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1040x Amended Tax Return Form

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1040x Amended Tax Return Form

1040x amended tax return form 4. 1040x amended tax return form   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. 1040x amended tax return form Line of business. 1040x amended tax return form Examples. 1040x amended tax return form Improvement of business conditions. 1040x amended tax return form Exception for local legislation. 1040x amended tax return form De minimis exception. 1040x amended tax return form Grass roots lobbying. 1040x amended tax return form 501(c)(7) - Social and Recreation ClubsLimited membership. 1040x amended tax return form Support. 1040x amended tax return form Facilities open to public. 1040x amended tax return form Gross receipts from nonmembership sources. 1040x amended tax return form Gross receipts. 1040x amended tax return form Nontraditional activities. 1040x amended tax return form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. 1040x amended tax return form Losses and expenses. 1040x amended tax return form Distributions of proceeds. 1040x amended tax return form The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. 1040x amended tax return form Perpetual care organization. 1040x amended tax return form Care of individual plots. 1040x amended tax return form 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. 1040x amended tax return form 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. 1040x amended tax return form Waiver of payment of income. 1040x amended tax return form 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). 1040x amended tax return form Section 501(c)(3) organizations are covered in chapter 3 of this publication. 1040x amended tax return form The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. 1040x amended tax return form 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). 1040x amended tax return form The discussion that follows describes the information you must provide when applying. 1040x amended tax return form For application procedures, see chapter 1. 1040x amended tax return form To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. 1040x amended tax return form In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. 1040x amended tax return form If the organization provides an excess benefit to certain persons, an excise tax may be imposed. 1040x amended tax return form See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. 1040x amended tax return form Examples. 1040x amended tax return form   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. 1040x amended tax return form Nonprofit operation. 1040x amended tax return form   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. 1040x amended tax return form However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. 1040x amended tax return form Social welfare. 1040x amended tax return form   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). 1040x amended tax return form   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. 1040x amended tax return form It therefore does not qualify as a section 501(c)(4) organization. 1040x amended tax return form Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. 1040x amended tax return form However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. 1040x amended tax return form Political activity. 1040x amended tax return form   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. 1040x amended tax return form However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. 1040x amended tax return form See the discussion in chapter 2 under Political Organization Income Tax Return . 1040x amended tax return form Social or recreational activity. 1040x amended tax return form   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). 1040x amended tax return form Retirement benefit program. 1040x amended tax return form   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. 1040x amended tax return form It may qualify under another paragraph of section 501(c) depending on all the facts. 1040x amended tax return form   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. 1040x amended tax return form Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. 1040x amended tax return form They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. 1040x amended tax return form However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 1040x amended tax return form for more information. 1040x amended tax return form For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. 1040x amended tax return form gov. 1040x amended tax return form Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. 1040x amended tax return form Volunteer fire companies. 1040x amended tax return form   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. 1040x amended tax return form   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). 1040x amended tax return form In this event, your organization should file Form 1023. 1040x amended tax return form Homeowners' associations. 1040x amended tax return form   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. 1040x amended tax return form The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. 1040x amended tax return form Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. 1040x amended tax return form Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. 1040x amended tax return form   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. 1040x amended tax return form It also must show that it does not engage in exterior maintenance of private homes. 1040x amended tax return form   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. 1040x amended tax return form Other organizations. 1040x amended tax return form   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. 1040x amended tax return form 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. 1040x amended tax return form You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. 1040x amended tax return form In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. 1040x amended tax return form Submit any additional information that may be required, as described in this section. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. 1040x amended tax return form However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. 1040x amended tax return form For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. 1040x amended tax return form Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. 1040x amended tax return form To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. 1040x amended tax return form In addition, no net earnings of the organization can inure to the benefit of any member. 1040x amended tax return form Composition of membership. 1040x amended tax return form   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. 1040x amended tax return form You must show in your application that your organization has the purposes described in the preceding paragraph. 1040x amended tax return form These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. 1040x amended tax return form Benefits to members. 