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2011 Amendment Tax Form

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2011 Amendment Tax Form

2011 amendment tax form Publication 561 - Main Contents Table of Contents What Is Fair Market Value (FMV)?Factors. 2011 amendment tax form Stock. 2011 amendment tax form Options. 2011 amendment tax form Determining Fair Market Value Problems in Determining Fair Market Value Valuation of Various Kinds of PropertyHousehold Goods Used Clothing Jewelry and Gems Paintings, Antiques, and Other Objects of Art Collections Cars, Boats, and Aircraft Inventory Patents Stocks and Bonds Real Estate Interest in a Business Annuities, Interests for Life or Terms of Years, Remainders, and Reversions Certain Life Insurance and Annuity Contracts Partial Interest in Property Not in Trust AppraisalsDeductions of More Than $5,000 Deductions of More Than $500,000 Qualified Appraisal Form 8283 Internal Revenue Service Review of Appraisals Penalty How To Get Tax HelpLow income tax clinics (LITCs). 2011 amendment tax form What Is Fair Market Value (FMV)? To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution. 2011 amendment tax form Fair market value. 2011 amendment tax form   Fair market value (FMV) is the price that property would sell for on the open market. 2011 amendment tax form It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. 2011 amendment tax form If you put a restriction on the use of property you donate, the FMV must reflect that restriction. 2011 amendment tax form Example 1. 2011 amendment tax form If you give used clothing to the Salvation Army, the FMV would be the price that typical buyers actually pay for clothing of this age, condition, style, and use. 2011 amendment tax form Usually, such items are worth far less than what you paid for them. 2011 amendment tax form Example 2. 2011 amendment tax form If you donate land and restrict its use to agricultural purposes, you must value the land at its value for agricultural purposes, even though it would have a higher FMV if it were not restricted. 2011 amendment tax form Factors. 2011 amendment tax form   In making and supporting the valuation of property, all factors affecting value are relevant and must be considered. 2011 amendment tax form These include: The cost or selling price of the item, Sales of comparable properties, Replacement cost, and Opinions of experts. 2011 amendment tax form   These factors are discussed later. 2011 amendment tax form Also, see Table 1 for a summary of questions to ask as you consider each factor. 2011 amendment tax form Date of contribution. 2011 amendment tax form   Ordinarily, the date of a contribution is the date that the transfer of the property takes place. 2011 amendment tax form Stock. 2011 amendment tax form   If you deliver, without any conditions, a properly endorsed stock certificate to a qualified organization or to an agent of the organization, the date of the contribution is the date of delivery. 2011 amendment tax form If the certificate is mailed and received through the regular mail, it is the date of mailing. 2011 amendment tax form If you deliver the certificate to a bank or broker acting as your agent or to the issuing corporation or its agent, for transfer into the name of the organization, the date of the contribution is the date the stock is transferred on the books of the corporation. 2011 amendment tax form Options. 2011 amendment tax form   If you grant an option to a qualified organization to buy real property, you have not made a charitable contribution until the organization exercises the option. 2011 amendment tax form The amount of the contribution is the FMV of the property on the date the option is exercised minus the exercise price. 2011 amendment tax form Example. 2011 amendment tax form You grant an option to a local university, which is a qualified organization, to buy real property. 2011 amendment tax form Under the option, the university could buy the property at any time during a 2-year period for $40,000. 2011 amendment tax form The FMV of the property on the date the option is granted is $50,000. 2011 amendment tax form In the following tax year, the university exercises the option. 2011 amendment tax form The FMV of the property on the date the option is exercised is $55,000. 2011 amendment tax form Therefore, you have made a charitable contribution of $15,000 ($55,000, the FMV, minus $40,000, the exercise price) in the tax year the option is exercised. 2011 amendment tax form Determining Fair Market Value Determining the value of donated property would be a simple matter if you could rely only on fixed formulas, rules, or methods. 2011 amendment tax form Usually it is not that simple. 2011 amendment tax form Using such formulas, etc. 2011 amendment tax form , seldom results in an acceptable determination of FMV. 2011 amendment tax form There is no single formula that always applies when determining the value of property. 2011 amendment tax form This is not to say that a valuation is only guesswork. 2011 amendment tax form You must consider all the facts and circumstances connected with the property, such as its desirability, use, and scarcity. 2011 amendment tax form For example, donated furniture should not be evaluated at some fixed rate such as 15% of the cost of new replacement furniture. 2011 amendment tax form When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. 2011 amendment tax form On the other hand, it may be an antique, the value of which could not be determined by using any formula. 2011 amendment tax form Cost or Selling Price of the Donated Property The cost of the property to you or the actual selling price received by the qualified organization may be the best indication of its FMV. 2011 amendment tax form However, because conditions in the market change, the cost or selling price of property may have less weight if the property was not bought or sold reasonably close to the date of contribution. 2011 amendment tax form The cost or selling price is a good indication of the property's value if: The purchase or sale took place close to the valuation date in an open market, The purchase or sale was at “arm's-length,” The buyer and seller knew all relevant facts, The buyer and seller did not have to act, and The market did not change between the date of purchase or sale and the valuation date. 2011 amendment tax form Example. 2011 amendment tax form Tom Morgan, who is not a dealer in gems, bought an assortment of gems for $5,000 from a promoter. 2011 amendment tax form The promoter claimed that the price was “wholesale” even though he and other dealers made similar sales at similar prices to other persons who were not dealers. 2011 amendment tax form The promoter said that if Tom kept the gems for more than 1 year and then gave them to charity, Tom could claim a charitable deduction of $15,000, which, according to the promoter, would be the value of the gems at the time of contribution. 2011 amendment tax form Tom gave the gems to a qualified charity 13 months after buying them. 2011 amendment tax form The selling price for these gems had not changed from the date of purchase to the date he donated them to charity. 2011 amendment tax form The best evidence of FMV depends on actual transactions and not on some artificial estimate. 2011 amendment tax form The $5,000 charged Tom and others is, therefore, the best evidence of the maximum FMV of the gems. 2011 amendment tax form Terms of the purchase or sale. 2011 amendment tax form   The terms of the purchase or sale should be considered in determining FMV if they influenced the price. 2011 amendment tax form These terms include any restrictions, understandings, or covenants limiting the use or disposition of the property. 2011 amendment tax form Rate of increase or decrease in value. 2011 amendment tax form   Unless you can show that there were unusual circumstances, it is assumed that the increase or decrease in the value of your donated property from your cost has been at a reasonable rate. 2011 amendment tax form For time adjustments, an appraiser may consider published price indexes for information on general price trends, building costs, commodity costs, securities, and works of art sold at auction in arm's-length sales. 2011 amendment tax form Example. 