crew member. Taxes for military members    If you are a member of the crew that catches fish or other water life, your earnings are reported on Schedule C or C-EZ if you meet all the requirements shown in chapter 10 under Fishing crew member . Taxes for military members Insurance agent, former. Taxes for military members   Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met. Taxes for military members You received payments after your agreement to perform services for the company ended. Taxes for military members You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment. Taxes for military members You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended. Taxes for military members The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both. Taxes for military members The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). Taxes for military members Insurance agent, retired. Taxes for military members   Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Taxes for military members Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ. Taxes for military members   However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ. Taxes for military members Newspaper carrier or distributor. Taxes for military members   You are a direct seller and your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Taxes for military members You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts). Taxes for military members Substantially all your pay for these services directly relates to your sales or other output rather than to the number of hours you work. Taxes for military members You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Taxes for military members   This rule applies whether or not you hire others to help you make deliveries. Taxes for military members It also applies whether you buy the papers from the publisher or are paid based on the number of papers you deliver. Taxes for military members Newspaper or magazine vendor. Taxes for military members   If you are 18 or older and you sell newspapers or magazines, your earnings are reported on Schedule C or C-EZ if all the following conditions apply. Taxes for military members You sell newspapers or magazines to ultimate consumers. Taxes for military members You sell them at a fixed price. Taxes for military members Your earnings are based on the difference between the sales price and your cost of goods sold. Taxes for military members   This rule applies whether or not you are guaranteed a minimum amount of earnings. Taxes for military members It also applies whether or not you receive credit for unsold newspapers or magazines you return to your supplier. Taxes for military members Notary public. Taxes for military members   Fees you receive for services you perform as a notary public are reported on Schedule C or C-EZ. Taxes for military members These payments are not subject to self-employment tax (see the instructions for Schedule SE (Form 1040)). Taxes for military members Public official. Taxes for military members   Public officials generally do not report what they earn for serving in public office on Schedule C or C-EZ. Taxes for military members This rule applies to payments received by an elected tax collector from state funds on the basis of a fixed percentage of the taxes collected. Taxes for military members Public office includes any elective or appointive office of the United States or its possessions, the District of Columbia, a state or its political subdivisions, or a wholly owned instrumentality of any of these. Taxes for military members   Public officials of state or local governments report their fees on Schedule C or C-EZ if they are paid solely on a fee basis and if their services are eligible for, but not covered by, social security under a federal-state agreement. Taxes for military members Real estate agent or direct seller. Taxes for military members   If you are a licensed real estate agent or a direct seller, your earnings are reported on Schedule C or C-EZ if both the following apply. Taxes for military members Substantially all your pay for services as a real estate agent or direct seller directly relates to your sales or other output rather than to the number of hours you work. Taxes for military members You perform the services under a written contract that says you will not be treated as an employee for federal tax purposes. Taxes for military members Securities dealer. Taxes for military members   If you are a dealer in options or commodities, your gains and losses from dealing or trading in section 1256 contracts (regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts) or property related to those contracts (such as stock used to hedge options) are reported on Schedule C or C-EZ. Taxes for military members For more information, see sections 1256 and 1402(i). Taxes for military members Securities trader. Taxes for military members   You are a trader in securities if you are engaged in the business of buying and selling securities for your own account. Taxes for military members As a trader in securities, your gain or loss from the disposition of securities is not reported on Schedule C or C-EZ. Taxes for military members However, see Securities dealer , earlier, for an exception that applies to section 1256 contracts. Taxes for military members For more information about securities traders, see Publication 550, Investment Income and Expenses. Taxes for military members Accounting for Your Income Accounting for your income for income tax purposes differs at times from accounting for financial purposes. Taxes for military members This section discusses some of the more common differences that may affect business transactions. Taxes for military members Figure your business income on the basis of a tax year and according to your regular method of accounting (see chapter 2). Taxes for military members If the sale of a product is an income-producing factor in your business, you usually have to use inventories to clearly show your income. Taxes for military members Dealers in real estate are not allowed to use inventories. Taxes for military members For more information on inventories, see chapter 2. Taxes for military members Income paid to a third party. Taxes for military members   All income you earn is taxable to you. Taxes for military members You cannot avoid tax by having the income paid to a third party. Taxes for military members Example. Taxes for military members You rent out your property and the rental agreement directs the lessee to pay the rent to your son. Taxes for military members The amount paid to your son is gross income to you. Taxes for military members Cash discounts. Taxes for military members   These are amounts the seller permits you to deduct from the invoice price for prompt payment. Taxes for military members For income tax purposes, you can use either of the following two methods to account for cash discounts. Taxes for military members Deduct the cash discount from purchases (see Line 36, Purchases Less Cost of Items Withdrawn for Personal Use in chapter 6). Taxes for military members Credit the cash discount to a discount income account. Taxes for military members You must use the chosen method every year for all your purchase discounts. Taxes for military members   If you use the second method, the credit balance in the account at the end of your tax year is business income. Taxes for military members Under this method, you do not reduce the cost of goods sold by the cash discounts you received. Taxes for military members When valuing your closing inventory, you cannot reduce the invoice price of merchandise on hand at the close of the tax year by the average or estimated discounts received on the merchandise. Taxes for military members Trade discounts. Taxes for military members   These are reductions from list or catalog prices and usually are not written into the invoice or charged to the customer. Taxes for military members Do not enter these discounts on your books of account. Taxes for military members Instead, use only the net amount as the cost of the merchandise purchased. Taxes for military members For more information, see Trade discounts in chapter 6. Taxes for military members Payment placed in escrow. Taxes for military members   If the buyer of your property places part or all of the purchase price in escrow, you do not include any part of it in gross sales until you actually or constructively receive it. Taxes for military members However, upon completion of the terms of the contract and the escrow agreement, you will have taxable income, even if you do not accept the money until the next year. Taxes for military members Sales returns and allowances. Taxes for military members   Credits you allow customers for returned merchandise and any other allowances you make on sales are deductions from gross sales in figuring net sales. Taxes for military members Advance payments. Taxes for military members   Special rules dealing with an accrual method of accounting for payments received in advance are discussed in chapter 2 under Accrual Method. Taxes for military members Insurance proceeds. Taxes for military members   If you receive insurance or another type of reimbursement for a casualty or theft loss, you must subtract it from the loss when you figure your deduction. Taxes for military members You cannot deduct the reimbursed part of a casualty or theft loss. Taxes for military members   For information on casualty or theft losses, see Publication 547, Casualties, Disasters, and Thefts. Taxes for military members Prev  Up  Next   Home   More Online Publications