1040x amended tax return form   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. 1040x amended tax return form However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. 1040x amended tax return form   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. 1040x amended tax return form gov. 1040x amended tax return form Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. 1040x amended tax return form For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. 1040x amended tax return form The term harvesting, in this case, includes fishing and related pursuits. 1040x amended tax return form Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. 1040x amended tax return form When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. 1040x amended tax return form The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. 1040x amended tax return form The following list contains some examples of activities that show an agricultural or horticultural purpose. 1040x amended tax return form Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. 1040x amended tax return form Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. 1040x amended tax return form Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. 1040x amended tax return form Guarding the purity of a specific breed of livestock. 1040x amended tax return form Encouraging improvements in the production of fish on privately owned fish farms. 1040x amended tax return form Negotiating with processors for the price to be paid to members for their crops. 1040x amended tax return form For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. 1040x amended tax return form gov. 1040x amended tax return form 501(c)(6) - Business Leagues, etc. 1040x amended tax return form If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. 1040x amended tax return form For a discussion of the procedure to follow, see chapter 1. 1040x amended tax return form Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). 1040x amended tax return form In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. 1040x amended tax return form It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. 1040x amended tax return form A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. 1040x amended tax return form Trade associations and professional associations are considered business leagues. 1040x amended tax return form Chamber of commerce. 1040x amended tax return form   A chamber of commerce usually is composed of the merchants and traders of a city. 1040x amended tax return form Board of trade. 1040x amended tax return form   A board of trade often consists of persons engaged in similar lines of business. 1040x amended tax return form For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. 1040x amended tax return form   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. 1040x amended tax return form Real estate board. 1040x amended tax return form   A real estate board consists of members interested in improving the business conditions in the real estate field. 1040x amended tax return form It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. 1040x amended tax return form Professional football leagues. 1040x amended tax return form   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). 1040x amended tax return form They are exempt whether or not they administer a pension fund for football players. 1040x amended tax return form General purpose. 1040x amended tax return form   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. 1040x amended tax return form It must be shown that the conditions of a particular trade or the interests of the community will be advanced. 1040x amended tax return form Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. 1040x amended tax return form Line of business. 1040x amended tax return form   This term generally refers either to an entire industry or to all components of an industry within a geographic area. 1040x amended tax return form It does not include a group composed of businesses that market a particular brand within an industry. 1040x amended tax return form Common business interest. 1040x amended tax return form   A common business interest of all members of the organization must be established by the application documents. 1040x amended tax return form Examples. 1040x amended tax return form   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). 1040x amended tax return form Improvement of business conditions. 1040x amended tax return form   Generally, this must be shown to be the purpose of the organization. 1040x amended tax return form This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. 1040x amended tax return form Stock or commodity exchange. 1040x amended tax return form   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). 1040x amended tax return form Legislative activity. 1040x amended tax return form   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. 1040x amended tax return form Deduction not allowed for dues used for political or legislative activities. 1040x amended tax return form   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. 1040x amended tax return form Influencing legislation. 1040x amended tax return form Participating or intervening in a political campaign for, or against, any candidate for public office. 1040x amended tax return form Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). 1040x amended tax return form Communicating directly with certain executive branch officials to try to influence their official actions or positions. 1040x amended tax return form See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. 1040x amended tax return form Exception for local legislation. 1040x amended tax return form   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. 1040x amended tax return form Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. 1040x amended tax return form De minimis exception. 1040x amended tax return form   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. 1040x amended tax return form Grass roots lobbying. 1040x amended tax return form   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. 1040x amended tax return form Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. 1040x amended tax return form They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. 1040x amended tax return form   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. 1040x amended tax return form gov. 1040x amended tax return form 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. 1040x amended tax return form In applying for recognition of exemption, you should submit the information described in this section. 1040x amended tax return form Also see chapter 1 for the procedures to follow. 1040x amended tax return form Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. 1040x amended tax return form Discrimination prohibited. 1040x amended tax return form   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. 1040x amended tax return form   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. 1040x amended tax return form Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. 1040x amended tax return form Private benefit prohibited. 