2011 amendment tax form Bill Brown bought a painting for $10,000. 2011 amendment tax form Thirteen months later he gave it to an art museum, claiming a charitable deduction of $15,000 on his tax return. 2011 amendment tax form The appraisal of the painting should include information showing that there were unusual circumstances that justify a 50% increase in value for the 13 months Bill held the property. 2011 amendment tax form Arm's-length offer. 2011 amendment tax form   An arm's-length offer to buy the property close to the valuation date may help to prove its value if the person making the offer was willing and able to complete the transaction. 2011 amendment tax form To rely on an offer, you should be able to show proof of the offer and the specific amount to be paid. 2011 amendment tax form Offers to buy property other than the donated item will help to determine value if the other property is reasonably similar to the donated property. 2011 amendment tax form Sales of Comparable Properties The sales prices of properties similar to the donated property are often important in determining the FMV. 2011 amendment tax form The weight to be given to each sale depends on the following. 2011 amendment tax form The degree of similarity between the property sold and the donated property. 2011 amendment tax form The time of the sale—whether it was close to the valuation date. 2011 amendment tax form The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act. 2011 amendment tax form The conditions of the market in which the sale was made—whether unusually inflated or deflated. 2011 amendment tax form The comparable sales method of valuing real estate is explained later under Valuation of Various Kinds of Property. 2011 amendment tax form Example 1. 2011 amendment tax form Mary Black, who is not a book dealer, paid a promoter $10,000 for 500 copies of a single edition of a modern translation of the Bible. 2011 amendment tax form The promoter had claimed that the price was considerably less than the “retail” price, and gave her a statement that the books had a total retail value of $30,000. 2011 amendment tax form The promoter advised her that if she kept the Bibles for more than 1 year and then gave them to a qualified organization, she could claim a charitable deduction for the “retail” price of $30,000. 2011 amendment tax form Thirteen months later she gave all the Bibles to a church that she selected from a list provided by the promoter. 2011 amendment tax form At the time of her donation, wholesale dealers were selling similar quantities of Bibles to the general public for $10,000. 2011 amendment tax form The FMV of the Bibles is $10,000, the price at which similar quantities of Bibles were being sold to others at the time of the contribution. 2011 amendment tax form Example 2. 2011 amendment tax form The facts are the same as in Example 1, except that the promoter gave Mary Black a second option. 2011 amendment tax form The promoter said that if Mary wanted a charitable deduction within 1 year of the purchase, she could buy the 500 Bibles at the “retail” price of $30,000, paying only $10,000 in cash and giving a promissory note for the remaining $20,000. 2011 amendment tax form The principal and interest on the note would not be due for 12 years. 2011 amendment tax form According to the promoter, Mary could then, within 1 year of the purchase, give the Bibles to a qualified organization and claim the full $30,000 retail price as a charitable contribution. 2011 amendment tax form She purchased the Bibles under the second option and, 3 months later, gave them to a church, which will use the books for church purposes. 2011 amendment tax form At the time of the gift, the promoter was selling similar lots of Bibles for either $10,000 or $30,000. 2011 amendment tax form The difference between the two prices was solely at the discretion of the buyer. 2011 amendment tax form The promoter was a willing seller for $10,000. 2011 amendment tax form Therefore, the value of Mary's contribution of the Bibles is $10,000, the amount at which similar lots of Bibles could be purchased from the promoter by members of the general public. 2011 amendment tax form Replacement Cost The cost of buying, building, or manufacturing property similar to the donated item should be considered in determining FMV. 2011 amendment tax form However, there must be a reasonable relationship between the replacement cost and the FMV. 2011 amendment tax form The replacement cost is the amount it would cost to replace the donated item on the valuation date. 2011 amendment tax form Often there is no relationship between the replacement cost and the FMV. 2011 amendment tax form If the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important. 2011 amendment tax form To determine the replacement cost of the donated property, find the “estimated replacement cost new. 2011 amendment tax form ” Then subtract from this figure an amount for depreciation due to the physical condition and obsolescence of the donated property. 2011 amendment tax form You should be able to show the relationship between the depreciated replacement cost and the FMV, as well as how you arrived at the “estimated replacement cost new. 2011 amendment tax form ” Opinions of Experts Generally, the weight given to an expert's opinion on matters such as the authenticity of a coin or a work of art, or the most profitable and best use of a piece of real estate, depends on the knowledge and competence of the expert and the thoroughness with which the opinion is supported by experience and facts. 2011 amendment tax form For an expert's opinion to deserve much weight, the facts must support the opinion. 2011 amendment tax form For additional information, see Appraisals, later. 2011 amendment tax form Table 1. 2011 amendment tax form Factors That Affect FMV IF the factor you are considering is. 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form THEN you should ask these questions. 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form     cost or selling price Was the purchase or sale of the property reasonably close to the date of contribution? Was any increase or decrease in value, as compared to your cost, at a reasonable rate? Do the terms of purchase or sale limit what can be done with the property? Was there an arm's-length offer to buy the property close to the valuation date?     sales of comparable properties How similar is the property sold to the property donated? How close is the date of sale to the valuation date? Was the sale at arm's-length? What was the condition of the market at the time of sale?     replacement cost What would it cost to replace the donated property? Is there a reasonable relationship between replacement cost and FMV? Is the supply of the donated property more or less than the demand for it?     opinions of experts Is the expert knowledgeable and competent? Is the opinion thorough and supported by facts and experience? Problems in Determining Fair Market Value There are a number of problems in determining the FMV of donated property. 2011 amendment tax form Unusual Market Conditions The sale price of the property itself in an arm's-length transaction in an open market is often the best evidence of its value. 2011 amendment tax form When you rely on sales of comparable property, the sales must have been made in an open market. 2011 amendment tax form If those sales were made in a market that was artificially supported or stimulated so as not to be truly representative, the prices at which the sales were made will not indicate the FMV. 2011 amendment tax form For example, liquidation sale prices usually do not indicate the FMV. 2011 amendment tax form Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV. 2011 amendment tax form Selection of Comparable Sales Using sales of comparable property is an important method for determining the FMV of donated property. 2011 amendment tax form However, the amount of weight given to a sale depends on the degree of similarity between the comparable and the donated properties. 2011 amendment tax form The degree of similarity must be close enough so that this selling price would have been given consideration by reasonably well-informed buyers or sellers of the property. 2011 amendment tax form Example. 