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2010 1040 Tax Form

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2010 1040 Tax Form

2010 1040 tax form 2. 2010 1040 tax form   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. 2010 1040 tax form Amount realized on a nonrecourse debt. 2010 1040 tax form If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 2010 1040 tax form The foreclosure or repossession is treated as a sale from which you may realize gain or loss. 2010 1040 tax form This is true even if you voluntarily return the property to the lender. 2010 1040 tax form If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. 2010 1040 tax form You must report this income on your return unless certain exceptions or exclusions apply. 2010 1040 tax form See chapter 1 for more details. 2010 1040 tax form Borrower's gain or loss. 2010 1040 tax form    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. 2010 1040 tax form The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). 2010 1040 tax form The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). 2010 1040 tax form For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. 2010 1040 tax form You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. 2010 1040 tax form Amount realized and ordinary income on a recourse debt. 2010 1040 tax form    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. 2010 1040 tax form The amount realized also includes any proceeds you received from the foreclosure sale. 2010 1040 tax form If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. 2010 1040 tax form You must report this income on your return unless certain exceptions or exclusions apply. 2010 1040 tax form See chapter 1 for more details. 2010 1040 tax form       Example 1. 2010 1040 tax form Tara bought a new car for $15,000. 2010 1040 tax form She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. 2010 1040 tax form Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. 2010 1040 tax form On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. 2010 1040 tax form The balance due after taking into account the payments Tara made was $10,000. 2010 1040 tax form The FMV of the car when it was repossessed was $9,000. 2010 1040 tax form On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. 2010 1040 tax form In this case, the amount Tara realizes is $9,000. 2010 1040 tax form This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. 2010 1040 tax form Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. 2010 1040 tax form She has a $6,000 nondeductible loss. 2010 1040 tax form After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). 2010 1040 tax form Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. 2010 1040 tax form Example 2. 2010 1040 tax form Lili paid $200,000 for her home. 2010 1040 tax form She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. 2010 1040 tax form Lili is personally liable for the mortgage loan and the house secures the loan. 2010 1040 tax form In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. 2010 1040 tax form When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. 2010 1040 tax form At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). 2010 1040 tax form She remained personally liable for the $8,000 balance. 2010 1040 tax form In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. 2010 1040 tax form The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). 2010 1040 tax form She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. 2010 1040 tax form Lili must also determine her gain or loss from the foreclosure. 2010 1040 tax form In this case, the amount that she realizes is $170,000. 2010 1040 tax form This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. 2010 1040 tax form Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. 2010 1040 tax form She has a $5,000 nondeductible loss. 2010 1040 tax form Table 1-1. 2010 1040 tax form Worksheet for Foreclosures and Repossessions Part 1. 2010 1040 tax form Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). 2010 1040 tax form Otherwise, go to Part 2. 2010 1040 tax form 1. 2010 1040 tax form Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. 2010 1040 tax form Enter the fair market value of the transferred property   3. 2010 1040 tax form Ordinary income from the cancellation of debt upon foreclosure or repossession. 2010 1040 tax form * Subtract line 2 from line 1. 2010 1040 tax form If less than zero, enter zero. 2010 1040 tax form Next, go to Part 2   Part 2. 2010 1040 tax form Gain or loss from foreclosure or repossession. 2010 1040 tax form   4. 2010 1040 tax form Enter the smaller of line 1 or line 2. 2010 1040 tax form If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. 2010 1040 tax form Enter any proceeds you received from the foreclosure sale   6. 2010 1040 tax form Add line 4 and line 5   7. 2010 1040 tax form Enter the adjusted basis of the transferred property   8. 2010 1040 tax form Gain or loss from foreclosure or repossession. 2010 1040 tax form Subtract line 7 from line 6   * The income may not be taxable. 2010 1040 tax form See chapter 1 for more details. 2010 1040 tax form Amount realized on a nonrecourse debt. 2010 1040 tax form    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. 2010 1040 tax form This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. 2010 1040 tax form Example 1. 2010 1040 tax form Tara bought a new car for $15,000. 2010 1040 tax form She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. 2010 1040 tax form Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. 2010 1040 tax form On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. 2010 1040 tax form The balance due after taking into account the payments Tara made was $10,000. 2010 1040 tax form The FMV of the car when it was repossessed was $9,000. 2010 1040 tax form The amount Tara realized on the repossession is $10,000. 2010 1040 tax form That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. 2010 1040 tax form Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. 2010 1040 tax form Tara has a $5,000 nondeductible loss. 2010 1040 tax form Example 2. 2010 1040 tax form Lili paid $200,000 for her home. 2010 1040 tax form She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. 2010 1040 tax form She is not personally liable for the loan, but grants the bank a mortgage. 2010 1040 tax form The bank foreclosed on the mortgage because Lili stopped making payments. 2010 1040 tax form When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. 2010 1040 tax form The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. 2010 1040 tax form She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. 2010 1040 tax form Lili has a $5,000 realized gain. 2010 1040 tax form See Publication 523 to figure and report any taxable amount. 2010 1040 tax form Forms 1099-A and 1099-C. 2010 1040 tax form    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. 2010 1040 tax form However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. 2010 1040 tax form The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2010 1040 tax form For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 2010 1040 tax form Prev  Up  Next   Home   More Online Publications
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Understanding Your CP2531 Notice