1040x amended tax return form   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. 1040x amended tax return form For purposes of this requirement, it is not necessary that net earnings be actually distributed. 1040x amended tax return form Even undistributed earnings can benefit members. 1040x amended tax return form Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. 1040x amended tax return form However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. 1040x amended tax return form Purposes. 1040x amended tax return form   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. 1040x amended tax return form You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. 1040x amended tax return form   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. 1040x amended tax return form A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. 1040x amended tax return form   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. 1040x amended tax return form For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. 1040x amended tax return form Limited membership. 1040x amended tax return form   The membership in a social club must be limited. 1040x amended tax return form To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. 1040x amended tax return form   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. 1040x amended tax return form Corporate members of a club are not the kind of members contemplated by the law. 1040x amended tax return form Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. 1040x amended tax return form See Gross receipts from nonmembership sources , later. 1040x amended tax return form Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. 1040x amended tax return form   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. 1040x amended tax return form However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. 1040x amended tax return form Support. 1040x amended tax return form   In general, your club should be supported solely by membership fees, dues, and assessments. 1040x amended tax return form However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. 1040x amended tax return form Business activities. 1040x amended tax return form   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. 1040x amended tax return form However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. 1040x amended tax return form Facilities open to public. 1040x amended tax return form   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. 1040x amended tax return form This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. 1040x amended tax return form Gross receipts from nonmembership sources. 1040x amended tax return form   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. 1040x amended tax return form Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. 1040x amended tax return form Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. 1040x amended tax return form If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. 1040x amended tax return form Gross receipts. 1040x amended tax return form   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. 1040x amended tax return form These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. 1040x amended tax return form Receipts do not include initiation fees and capital contributions. 1040x amended tax return form Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. 1040x amended tax return form Nontraditional activities. 1040x amended tax return form   Activities conducted by a social club need to further its exempt purposes. 1040x amended tax return form Traditional business activities are those that further a social club's exempt purposes. 1040x amended tax return form Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. 1040x amended tax return form Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. 1040x amended tax return form Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. 1040x amended tax return form Fraternity foundations. 1040x amended tax return form   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. 1040x amended tax return form 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. 1040x amended tax return form The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. 1040x amended tax return form , purposes. 1040x amended tax return form The procedures to follow in applying for recognition of exemption are described in chapter 1. 1040x amended tax return form If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. 1040x amended tax return form If so, your organization need not apply for individual recognition of exemption. 1040x amended tax return form For more information, see Group Exemption Letter in chapter 1 of this publication. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 1040x amended tax return form Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 1040x amended tax return form The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. 1040x amended tax return form Lodge system. 1040x amended tax return form   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. 1040x amended tax return form Payment of benefits. 1040x amended tax return form   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. 1040x amended tax return form An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. 1040x amended tax return form   The benefits must be limited to members and their dependents. 1040x amended tax return form If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. 1040x amended tax return form Whole-life insurance. 1040x amended tax return form   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. 1040x amended tax return form Reinsurance pool. 1040x amended tax return form   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. 1040x amended tax return form Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. 1040x amended tax return form The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. 1040x amended tax return form S. 1040x amended tax return form , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. 1040x amended tax return form The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. 1040x amended tax return form 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. 1040x amended tax return form Both the application form to file and the information to provide are discussed later under the section that describes your employee association. 1040x amended tax return form Chapter 1 describes the procedures to follow in applying for exemption. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. 1040x amended tax return form Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. 1040x amended tax return form A local employees' association must apply for recognition of exemption by filing Form 1024. 1040x amended tax return form The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. 1040x amended tax return form A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. 1040x amended tax return form Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. 1040x amended tax return form Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. 1040x amended tax return form The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. 