2011 amendment tax form You give a rare, old book to your former college. 2011 amendment tax form The book is a third edition and is in poor condition because of a missing back cover. 2011 amendment tax form You discover that there was a sale for $300, near the valuation date, of a first edition of the book that was in good condition. 2011 amendment tax form Although the contents are the same, the books are not at all similar because of the different editions and their physical condition. 2011 amendment tax form Little consideration would be given to the selling price of the $300 property by knowledgeable buyers or sellers. 2011 amendment tax form Future Events You may not consider unexpected events happening after your donation of property in making the valuation. 2011 amendment tax form You may consider only the facts known at the time of the gift, and those that could be reasonably expected at the time of the gift. 2011 amendment tax form Example. 2011 amendment tax form You give farmland to a qualified charity. 2011 amendment tax form The transfer provides that your mother will have the right to all income and full use of the property for her life. 2011 amendment tax form Even though your mother dies 1 week after the transfer, the value of the property on the date it is given is its present value, subject to the life interest as estimated from actuarial tables. 2011 amendment tax form You may not take a higher deduction because the charity received full use and possession of the land only 1 week after the transfer. 2011 amendment tax form Using Past Events to Predict the Future A common error is to rely too much on past events that do not fairly reflect the probable future earnings and FMV. 2011 amendment tax form Example. 2011 amendment tax form You give all your rights in a successful patent to your favorite charity. 2011 amendment tax form Your records show that before the valuation date there were three stages in the patent's history of earnings. 2011 amendment tax form First, there was rapid growth in earnings when the invention was introduced. 2011 amendment tax form Then, there was a period of high earnings when the invention was being exploited. 2011 amendment tax form Finally, there was a decline in earnings when competing inventions were introduced. 2011 amendment tax form The entire history of earnings may be relevant in estimating the future earnings. 2011 amendment tax form However, the appraiser must not rely too much on the stage of rapid growth in earnings, or of high earnings. 2011 amendment tax form The market conditions at those times do not represent the condition of the market at the valuation date. 2011 amendment tax form What is most significant is the trend of decline in earnings up to the valuation date. 2011 amendment tax form For more information about donations of patents, see Patents, later. 2011 amendment tax form Valuation of Various Kinds of Property This section contains information on determining the FMV of ordinary kinds of donated property. 2011 amendment tax form For information on appraisals, see Appraisals, later. 2011 amendment tax form Household Goods The FMV of used household goods, such as furniture, appliances, and linens, is usually much lower than the price paid when new. 2011 amendment tax form Such used property may have little or no market value because of its worn condition. 2011 amendment tax form It may be out of style or no longer useful. 2011 amendment tax form You cannot take a deduction for household goods donated after August 17, 2006, unless they are in good used condition or better. 2011 amendment tax form A household good that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. 2011 amendment tax form See Deduction over $500 for certain clothing or household items, later. 2011 amendment tax form If the property is valuable because it is old or unique, see the discussion under Paintings, Antiques, and Other Objects of Art. 2011 amendment tax form Used Clothing Used clothing and other personal items are usually worth far less than the price you paid for them. 2011 amendment tax form Valuation of items of clothing does not lend itself to fixed formulas or methods. 2011 amendment tax form The price that buyers of used items actually pay in used clothing stores, such as consignment or thrift shops, is an indication of the value. 2011 amendment tax form You cannot take a deduction for clothing donated after August 17, 2006, unless it is in good used condition or better. 2011 amendment tax form An item of clothing that is not in good used condition or better for which you take a deduction of more than $500 requires a qualified appraisal. 2011 amendment tax form See Deduction over $500 for certain clothing or household items, later. 2011 amendment tax form For valuable furs or very expensive gowns, a Form 8283 may have to be sent with your tax return. 2011 amendment tax form Jewelry and Gems Jewelry and gems are of such a specialized nature that it is almost always necessary to get an appraisal by a specialized jewelry appraiser. 2011 amendment tax form The appraisal should describe, among other things, the style of the jewelry, the cut and setting of the gem, and whether it is now in fashion. 2011 amendment tax form If not in fashion, the possibility of having the property redesigned, recut, or reset should be reported in the appraisal. 2011 amendment tax form The stone's coloring, weight, cut, brilliance, and flaws should be reported and analyzed. 2011 amendment tax form Sentimental personal value has no effect on FMV. 2011 amendment tax form But if the jewelry was owned by a famous person, its value might increase. 2011 amendment tax form Paintings, Antiques, and Other Objects of Art Your deduction for contributions of paintings, antiques, and other objects of art, should be supported by a written appraisal from a qualified and reputable source, unless the deduction is $5,000 or less. 2011 amendment tax form Examples of information that should be included in appraisals of art objects—paintings in particular—are found later under Qualified Appraisal. 2011 amendment tax form Art valued at $20,000 or more. 2011 amendment tax form   If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. 2011 amendment tax form For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10 inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request. 2011 amendment tax form Art valued at $50,000 or more. 2011 amendment tax form   If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. 2011 amendment tax form You must request the statement before filing the tax return that reports the donation. 2011 amendment tax form Your request must include the following. 2011 amendment tax form A copy of a qualified appraisal of the item. 2011 amendment tax form See Qualified Appraisal, later. 2011 amendment tax form A $2,500 check or money order payable to the Internal Revenue Service for the user fee that applies to your request regarding one, two, or three items of art. 2011 amendment tax form Add $250 for each item in excess of three. 2011 amendment tax form A completed Form 8283, Section B. 2011 amendment tax form The location of the IRS territory that has examination responsibility for your return. 2011 amendment tax form If your request lacks essential information, you will be notified and given 30 days to provide the missing information. 2011 amendment tax form   Send your request to: Internal Revenue Service Attention: Art Appraisal (C:AP:ART) P. 2011 amendment tax form O. 2011 amendment tax form Box 27720 McPherson Station Washington, DC 20038 Refunds. 2011 amendment tax form   You can withdraw your request for a Statement of Value at any time before it is issued. 2011 amendment tax form However, the IRS will not refund the user fee if you do. 2011 amendment tax form   If the IRS declines to issue a Statement of Value in the interest of efficient tax administration, the IRS will refund the user fee. 2011 amendment tax form Authenticity. 2011 amendment tax form   The authenticity of the donated art must be determined by the appraiser. 2011 amendment tax form Physical condition. 2011 amendment tax form   Important items in the valuation of antiques and art are physical condition and extent of restoration. 2011 amendment tax form These have a significant effect on the value and must be fully reported in an appraisal. 