You need to contact us. We’ve received information not reported on your tax return.

What you need to do

  • Read your notice carefully – it explains the information we received. Complete the notice response form to indicate if you agree or disagree with the information reported.
  • Compare the information in the two columns - "Shown on return" and "Reported to IRS by others". Did you receive the income? If you received the income, was it reported on your tax return? IRS employees search the tax return to locate all income, but they may be unable to determine the source if some items are combined.
  • If it wasn't reported on your tax return, you don't need to file an amended return to report the income. Simply check the box indicating that you agree with the information reported by others, sign and date the CP 2531 response page and return it.
  • If you don't agree with the information we sent you, check the box indicating that you don’t agree with some or all of the information on the CP 2531 response page and return it with a signed statement explaining each item of discrepancy. If applicable, attach copies of documents to support the entries on the original return behind this.  

You may want to

  • Send us the name, address and taxpayer identification number of the other party that received the income if it isn't yours.  
  • Notify the payers to correct their records to show the name and taxpayer identification number of the person or business who actually received the income, so that future reports to us are accurate.  

Answers to Common Questions

Is this notice a bill?


No. It informs you about the information we’ve received.

Why did it take you so long to contact me about this matter?

Tax years generally end on Dec. 31, but we don't receive information from banks, businesses, and other payers until much later. Once we receive all the tax returns and payer information, we compare the information you reported with the information the third party payers provided to us. It can take 8 months or more to complete the review.

Should I call with my response or mail it in?

If you have a simple response, such as directing us to a specific line on your original return where you reported the income, you can call a Customer Service Representative and provide the information. A toll-free number is listed in the top right hand corner of the notice.   

A written response may be required if the issue is more involved, especially if you disagree with some of the proposed changes. You may want to mail copies of payer information documents, such as Form(s) 1099 or Schedule(s) K-1. Include any other letters or documents that support your position. You should submit a written statement to fully explain any unusual tax situations.

I need more time to find my records and go through them all.  Will you allow me additional time to respond?

Your response is due by the date shown on the notice or we'll use the proposed changes to continue processing the case. If you need more time to research your records, you can call the toll-free number at the top of your notice to request a 30 day extension. We may also provide additional time to respond if you have unusual circumstances.  

What should I do to avoid problems like this in the future?

Keep accurate payment information from banks and other payers to verify you've received all payment information for filing your return. Review the documents to be sure they show your most current address.  

Take the following actions when filing your tax return to avoid similar issues in the future:

  • Report specific income type on the correct line on the Form 1120, U.S. Corporation Income Tax Return. For example, rental income should be claimed on Form 1120, line 6 (Gross Rents).  For additional information, please see the reporting instructions for Form 1120.
  • If you report income on a line not traditionally reserved for that type of income, please provide us with a statement indicating where the income was reported. For example, your business is related to investment activity and you're reporting all interest income (including amounts reported to the IRS on Form 1099-INT, Interest Income) with your gross receipts on Form 1120, line 1.
  • Always attach a statement identifying the source of the amount reported on Form 1120, line 10 (Other Income).
  • Provide an attached statement explaining your percentage of gross proceeds (ex; reported to us on Form 1099-MISC) that you would be liable to claim on your tax return. 
  • Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient.  You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts applicable to each.  