1040x amended tax return form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 1040x amended tax return form Note. 1040x amended tax return form Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. 1040x amended tax return form Notice requirement. 1040x amended tax return form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 1040x amended tax return form The organization gives notice by filing Form 1024. 1040x amended tax return form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. 1040x amended tax return form An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 1040x amended tax return form Membership. 1040x amended tax return form   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. 1040x amended tax return form This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. 1040x amended tax return form   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. 1040x amended tax return form For example, the owner of a business whose employees are members of the association can be a member. 1040x amended tax return form An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. 1040x amended tax return form Employees. 1040x amended tax return form   Employees include individuals who became entitled to membership because they are or were employees. 1040x amended tax return form For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. 1040x amended tax return form   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. 1040x amended tax return form Conversely, membership is involuntary if the designation as a member is due to employee status. 1040x amended tax return form However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. 1040x amended tax return form An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. 1040x amended tax return form Payment of benefits. 1040x amended tax return form   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. 1040x amended tax return form The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). 1040x amended tax return form Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. 1040x amended tax return form Nondiscrimination requirements. 1040x amended tax return form   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. 1040x amended tax return form However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. 1040x amended tax return form   A plan meets the nondiscrimination requirements only if both of the following statements are true. 1040x amended tax return form Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. 1040x amended tax return form The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. 1040x amended tax return form A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. 1040x amended tax return form   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. 1040x amended tax return form This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. 1040x amended tax return form   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. 1040x amended tax return form The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. 1040x amended tax return form For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). 1040x amended tax return form Excluded employees. 1040x amended tax return form   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. 1040x amended tax return form These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. 1040x amended tax return form Highly compensated individual. 1040x amended tax return form   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. 1040x amended tax return form Go to IRS. 1040x amended tax return form gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. 1040x amended tax return form However, the employer can choose not to have (3) apply. 1040x amended tax return form Aggregation rules. 1040x amended tax return form   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. 1040x amended tax return form Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. 1040x amended tax return form Leased employees are treated as employees of the recipient. 1040x amended tax return form One employee. 1040x amended tax return form   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). 1040x amended tax return form Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. 1040x amended tax return form The trust must be a valid, existing trust under local law and must be evidenced by an executed document. 1040x amended tax return form A conformed copy of the plan of which the trust is a part should be attached to the application. 1040x amended tax return form To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. 1040x amended tax return form Note. 1040x amended tax return form Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. 1040x amended tax return form Notice requirement. 1040x amended tax return form   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. 1040x amended tax return form The organization gives notice by filing Form 1024. 1040x amended tax return form If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. 1040x amended tax return form An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . 1040x amended tax return form Types of payments. 1040x amended tax return form   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. 1040x amended tax return form In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. 1040x amended tax return form Diversion of funds. 1040x amended tax return form   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). 1040x amended tax return form Discrimination in benefits. 1040x amended tax return form   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. 1040x amended tax return form However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. 1040x amended tax return form Prohibited transactions and exemption. 1040x amended tax return form   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. 1040x amended tax return form It must file the claim on Form 1024. 1040x amended tax return form The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. 1040x amended tax return form An authorized principal officer of your organization must make this declaration under the penalties of perjury. 1040x amended tax return form   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. 1040x amended tax return form However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. 1040x amended tax return form Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. 1040x amended tax return form For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. 1040x amended tax return form 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. 1040x amended tax return form Benevolent life insurance associations of a purely local character and like organizations. 1040x amended tax return form Mutual ditch or irrigation companies and like organizations. 1040x amended tax return form Mutual or cooperative telephone companies and like organizations. 1040x amended tax return form A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. 1040x amended tax return form The information to be provided upon application by each of these organizations is described in this section. 1040x amended tax return form For information as to the procedures to follow in applying for exemption, see chapter 1. 1040x amended tax return form General requirements. 