2011 amendment tax form An antique in damaged condition, or lacking the “original brasses,” may be worth much less than a similar piece in excellent condition. 2011 amendment tax form Art appraisers. 2011 amendment tax form   More weight will usually be given to an appraisal prepared by an individual specializing in the kind and price range of the art being appraised. 2011 amendment tax form Certain art dealers or appraisers specialize, for example, in old masters, modern art, bronze sculpture, etc. 2011 amendment tax form Their opinions on the authenticity and desirability of such art would usually be given more weight than the opinions of more generalized art dealers or appraisers. 2011 amendment tax form They can report more recent comparable sales to support their opinion. 2011 amendment tax form   To identify and locate experts on unique, specialized items or collections, you may wish to use the current Official Museum Directory of the American Association of Museums. 2011 amendment tax form It lists museums both by state and by category. 2011 amendment tax form   To help you locate a qualified appraiser for your donation, you may wish to ask an art historian at a nearby college or the director or curator of a local museum. 2011 amendment tax form The Yellow Pages often list specialized art and antique dealers, auctioneers, and art appraisers. 2011 amendment tax form You may be able to find a qualified appraiser on the Internet. 2011 amendment tax form You may also contact associations of dealers for guidance. 2011 amendment tax form Collections Since many kinds of hobby collections may be the subject of a charitable donation, it is not possible to discuss all of the possible collectibles in this publication. 2011 amendment tax form Most common are rare books, autographs, sports memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and natural history items. 2011 amendment tax form Many of the elements of valuation that apply to paintings and other objects of art, discussed earlier, also apply to miscellaneous collections. 2011 amendment tax form Reference material. 2011 amendment tax form   Publications available to help you determine the value of many kinds of collections include catalogs, dealers' price lists, and specialized hobby periodicals. 2011 amendment tax form When using one of these price guides, you must use the current edition at the date of contribution. 2011 amendment tax form However, these sources are not always reliable indicators of FMV and should be supported by other evidence. 2011 amendment tax form   For example, a dealer may sell an item for much less than is shown on a price list, particularly after the item has remained unsold for a long time. 2011 amendment tax form The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. 2011 amendment tax form The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. 2011 amendment tax form If you are donating a valuable collection, you should get an appraisal. 2011 amendment tax form If your donation appears to be of little value, you may be able to make a satisfactory valuation using reference materials available at a state, city, college, or museum library. 2011 amendment tax form Stamp collections. 2011 amendment tax form   Most libraries have catalogs or other books that report the publisher's estimate of values. 2011 amendment tax form Generally, two price levels are shown for each stamp: the price postmarked and the price not postmarked. 2011 amendment tax form Stamp dealers generally know the value of their merchandise and are able to prepare satisfactory appraisals of valuable collections. 2011 amendment tax form Coin collections. 2011 amendment tax form   Many catalogs and other reference materials show the writer's or publisher's opinion of the value of coins on or near the date of the publication. 2011 amendment tax form Like many other collectors' items, the value of a coin depends on the demand for it, its age, and its rarity. 2011 amendment tax form Another important factor is the coin's condition. 2011 amendment tax form For example, there is a great difference in the value of a coin that is in mint condition and a similar coin that is only in good condition. 2011 amendment tax form   Catalogs usually establish a category for coins, based on their physical condition—mint or uncirculated, extremely fine, very fine, fine, very good, good, fair, or poor—with a different valuation for each category. 2011 amendment tax form Books. 2011 amendment tax form   The value of books is usually determined by selecting comparable sales and adjusting the prices according to the differences between the comparable sales and the item being evaluated. 2011 amendment tax form This is difficult to do and, except for a collection of little value, should be done by a specialized appraiser. 2011 amendment tax form Within the general category of literary property, there are dealers who specialize in certain areas, such as Americana, foreign imports, Bibles, and scientific books. 2011 amendment tax form Modest value of collection. 2011 amendment tax form   If the collection you are donating is of modest value, not requiring a written appraisal, the following information may help you in determining the FMV. 2011 amendment tax form   A book that is very old, or very rare, is not necessarily valuable. 2011 amendment tax form There are many books that are very old or rare, but that have little or no market value. 2011 amendment tax form Condition of book. 2011 amendment tax form   The condition of a book may have a great influence on its value. 2011 amendment tax form Collectors are interested in items that are in fine, or at least good, condition. 2011 amendment tax form When a book has a missing page, a loose binding, tears, stains, or is otherwise in poor condition, its value is greatly lowered. 2011 amendment tax form Other factors. 2011 amendment tax form   Some other factors in the valuation of a book are the kind of binding (leather, cloth, paper), page edges, and illustrations (drawings and photographs). 2011 amendment tax form Collectors usually want first editions of books. 2011 amendment tax form However, because of changes or additions, other editions are sometimes worth as much as, or more than, the first edition. 2011 amendment tax form Manuscripts, autographs, diaries, and similar items. 2011 amendment tax form   When these items are handwritten, or at least signed by famous people, they are often in demand and are valuable. 2011 amendment tax form The writings of unknowns also may be of value if they are of unusual historical or literary importance. 2011 amendment tax form Determining the value of such material is difficult. 2011 amendment tax form For example, there may be a great difference in value between two diaries that were kept by a famous person—one kept during childhood and the other during a later period in his or her life. 2011 amendment tax form The appraiser determines a value in these cases by applying knowledge and judgment to such factors as comparable sales and conditions. 2011 amendment tax form Signatures. 2011 amendment tax form   Signatures, or sets of signatures, that were cut from letters or other papers usually have little or no value. 2011 amendment tax form But complete sets of the signatures of U. 2011 amendment tax form S. 2011 amendment tax form presidents are in demand. 2011 amendment tax form Cars, Boats, and Aircraft If you donate a car, a boat, or an aircraft to a charitable organization, its FMV must be determined. 2011 amendment tax form Certain commercial firms and trade organizations publish monthly or seasonal guides for different regions of the country, containing complete dealer sale prices or dealer average prices for recent model years. 2011 amendment tax form Prices are reported for each make, model, and year. 2011 amendment tax form These guides also provide estimates for adjusting for unusual equipment, unusual mileage, and physical condition. 2011 amendment tax form The prices are not “official,” and these publications are not considered an appraisal of any specific donated property. 2011 amendment tax form But they do provide clues for making an appraisal and suggest relative prices for comparison with current sales and offerings in your area. 2011 amendment tax form These publications are sometimes available from public libraries or at a bank, credit union, or finance company. 