Tax publications you may find useful

 

Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 2010 1040 Tax Form

2010 1040 tax form 6. 2010 1040 tax form   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. 2010 1040 tax form However, to determine these costs, you must value your inventory at the beginning and end of each tax year. 2010 1040 tax form This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. 2010 1040 tax form This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. 2010 1040 tax form However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. 2010 1040 tax form If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. 2010 1040 tax form For more information, see chapter 2. 2010 1040 tax form Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. 2010 1040 tax form These lines are reproduced below and are explained in the discussion that follows. 2010 1040 tax form 35 Inventory at beginning of year. 2010 1040 tax form If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. 2010 1040 tax form Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. 2010 1040 tax form Subtract line 41 from line 40. 2010 1040 tax form  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. 2010 1040 tax form If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). 2010 1040 tax form Opening inventory usually will be identical to the closing inventory of the year before. 2010 1040 tax form You must explain any difference in a schedule attached to your return. 2010 1040 tax form Donation of inventory. 2010 1040 tax form   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. 2010 1040 tax form The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. 2010 1040 tax form You must remove the amount of your contribution deduction from your opening inventory. 2010 1040 tax form It is not part of the cost of goods sold. 2010 1040 tax form   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. 2010 1040 tax form Treat the inventory's cost as you would ordinarily treat it under your method of accounting. 2010 1040 tax form For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. 2010 1040 tax form   A special rule may apply to certain donations of food inventory. 2010 1040 tax form See Publication 526, Charitable Contributions. 2010 1040 tax form Example 1. 2010 1040 tax form You are a calendar year taxpayer who uses an accrual method of accounting. 2010 1040 tax form In 2013, you contributed property from inventory to a church. 2010 1040 tax form It had a fair market value of $600. 2010 1040 tax form The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. 2010 1040 tax form The charitable contribution allowed for 2013 is $400 ($600 − $200). 2010 1040 tax form The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. 2010 1040 tax form The cost of goods sold you use in determining gross income for 2013 must not include the $400. 2010 1040 tax form You remove that amount from opening inventory for 2013. 2010 1040 tax form Example 2. 2010 1040 tax form If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. 2010 1040 tax form You would not be allowed any charitable contribution deduction for the contributed property. 2010 1040 tax form Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. 2010 1040 tax form If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. 2010 1040 tax form Trade discounts. 2010 1040 tax form   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. 2010 1040 tax form You must use the prices you pay (not the stated prices) in figuring your cost of purchases. 2010 1040 tax form Do not show the discount amount separately as an item in gross income. 2010 1040 tax form   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. 2010 1040 tax form Cash discounts. 2010 1040 tax form   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. 2010 1040 tax form There are two methods of accounting for cash discounts. 2010 1040 tax form You can either credit them to a separate discount account or deduct them from total purchases for the year. 2010 1040 tax form Whichever method you use, you must be consistent. 2010 1040 tax form If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. 2010 1040 tax form For more information, see Change in Accounting Method in chapter 2. 2010 1040 tax form   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. 2010 1040 tax form If you use this method, do not reduce your cost of goods sold by the cash discounts. 2010 1040 tax form Purchase returns and allowances. 2010 1040 tax form   You must deduct all returns and allowances from your total purchases during the year. 2010 1040 tax form Merchandise withdrawn from sale. 2010 1040 tax form   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. 2010 1040 tax form Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. 2010 1040 tax form You must also charge the amount to your drawing account. 2010 1040 tax form   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. 2010 1040 tax form As stated above, you also use it to record withdrawals of merchandise for personal or family use. 2010 1040 tax form This account is also known as a “withdrawals account” or “personal account. 2010 1040 tax form ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. 2010 1040 tax form Small merchandisers (wholesalers, retailers, etc. 2010 1040 tax form ) usually do not have labor costs that can properly be charged to cost of goods sold. 2010 1040 tax form In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. 2010 1040 tax form Direct labor. 2010 1040 tax form   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. 2010 1040 tax form They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. 2010 1040 tax form Indirect labor. 2010 1040 tax form   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. 2010 1040 tax form Other labor. 2010 1040 tax form   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. 2010 1040 tax form Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. 2010 1040 tax form Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. 2010 1040 tax form Those that are not used in the manufacturing process are treated as deferred charges. 2010 1040 tax form You deduct them as a business expense when you use them. 2010 1040 tax form Business expenses are discussed in chapter 8. 2010 1040 tax form Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. 2010 1040 tax form Containers. 2010 1040 tax form   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. 2010 1040 tax form If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. 2010 1040 tax form Freight-in. 2010 1040 tax form   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. 2010 1040 tax form Overhead expenses. 2010 1040 tax form   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. 2010 1040 tax form The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. 2010 1040 tax form Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. 2010 1040 tax form Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. 2010 1040 tax form Inventory at the end of the year is also known as closing or ending inventory. 2010 1040 tax form Your ending inventory will usually become the beginning inventory of your next tax year. 2010 1040 tax form Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. 2010 1040 tax form Prev  Up  Next   Home   More Online Publications