1040x amended tax return form   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. 1040x amended tax return form They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. 1040x amended tax return form Mutual character. 1040x amended tax return form   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. 1040x amended tax return form They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. 1040x amended tax return form To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. 1040x amended tax return form   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. 1040x amended tax return form Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. 1040x amended tax return form The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. 1040x amended tax return form Membership. 1040x amended tax return form   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. 1040x amended tax return form In a stock company, the stockholders are members. 1040x amended tax return form However, a mutual life insurance organization cannot have policyholders other than its members. 1040x amended tax return form Losses and expenses. 1040x amended tax return form   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. 1040x amended tax return form Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. 1040x amended tax return form If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. 1040x amended tax return form Distributions of proceeds. 1040x amended tax return form   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. 1040x amended tax return form Such distribution represents a refund in the costs of services rendered to the member. 1040x amended tax return form The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. 1040x amended tax return form Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. 1040x amended tax return form Mutual or cooperative telephone company. 1040x amended tax return form   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. 1040x amended tax return form Mutual or cooperative electric company. 1040x amended tax return form   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. 1040x amended tax return form   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. 1040x amended tax return form Qualified pole rental. 1040x amended tax return form   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. 1040x amended tax return form   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). 1040x amended tax return form The 85% requirement is applied on the basis of an annual accounting period. 1040x amended tax return form Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. 1040x amended tax return form Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. 1040x amended tax return form Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. 1040x amended tax return form Example. 1040x amended tax return form   The books of an organization reflect the following for the calendar year. 1040x amended tax return form Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. 1040x amended tax return form   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. 1040x amended tax return form   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. 1040x amended tax return form   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. 1040x amended tax return form Tax treatment of donations. 1040x amended tax return form   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. 1040x amended tax return form Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. 1040x amended tax return form If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. 1040x amended tax return form To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. 1040x amended tax return form If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. 1040x amended tax return form A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. 1040x amended tax return form A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. 1040x amended tax return form Organizations similar to local benevolent life insurance companies. 1040x amended tax return form   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. 1040x amended tax return form However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. 1040x amended tax return form Burial and funeral benefit insurance organization. 1040x amended tax return form   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. 1040x amended tax return form An organization that provides its benefits in the form of supplies and service is not a life insurance company. 1040x amended tax return form Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. 1040x amended tax return form Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. 1040x amended tax return form They can serve noncontiguous areas. 1040x amended tax return form Like organization. 1040x amended tax return form   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. 1040x amended tax return form Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. 1040x amended tax return form 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. 1040x amended tax return form For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. 1040x amended tax return form A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. 1040x amended tax return form A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. 1040x amended tax return form The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. 1040x amended tax return form If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. 1040x amended tax return form Operating a mortuary is not permitted. 1040x amended tax return form However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. 1040x amended tax return form How income can be used. 1040x amended tax return form   You should show that your organization's earnings are or will be used only in one or more of the following ways. 1040x amended tax return form To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. 1040x amended tax return form To buy cemetery property. 1040x amended tax return form To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. 1040x amended tax return form No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. 1040x amended tax return form Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. 1040x amended tax return form Buying cemetery property. 1040x amended tax return form   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. 1040x amended tax return form You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. 1040x amended tax return form   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. 1040x amended tax return form Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not
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The 1040x Amended Tax Return Form