2011 amendment tax form You can also find pricing information about used cars on the Internet. 2011 amendment tax form An acceptable measure of the FMV of a donated car, boat, or airplane is an amount not in excess of the price listed in a used vehicle pricing guide for a private party sale, not the dealer retail value, of a similar vehicle. 2011 amendment tax form However, the FMV may be less than that amount if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear. 2011 amendment tax form The FMV of a donated vehicle is the same as the price listed in a used vehicle pricing guide for a private party sale only if the guide lists a sales price for a vehicle that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated vehicle. 2011 amendment tax form Example. 2011 amendment tax form You donate a used car in poor condition to a local high school for use by students studying car repair. 2011 amendment tax form A used car guide shows the dealer retail value for this type of car in poor condition is $1,600. 2011 amendment tax form However, the guide shows the price for a private party sale of the car is only $750. 2011 amendment tax form The FMV of the car is considered to be no more than $750. 2011 amendment tax form Boats. 2011 amendment tax form   Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value. 2011 amendment tax form More information. 2011 amendment tax form   Your deduction for a donated car, boat, or airplane generally is limited to the gross proceeds from its sale by the qualified organization. 2011 amendment tax form This rule applies if the claimed value of the donated vehicle is more than $500. 2011 amendment tax form In certain cases, you can deduct the vehicle's FMV. 2011 amendment tax form For details, see Publication 526. 2011 amendment tax form Inventory If you donate any inventory item to a charitable organization, the amount of your deductible contribution generally is the FMV of the item, minus any gain you would have realized if you had sold the item at its FMV on the date of the gift. 2011 amendment tax form For more information, see Publication 526. 2011 amendment tax form Patents To determine the FMV of a patent, you must take into account, among other factors: Whether the patented technology has been made obsolete by other technology; Any restrictions on the donee's use of, or ability to transfer, the patented technology; and The length of time remaining before the patent expires. 2011 amendment tax form However, your deduction for a donation of a patent or other intellectual property is its FMV, minus any gain you would have realized if you had sold the property at its FMV on the date of the gift. 2011 amendment tax form Generally, this means your deduction is the lesser of the property's FMV or its basis. 2011 amendment tax form For details, see Publication 526. 2011 amendment tax form Stocks and Bonds The value of stocks and bonds is the FMV of a share or bond on the valuation date. 2011 amendment tax form See Date of contribution, earlier, under What Is Fair Market Value (FMV). 2011 amendment tax form Selling prices on valuation date. 2011 amendment tax form   If there is an active market for the contributed stocks or bonds on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. 2011 amendment tax form For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. 2011 amendment tax form You get the average price by adding $11 and $9 and dividing the sum by 2. 2011 amendment tax form No sales on valuation date. 2011 amendment tax form   If there were no sales on the valuation date, but there were sales within a reasonable period before and after the valuation date, you determine FMV by taking the average price between the highest and lowest sales prices on the nearest date before and on the nearest date after the valuation date. 2011 amendment tax form Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date. 2011 amendment tax form Example. 2011 amendment tax form   On the day you gave stock to a qualified organization, there were no sales of the stock. 2011 amendment tax form Sales of the stock nearest the valuation date took place two trading days before the valuation date at an average selling price of $10 and three trading days after the valuation date at an average selling price of $15. 2011 amendment tax form The FMV on the valuation date was $12, figured as follows: [(3 x $10) + (2 x $15)] ÷ 5 = $12 Listings on more than one stock exchange. 2011 amendment tax form   Stocks or bonds listed on more than one stock exchange are valued based on the prices of the exchange on which they are principally dealt. 2011 amendment tax form This applies if these prices are published in a generally available listing or publication of general circulation. 2011 amendment tax form If this is not applicable, and the stocks or bonds are reported on a composite listing of combined exchanges in a publication of general circulation, use the composite list. 2011 amendment tax form See also Unavailable prices or closely held corporation, later. 2011 amendment tax form Bid and asked prices on valuation date. 2011 amendment tax form   If there were no sales within a reasonable period before and after the valuation date, the FMV is the average price between the bona fide bid and asked prices on the valuation date. 2011 amendment tax form Example. 2011 amendment tax form Although there were no sales of Blue Corporation stock on the valuation date, bona fide bid and asked prices were available on that date of $14 and $16, respectively. 2011 amendment tax form The FMV is $15, the average price between the bid and asked prices. 2011 amendment tax form No prices on valuation date. 2011 amendment tax form   If there were no prices available on the valuation date, you determine FMV by taking the average prices between the bona fide bid and asked prices on the closest trading date before and after the valuation date. 2011 amendment tax form Both dates must be within a reasonable period. 2011 amendment tax form Then you weight these averages in inverse order by the respective number of trading days between the bid and asked dates and the valuation date. 2011 amendment tax form Example. 2011 amendment tax form On the day you gave stock to a qualified organization, no prices were available. 2011 amendment tax form Bona fide bid and asked prices 3 days before the valuation date were $10 and 2 days after the valuation date were $15. 2011 amendment tax form The FMV on the valuation date is $13, figured as follows: [(2 x $10) + (3 x $15)] ÷ 5 = $13 Prices only before or after valuation date, but not both. 2011 amendment tax form   If no selling prices or bona fide bid and asked prices are available on a date within a reasonable period before the valuation date, but are available on a date within a reasonable period after the valuation date, or vice versa, then the average price between the highest and lowest of such available prices may be treated as the value. 2011 amendment tax form Large blocks of stock. 2011 amendment tax form   When a large block of stock is put on the market, it may lower the selling price of the stock if the supply is greater than the demand. 2011 amendment tax form On the other hand, market forces may exist that will afford higher prices for large blocks of stock. 2011 amendment tax form Because of the many factors to be considered, determining the value of large blocks of stock usually requires the help of experts specializing in underwriting large quantities of securities, or in trading in the securities of the industry of which the particular company is a part. 2011 amendment tax form Unavailable prices or closely held corporation. 2011 amendment tax form   If selling prices or bid and asked prices are not available, or if securities of a closely held corporation are involved, determine the FMV by considering the following factors. 2011 amendment tax form For bonds, the soundness of the security, the interest yield, the date of maturity, and other relevant factors. 2011 amendment tax form For shares of stock, the company's net worth, prospective earning power and dividend-paying capacity, and other relevant factors. 2011 amendment tax form Other factors. 2011 amendment tax form   Other relevant factors include: The nature and history of the business, especially its recent history, The goodwill of the business, The economic outlook in the particular industry, The company's position in the industry, its competitors, and its management, and The value of securities of corporations engaged in the same or similar business. 2011 amendment tax form For preferred stock, the most important factors are its yield, dividend coverage, and protection of its liquidation preference. 2011 amendment tax form   You should keep complete financial and other information on which the valuation is based. 2011 amendment tax form This includes copies of reports of examinations of the company made by accountants, engineers, or any technical experts on or close to the valuation date. 2011 amendment tax form Restricted securities. 2011 amendment tax form   Some classes of stock cannot be traded publicly because of restrictions imposed by the Securities and Exchange Commission, or by the corporate charter or a trust agreement. 2011 amendment tax form These restricted securities usually trade at a discount in relation to freely traded securities. 2011 amendment tax form   To arrive at the FMV of restricted securities, factors that you must consider include the resale provisions found in the restriction agreements, the relative negotiating strengths of the buyer and seller, and the market experience of freely traded securities of the same class as the restricted securities. 2011 amendment tax form Real Estate Because each piece of real estate is unique and its valuation is complicated, a detailed appraisal by a professional appraiser is necessary. 2011 amendment tax form The appraiser must be thoroughly trained in the application of appraisal principles and theory. 2011 amendment tax form In some instances the opinions of equally qualified appraisers may carry unequal weight, such as when one appraiser has a better knowledge of local conditions. 2011 amendment tax form The appraisal report must contain a complete description of the property, such as street address, legal description, and lot and block number, as well as physical features, condition, and dimensions. 2011 amendment tax form The use to which the property is put, zoning and permitted uses, and its potential use for other higher and better uses are also relevant. 2011 amendment tax form In general, there are three main approaches to the valuation of real estate. 2011 amendment tax form An appraisal may require the combined use of two or three methods rather than one method only. 2011 amendment tax form 1. 2011 amendment tax form Comparable Sales The comparable sales method compares the donated property with several similar properties that have been sold. 2011 amendment tax form The selling prices, after adjustments for differences in date of sale, size, condition, and location, would then indicate the estimated FMV of the donated property. 2011 amendment tax form If the comparable sales method is used to determine the value of unimproved real property (land without significant buildings, structures, or any other improvements that add to its value), the appraiser should consider the following factors when comparing the potential comparable property and the donated property: Location, size, and zoning or use restrictions, Accessibility and road frontage, and available utilities and water rights, Riparian rights (right of access to and use of the water by owners of land on the bank of a river) and existing easements, rights-of-way, leases, etc. 2011 amendment tax form , Soil characteristics, vegetative cover, and status of mineral rights, and Other factors affecting value. 2011 amendment tax form For each comparable sale, the appraisal must include the names of the buyer and seller, the deed book and page number, the date of sale and selling price, a property description, the amount and terms of mortgages, property surveys, the assessed value, the tax rate, and the assessor's appraised FMV. 2011 amendment tax form The comparable selling prices must be adjusted to account for differences between the sale property and the donated property. 2011 amendment tax form Because differences of opinion may arise between appraisers as to the degree of comparability and the amount of the adjustment considered necessary for comparison purposes, an appraiser should document each item of adjustment. 2011 amendment tax form Only comparable sales having the least adjustments in terms of items and/or total dollar adjustments should be considered as comparable to the donated property. 2011 amendment tax form 2. 2011 amendment tax form Capitalization of Income This method capitalizes the net income from the property at a rate that represents a fair return on the particular investment at the particular time, considering the risks involved. 2011 amendment tax form The key elements are the determination of the income to be capitalized and the rate of capitalization. 2011 amendment tax form 3. 2011 amendment tax form Replacement Cost New or Reproduction Cost Minus Observed Depreciation This method, used alone, usually does not result in a determination of FMV. 2011 amendment tax form Instead, it generally tends to set the upper limit of value, particularly in periods of rising costs, because it is reasonable to assume that an informed buyer will not pay more for the real estate than it would cost to reproduce a similar property. 2011 amendment tax form Of course, this reasoning does not apply if a similar property cannot be created because of location, unusual construction, or some other reason. 2011 amendment tax form Generally, this method serves to support the value determined from other methods. 2011 amendment tax form When the replacement cost method is applied to improved realty, the land and improvements are valued separately. 2011 amendment tax form The replacement cost of a building is figured by considering the materials, the quality of workmanship, and the number of square feet or cubic feet in the building. 2011 amendment tax form This cost represents the total cost of labor and material, overhead, and profit. 2011 amendment tax form After the replacement cost has been figured, consideration must be given to the following factors: Physical deterioration—the wear and tear on the building itself, Functional obsolescence—usually in older buildings with, for example, inadequate lighting, plumbing, or heating, small rooms, or a poor floor plan, and Economic obsolescence—outside forces causing the whole area to become less desirable. 2011 amendment tax form Interest in a Business The FMV of any interest in a business, whether a sole proprietorship or a partnership, is the amount that a willing buyer would pay for the interest to a willing seller after consideration of all relevant factors. 2011 amendment tax form The relevant factors to be considered in valuing the business are: The FMV of the assets of the business, The demonstrated earnings capacity of the business, based on a review of past and current earnings, and The other factors used in evaluating corporate stock, if they apply. 2011 amendment tax form The value of the goodwill of the business should also be taken into consideration. 2011 amendment tax form You should keep complete financial and other information on which you base the valuation. 2011 amendment tax form This includes copies of reports of examinations of the business made by accountants, engineers, or any technical experts on or close to the valuation date. 2011 amendment tax form Annuities, Interests for Life or Terms of Years, Remainders, and Reversions The value of these kinds of property is their present value, except in the case of annuities under contracts issued by companies regularly engaged in their sale. 2011 amendment tax form The valuation of these commercial annuity contracts and of insurance policies is discussed later under Certain Life Insurance and Annuity Contracts. 2011 amendment tax form To determine present value, you must know the applicable interest rate and use actuarial tables. 2011 amendment tax form Interest rate. 2011 amendment tax form   The applicable interest rate varies. 2011 amendment tax form It is announced monthly in a news release and published in the Internal Revenue Bulletin as a Revenue Ruling. 