1040x amended tax return form 3. 1040x amended tax return form   Rent Expense Table of Contents Introduction Topics - This chapter discusses: RentConditional sales contract. 1040x amended tax return form Leveraged leases. 1040x amended tax return form Leveraged leases of limited-use property. 1040x amended tax return form Taxes on Leased Property Cost of Getting a Lease Improvements by Lessee Capitalizing Rent Expenses Introduction This chapter discusses the tax treatment of rent or lease payments you make for property you use in your business but do not own. 1040x amended tax return form It also discusses how to treat other kinds of payments you make that are related to your use of this property. 1040x amended tax return form These include payments you make for taxes on the property. 1040x amended tax return form Topics - This chapter discusses: The definition of rent Taxes on leased property The cost of getting a lease Improvements by the lessee Capitalizing rent expenses Rent Rent is any amount you pay for the use of property you do not own. 1040x amended tax return form In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. 1040x amended tax return form If you have or will receive equity in or title to the property, the rent is not deductible. 1040x amended tax return form Unreasonable rent. 1040x amended tax return form   You cannot take a rental deduction for unreasonable rent. 1040x amended tax return form Ordinarily, the issue of reasonableness arises only if you and the lessor are related. 1040x amended tax return form Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. 1040x amended tax return form Rent is not unreasonable just because it is figured as a percentage of gross sales. 1040x amended tax return form For examples of related persons, see Related persons in chapter 2, Publication 544. 1040x amended tax return form Rent on your home. 1040x amended tax return form   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. 1040x amended tax return form You must meet the requirements for business use of your home. 1040x amended tax return form For more information, see Business use of your home in chapter 1. 1040x amended tax return form Rent paid in advance. 1040x amended tax return form   Generally, rent paid in your trade or business is deductible in the year paid or accrued. 1040x amended tax return form If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. 1040x amended tax return form You can deduct the rest of your payment only over the period to which it applies. 1040x amended tax return form Example 1. 1040x amended tax return form You are a calendar year taxpayer and you leased a building for 5 years beginning July 1. 1040x amended tax return form Your rent is $12,000 per year. 1040x amended tax return form You paid the first year's rent ($12,000) on June 30. 1040x amended tax return form You can deduct only $6,000 (6/12 × $12,000) for the rent that applies to the first year. 1040x amended tax return form Example 2. 1040x amended tax return form You are a calendar year taxpayer. 1040x amended tax return form Last January you leased property for 3 years for $6,000 a year. 1040x amended tax return form You paid the full $18,000 (3 × $6,000) during the first year of the lease. 1040x amended tax return form Each year you can deduct only $6,000, the part of the lease that applies to that year. 1040x amended tax return form Canceling a lease. 1040x amended tax return form   You generally can deduct as rent an amount you pay to cancel a business lease. 1040x amended tax return form Lease or purchase. 1040x amended tax return form   There may be instances in which you must determine whether your payments are for rent or for the purchase of the property. 1040x amended tax return form You must first determine whether your agreement is a lease or a conditional sales contract. 1040x amended tax return form Payments made under a conditional sales contract are not deductible as rent expense. 1040x amended tax return form Conditional sales contract. 1040x amended tax return form   Whether an agreement is a conditional sales contract depends on the intent of the parties. 1040x amended tax return form Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. 1040x amended tax return form No single test, or special combination of tests, always applies. 1040x amended tax return form However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true. 1040x amended tax return form The agreement applies part of each payment toward an equity interest you will receive. 1040x amended tax return form You get title to the property after you make a stated amount of required payments. 1040x amended tax return form The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property. 1040x amended tax return form You pay much more than the current fair rental value of the property. 1040x amended tax return form You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. 1040x amended tax return form Determine this value when you make the agreement. 1040x amended tax return form You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement. 1040x amended tax return form The agreement designates part of the payments as interest, or that part is easy to recognize as interest. 1040x amended tax return form Leveraged leases. 1040x amended tax return form   Leveraged lease transactions may not be considered leases. 1040x amended tax return form Leveraged leases generally involve three parties: a lessor, a lessee, and a lender to the lessor. 1040x amended tax return form Usually the lease term covers a large part of the useful life of the leased property, and the lessee's payments to the lessor are enough to cover the lessor's payments to the lender. 1040x amended tax return form   If you plan to take part in what appears to be a leveraged lease, you may want to get an advance ruling. 1040x amended tax return form Revenue Procedure 2001-28 on page 1156 of Internal Revenue Bulletin 2001-19 contains the guidelines the IRS will use to determine if a leveraged lease is a lease for federal income tax purposes. 1040x amended tax return form Revenue Procedure 2001-29 on page 1160 of the same Internal Revenue Bulletin provides the information required to be furnished in a request for an advance ruling on a leveraged lease transaction. 1040x amended tax return form Internal Revenue Bulletin 2001-19 is available at www. 1040x amended tax return form irs. 1040x amended tax return form gov/pub/irs-irbs/irb01-19. 1040x amended tax return form pdf. 1040x amended tax return form   In general, Revenue Procedure 2001-28 provides that, for advance ruling purposes only, the IRS will consider the lessor in a leveraged lease transaction to be the owner of the property and the transaction to be a valid lease if all the factors in the revenue procedure are met, including the following. 1040x amended tax return form The lessor must maintain a minimum unconditional “at risk” equity investment in the property (at least 20% of the cost of the property) during the entire lease term. 1040x amended tax return form The lessee may not have a contractual right to buy the property from the lessor at less than fair market value when the right is exercised. 1040x amended tax return form The lessee may not invest in the property, except as provided by Revenue Procedure 2001-28. 1040x amended tax return form The lessee may not lend any money to the lessor to buy the property or guarantee the loan used by the lessor to buy the property. 1040x amended tax return form The lessor must show that it expects to receive a profit apart from the tax deductions, allowances, credits, and other tax attributes. 