2011 amendment tax form The interest rate to use is under the heading “Rate Under Section 7520” for a given month and year. 2011 amendment tax form You can call the IRS office at 1-800-829-1040 to obtain this rate. 2011 amendment tax form Actuarial tables. 2011 amendment tax form   You need to refer to actuarial tables to determine a qualified interest in the form of an annuity, any interest for life or a term of years, or any remainder interest to a charitable organization. 2011 amendment tax form   Use the valuation tables set forth in IRS Publications 1457, Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). 2011 amendment tax form Both of these publications provide tables containing actuarial factors to be used in determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest. 2011 amendment tax form For qualified charitable transfers, you can use the factor for the month in which you made the contribution or for either of the 2 months preceding that month. 2011 amendment tax form   Publication 1457 also contains actuarial factors for computing the value of a remainder interest in a charitable remainder annuity trust and a pooled income fund. 2011 amendment tax form Publication 1458 contains the factors for valuing the remainder interest in a charitable remainder unitrust. 2011 amendment tax form You can download Publications 1457 and 1458 from www. 2011 amendment tax form irs. 2011 amendment tax form gov. 2011 amendment tax form In addition, they are available for purchase via the website of the U. 2011 amendment tax form S. 2011 amendment tax form Government Printing Office, by phone at (202) 512-1800, or by mail from the: Superintendent of Documents P. 2011 amendment tax form O. 2011 amendment tax form Box 371954 Pittsburgh, PA 15250-7954 Tables containing actuarial factors for transfers to pooled income funds may also be found in Income Tax Regulation 1. 2011 amendment tax form 642(c)-6(e)(6), transfers to charitable remainder unitrusts in Regulation 1. 2011 amendment tax form 664-4(e), and other transfers in Regulation 20. 2011 amendment tax form 2031-7(d)(6). 2011 amendment tax form Special factors. 2011 amendment tax form   If you need a special factor for an actual transaction, you can request a letter ruling. 2011 amendment tax form Be sure to include the date of birth of each person the duration of whose life may affect the value of the interest. 2011 amendment tax form Also include copies of the relevant instruments. 2011 amendment tax form IRS charges a user fee for providing special factors. 2011 amendment tax form   For more information about requesting a ruling, see Revenue Procedure 2006-1 (or annual update), 2006-1 I. 2011 amendment tax form R. 2011 amendment tax form B. 2011 amendment tax form 1. 2011 amendment tax form Revenue Procedure 2006-1 is available at www. 2011 amendment tax form irs. 2011 amendment tax form gov/irb/2006-01_IRB/ar06. 2011 amendment tax form html. 2011 amendment tax form   For information on the circumstances under which a charitable deduction may be allowed for the donation of a partial interest in property not in trust, see Partial Interest in Property Not in Trust, later. 2011 amendment tax form Certain Life Insurance and Annuity Contracts The value of an annuity contract or a life insurance policy issued by a company regularly engaged in the sale of such contracts or policies is the amount that company would charge for a comparable contract. 2011 amendment tax form But if the donee of a life insurance policy may reasonably be expected to cash the policy rather than hold it as an investment, then the FMV is the cash surrender value rather than the replacement cost. 2011 amendment tax form If an annuity is payable under a combination annuity contract and life insurance policy (for example, a retirement income policy with a death benefit) and there was no insurance element when it was transferred to the charity, the policy is treated as an annuity contract. 2011 amendment tax form Partial Interest in Property Not in Trust Generally, no deduction is allowed for a charitable contribution, not made in trust, of less than your entire interest in property. 2011 amendment tax form However, this does not apply to a transfer of less than your entire interest if it is a transfer of: A remainder interest in your personal residence or farm, An undivided part of your entire interest in property, or A qualified conservation contribution. 2011 amendment tax form Remainder Interest in Real Property The amount of the deduction for a donation of a remainder interest in real property is the FMV of the remainder interest at the time of the contribution. 2011 amendment tax form To determine this value, you must know the FMV of the property on the date of the contribution. 2011 amendment tax form Multiply this value by the appropriate factor. 2011 amendment tax form Publications 1457 and 1458 contain these factors. 2011 amendment tax form You must make an adjustment for depreciation or depletion using the factors shown in Publication 1459, Actuarial Values (Book Gimel). 2011 amendment tax form You can use the factors for the month in which you made the contribution or for either of the two months preceding that month. 2011 amendment tax form See the earlier discussion on Annuities, Interests for Life or Terms of Years, Remainders, and Reversions. 2011 amendment tax form You can download Publication 1459 from www. 2011 amendment tax form irs. 2011 amendment tax form gov. 2011 amendment tax form For this purpose, the term “depreciable property” means any property subject to wear and tear or obsolescence, even if not used in a trade or business or for the production of income. 2011 amendment tax form If the remainder interest includes both depreciable and nondepreciable property, for example a house and land, the FMV must be allocated between each kind of property at the time of the contribution. 2011 amendment tax form This rule also applies to a gift of a remainder interest that includes property that is part depletable and part not depletable. 2011 amendment tax form Take into account depreciation or depletion only for the property that is subject to depreciation or depletion. 2011 amendment tax form For more information, see section 1. 2011 amendment tax form 170A-12 of the Income Tax Regulations. 2011 amendment tax form Undivided Part of Your Entire Interest A contribution of an undivided part of your entire interest in property must consist of a part of each and every substantial interest or right you own in the property. 2011 amendment tax form It must extend over the entire term of your interest in the property. 2011 amendment tax form For example, you are entitled to the income from certain property for your life (life estate) and you contribute 20% of that life estate to a qualified organization. 2011 amendment tax form You can claim a deduction for the contribution if you do not have any other interest in the property. 2011 amendment tax form To figure the value of a contribution involving a partial interest, see Publication 1457. 2011 amendment tax form If the only interest you own in real property is a remainder interest and you transfer part of that interest to a qualified organization, see the previous discussion on valuation of a remainder interest in real property. 2011 amendment tax form Qualified Conservation Contribution A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization to be used only for conservation purposes. 2011 amendment tax form Qualified organization. 2011 amendment tax form   For purposes of a qualified conservation contribution, a qualified organization is: A governmental unit, A publicly supported charitable, religious, scientific, literary, educational, etc. 2011 amendment tax form , organization, or An organization that is controlled by, and operated for the exclusive benefit of, a governmental unit or a publicly supported charity. 2011 amendment tax form The organization also must have a commitment to protect the conservation purposes of the donation and must have the resources to enforce the restrictions. 2011 amendment tax form Conservation purposes. 2011 amendment tax form   Your contribution must be made only for one of the following conservation purposes. 2011 amendment tax form Preserving land areas for outdoor recreation by, or for the education of, the general public. 