1040x amended tax return form   The IRS may charge you a user fee for issuing a tax ruling. 1040x amended tax return form For more information, see Revenue Procedure 2014-1 available at  www. 1040x amended tax return form irs. 1040x amended tax return form gov/irb/2014-1_IRB/ar05. 1040x amended tax return form html. 1040x amended tax return form Leveraged leases of limited-use property. 1040x amended tax return form   The IRS will not issue advance rulings on leveraged leases of so-called limited-use property. 1040x amended tax return form Limited-use property is property not expected to be either useful to or usable by a lessor at the end of the lease term except for continued leasing or transfer to a lessee. 1040x amended tax return form See Revenue Procedure 2001-28 for examples of limited-use property and property that is not limited-use property. 1040x amended tax return form Leases over $250,000. 1040x amended tax return form   Special rules are provided for certain leases of tangible property. 1040x amended tax return form The rules apply if the lease calls for total payments of more than $250,000 and any of the following apply. 1040x amended tax return form Rents increase during the lease. 1040x amended tax return form Rents decrease during the lease. 1040x amended tax return form Rents are deferred (rent is payable after the end of the calendar year following the calendar year in which the use occurs and the rent is allocated). 1040x amended tax return form Rents are prepaid (rent is payable before the end of the calendar year preceding the calendar year in which the use occurs and the rent is allocated). 1040x amended tax return form These rules do not apply if your lease specifies equal amounts of rent for each month in the lease term and all rent payments are due in the calendar year to which the rent relates (or in the preceding or following calendar year). 1040x amended tax return form   Generally, if the special rules apply, you must use an accrual method of accounting (and time value of money principles) for your rental expenses, regardless of your overall method of accounting. 1040x amended tax return form In addition, in certain cases in which the IRS has determined that a lease was designed to achieve tax avoidance, you must take rent and stated or imputed interest into account under a constant rental accrual method in which the rent is treated as accruing ratably over the entire lease term. 1040x amended tax return form For details, see section 467 of the Internal Revenue Code. 1040x amended tax return form Taxes on Leased Property If you lease business property, you can deduct as additional rent any taxes you have to pay to or for the lessor. 1040x amended tax return form When you can deduct these taxes as additional rent depends on your accounting method. 1040x amended tax return form Cash method. 1040x amended tax return form   If you use the cash method of accounting, you can deduct the taxes as additional rent only for the tax year in which you pay them. 1040x amended tax return form Accrual method. 1040x amended tax return form   If you use an accrual method of accounting, you can deduct taxes as additional rent for the tax year in which you can determine all the following. 1040x amended tax return form That you have a liability for taxes on the leased property. 1040x amended tax return form How much the liability is. 1040x amended tax return form That economic performance occurred. 1040x amended tax return form   The liability and amount of taxes are determined by state or local law and the lease agreement. 1040x amended tax return form Economic performance occurs as you use the property. 1040x amended tax return form Example 1. 1040x amended tax return form Oak Corporation is a calendar year taxpayer that uses an accrual method of accounting. 1040x amended tax return form Oak leases land for use in its business. 1040x amended tax return form Under state law, owners of real property become liable (incur a lien on the property) for real estate taxes for the year on January 1 of that year. 1040x amended tax return form However, they do not have to pay these taxes until July 1 of the next year (18 months later) when tax bills are issued. 1040x amended tax return form Under the terms of the lease, Oak becomes liable for the real estate taxes in the later year when the tax bills are issued. 1040x amended tax return form If the lease ends before the tax bill for a year is issued, Oak is not liable for the taxes for that year. 1040x amended tax return form Oak cannot deduct the real estate taxes as rent until the tax bill is issued. 1040x amended tax return form This is when Oak's liability under the lease becomes fixed. 1040x amended tax return form Example 2. 1040x amended tax return form The facts are the same as in Example 1 except that, according to the terms of the lease, Oak becomes liable for the real estate taxes when the owner of the property becomes liable for them. 1040x amended tax return form As a result, Oak will deduct the real estate taxes as rent on its tax return for the earlier year. 1040x amended tax return form This is the year in which Oak's liability under the lease becomes fixed. 1040x amended tax return form Cost of Getting a Lease You may either enter into a new lease with the lessor of the property or get an existing lease from another lessee. 1040x amended tax return form Very often when you get an existing lease from another lessee, you must pay the previous lessee money to get the lease, besides having to pay the rent on the lease. 1040x amended tax return form If you get an existing lease on property or equipment for your business, you generally must amortize any amount you pay to get that lease over the remaining term of the lease. 1040x amended tax return form For example, if you pay $10,000 to get a lease and there are 10 years remaining on the lease with no option to renew, you can deduct $1,000 each year. 1040x amended tax return form The cost of getting an existing lease of tangible property is not subject to the amortization rules for section 197 intangibles discussed in chapter 8. 1040x amended tax return form Option to renew. 1040x amended tax return form   The term of the lease for amortization includes all renewal options plus any other period for which you and the lessor reasonably expect the lease to be renewed. 1040x amended tax return form However, this applies only if less than 75% of the cost of getting the lease is for the term remaining on the purchase date (not including any period for which you may choose to renew, extend, or continue the lease). 1040x amended tax return form Allocate the lease cost to the original term and any option term based on the facts and circumstances. 1040x amended tax return form In some cases, it may be appropriate to make the allocation using a present value computation. 1040x amended tax return form For more information, see Regulations section 1. 1040x amended tax return form 178-1(b)(5). 1040x amended tax return form Example 1. 1040x amended tax return form You paid $10,000 to get a lease with 20 years remaining on it and two options to renew for 5 years each. 1040x amended tax return form Of this cost, you paid $7,000 for the original lease and $3,000 for the renewal options. 1040x amended tax return form Because $7,000 is less than 75% of the total $10,000 cost of the lease (or $7,500), you must amortize the $10,000 over 30 years. 1040x amended tax return form That is the remaining life of your present lease plus the periods for renewal. 1040x amended tax return form Example 2. 1040x amended tax return form The facts are the same as in Example 1, except that you paid $8,000 for the original lease and $2,000 for the renewal options. 1040x amended tax return form You can amortize the entire $10,000 over the 20-year remaining life of the original lease. 1040x amended tax return form The $8,000 cost of getting the original lease was not less than 75% of the total cost of the lease (or $7,500). 1040x amended tax return form Cost of a modification agreement. 1040x amended tax return form   You may have to pay an additional “rent” amount over part of the lease period to change certain provisions in your lease. 1040x amended tax return form You must capitalize these payments and amortize them over the remaining period of the lease. 1040x amended tax return form You cannot deduct the payments as additional rent, even if they are described as rent in the agreement. 1040x amended tax return form Example. 1040x amended tax return form You are a calendar year taxpayer and sign a 20-year lease to rent part of a building starting on January 1. 1040x amended tax return form However, before you occupy it, you decide that you really need less space. 1040x amended tax return form The lessor agrees to reduce your rent from $7,000 to $6,000 per year and to release the excess space from the original lease. 1040x amended tax return form In exchange, you agree to pay an additional rent amount of $3,000, payable in 60 monthly installments of $50 each. 1040x amended tax return form   You must capitalize the $3,000 and amortize it over the 20-year term of the lease. 1040x amended tax return form Your amortization deduction each year will be $150 ($3,000 ÷ 20). 1040x amended tax return form You cannot deduct the $600 (12 × $50) that you will pay during each of the first 5 years as rent. 1040x amended tax return form Commissions, bonuses, and fees. 1040x amended tax return form   Commissions, bonuses, fees, and other amounts you pay to get a lease on property you use in your business are capital costs. 1040x amended tax return form You must amortize these costs over the term of the lease. 1040x amended tax return form Loss on merchandise and fixtures. 1040x amended tax return form   If you sell at a loss merchandise and fixtures that you bought solely to get a lease, the loss is a cost of getting the lease. 1040x amended tax return form You must capitalize the loss and amortize it over the remaining term of the lease. 1040x amended tax return form Improvements by Lessee If you add buildings or make other permanent improvements to leased property, depreciate the cost of the improvements using the modified accelerated cost recovery system (MACRS). 1040x amended tax return form Depreciate the property over its appropriate recovery period. 1040x amended tax return form You cannot amortize the cost over the remaining term of the lease. 1040x amended tax return form If you do not keep the improvements when you end the lease, figure your gain or loss based on your adjusted basis in the improvements at that time. 1040x amended tax return form For more information, see the discussion of MACRS in Publication 946, How To Depreciate Property. 1040x amended tax return form Assignment of a lease. 1040x amended tax return form   If a long-term lessee who makes permanent improvements to land later assigns all lease rights to you for money and you pay the rent required by the lease, the amount you pay for the assignment is a capital investment. 1040x amended tax return form If the rental value of the leased land increased since the lease began, part of your capital investment is for that increase in the rental value. 1040x amended tax return form The rest is for your investment in the permanent improvements. 1040x amended tax return form   The part that is for the increased rental value of the land is a cost of getting a lease, and you amortize it over the remaining term of the lease. 1040x amended tax return form You can depreciate the part that is for your investment in the improvements over the recovery period of the property as discussed earlier, without regard to the lease term. 1040x amended tax return form Capitalizing Rent Expenses Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. 1040x amended tax return form Include these costs in the basis of property you produce or acquire for resale, rather than claiming them as a current deduction. 1040x amended tax return form You recover the costs through depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property. 1040x amended tax return form Indirect costs include amounts incurred for renting or leasing equipment, facilities, or land. 1040x amended tax return form Uniform capitalization rules. 1040x amended tax return form   You may be subject to the uniform capitalization rules if you do any of the following, unless the property is produced for your use other than in a business or an activity carried on for profit. 1040x amended tax return form Produce real property or tangible personal property. 1040x amended tax return form For this purpose, tangible personal property includes a film, sound recording, video tape, book, or similar property. 1040x amended tax return form Acquire property for resale. 1040x amended tax return form However, these rules do not apply to the following property. 1040x amended tax return form Personal property you acquire for resale if your average annual gross receipts are $10 million or less for the 3 prior tax years. 1040x amended tax return form Property you produce if you meet either of the following conditions. 1040x amended tax return form Your indirect costs of producing the property are $200,000 or less. 1040x amended tax return form You use the cash method of accounting and do not account for inventories. 1040x amended tax return form Example 1. 1040x amended tax return form You rent construction equipment to build a storage facility. 1040x amended tax return form If you are subject to the uniform capitalization rules, you must capitalize as part of the cost of the building the rent you paid for the equipment. 1040x amended tax return form You recover your cost by claiming a deduction for depreciation on the building. 1040x amended tax return form Example 2. 1040x amended tax return form You rent space in a facility to conduct your business of manufacturing tools. 1040x amended tax return form If you are subject to the uniform capitalization rules, you must include the rent you paid to occupy the facility in the cost of the tools you produce. 1040x amended tax return form More information. 1040x amended tax return form   For more information on these rules, see Uniform Capitalization Rules in Publication 538 and the regulations under Internal Revenue Code section 263A. 1040x amended tax return form Prev  Up  Next   Home   More Online Publications