2011 amendment tax form Protecting a relatively natural habitat of fish, wildlife, or plants, or a similar ecosystem. 2011 amendment tax form Preserving open space, including farmland and forest land, if it yields a significant public benefit. 2011 amendment tax form It must be either for the scenic enjoyment of the general public or under a clearly defined federal, state, or local governmental conservation policy. 2011 amendment tax form Preserving a historically important land area or a certified historic structure. 2011 amendment tax form There must be some visual public access to the property. 2011 amendment tax form Factors used in determining the type and amount of public access required include the historical significance of the property, the remoteness or accessibility of the site, and the extent to which intrusions on the privacy of individuals living on the property would be unreasonable. 2011 amendment tax form Building in registered historic district. 2011 amendment tax form   A contribution after July 25, 2006, of a qualified real property interest that is an easement or other restriction on the exterior of a building in a registered historic district is deductible only if it meets all of the following three conditions. 2011 amendment tax form The restriction must preserve the entire exterior of the building and must prohibit any change to the exterior of the building that is inconsistent with its historical character. 2011 amendment tax form You and the organization receiving the contribution must enter into a written agreement certifying, that the organization is a qualified organization and that it has the resources and commitment to maintain the property as donated. 2011 amendment tax form If you make the contribution in a tax year beginning after August 17, 2006, you must include with your return: A qualified appraisal, Photographs of the building's entire exterior, and A description of all restrictions on development of the building, such as zoning laws and restrictive covenants. 2011 amendment tax form   If you make this type of contribution after February 12, 2007, and claim a deduction of more than $10,000, your deduction will not be allowed unless you pay a $500 filing fee. 2011 amendment tax form See Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13), and its instructions. 2011 amendment tax form Qualified real property interest. 2011 amendment tax form   This is any of the following interests in real property. 2011 amendment tax form Your entire interest in real estate other than a mineral interest (subsurface oil, gas, or other minerals, and the right of access to these minerals). 2011 amendment tax form A remainder interest. 2011 amendment tax form A restriction (granted in perpetuity) on the use that may be made of the real property. 2011 amendment tax form Valuation. 2011 amendment tax form   A qualified real property interest described in (1) should be valued in a manner that is consistent with the type of interest transferred. 2011 amendment tax form If you transferred all the interest in the property, the FMV of the property is the amount of the contribution. 2011 amendment tax form If you do not transfer the mineral interest, the FMV of the surface rights in the property is the amount of the contribution. 2011 amendment tax form   If you owned only a remainder interest or an income interest (life estate), see Undivided Part of Your Entire Interest, earlier. 2011 amendment tax form If you owned the entire property but transferred only a remainder interest (item (2)), see Remainder Interest in Real Property, earlier. 2011 amendment tax form   In determining the value of restrictions, you should take into account the selling price in arm's-length transactions of other properties that have comparable restrictions. 2011 amendment tax form If there are no comparable sales, the restrictions are valued indirectly as the difference between the FMVs of the property involved before and after the grant of the restriction. 2011 amendment tax form   The FMV of the property before contribution of the restriction should take into account not only current use but the likelihood that the property, without the restriction, would be developed. 2011 amendment tax form You should also consider any zoning, conservation, or historical preservation laws that would restrict development. 2011 amendment tax form Granting an easement may increase, rather than reduce, the value of property, and in such a situation no deduction would be allowed. 2011 amendment tax form Example. 2011 amendment tax form   You own 10 acres of farmland. 2011 amendment tax form Similar land in the area has an FMV of $2,000 an acre. 2011 amendment tax form However, land in the general area that is restricted solely to farm use has an FMV of $1,500 an acre. 2011 amendment tax form Your county wants to preserve open space and prevent further development in your area. 2011 amendment tax form   You grant to the county an enforceable open space easement in perpetuity on 8 of the 10 acres, restricting its use to farmland. 2011 amendment tax form The value of this easement is $4,000, determined as follows: FMV of the property before granting easement:   $2,000 × 10 acres $20,000 FMV of the property after granting easement:   $1,500 × 8 acres $12,000   $2,000 × 2 acres 4,000 16,000 Value of easement   $4,000   If you later transfer in fee your remaining interest in the 8 acres to another qualified organization, the FMV of your remaining interest is the FMV of the 8 acres reduced by the FMV of the easement granted to the first organization. 2011 amendment tax form More information. 2011 amendment tax form   For more information about qualified conservation contributions, see Publication 526. 2011 amendment tax form Appraisals Appraisals are not necessary for items of property for which you claim a deduction of $5,000 or less. 2011 amendment tax form (There is one exception, described next, for certain clothing and household items. 2011 amendment tax form ) However, you generally will need an appraisal for donated property for which you claim a deduction of more than $5,000. 2011 amendment tax form There are exceptions. 2011 amendment tax form See Deductions of More Than $5,000, later. 2011 amendment tax form The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser's demonstrated knowledge of the donated property. 2011 amendment tax form An appraisal must give all the facts on which to base an intelligent judgment of the value of the property. 2011 amendment tax form The appraisal will not be given much weight if: All the factors that apply are not considered, The opinion is not supported with facts, such as purchase price and comparable sales, or The opinion is not consistent with known facts. 2011 amendment tax form The appraiser's opinion is never more valid than the facts on which it is based; without these facts it is simply a guess. 2011 amendment tax form The opinion of a person claiming to be an expert is not binding on the Internal Revenue Service. 2011 amendment tax form All facts associated with the donation must be considered. 2011 amendment tax form Deduction over $500 for certain clothing or household items. 2011 amendment tax form   You must include with your return a qualified appraisal of any single item of clothing or any household item that is not in good used condition or better, that you donated after August 17, 2006, and for which you deduct more than $500. 2011 amendment tax form See Household Goods and Used Clothing, earlier. 2011 amendment tax form Cost of appraisals. 2011 amendment tax form   You may not take a charitable contribution deduction for fees you pay for appraisals of your donated property. 2011 amendment tax form However, these fees may qualify as a miscellaneous deduction, subject to the 2% limit, on Schedule A (Form 1040) if paid to determine the amount allowable as a charitable contribution. 2011 amendment tax form Deductions of More Than $5,000 Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser, and you must attach Section B of Form 8283 to your tax return. 2011 amendment tax form There are exceptions, discussed later. 2011 amendment tax form You should keep the appraiser's report with your written records. 2011 amendment tax form Records are discussed in Publication 526. 2011 amendment tax form The phrase “similar items” means property of the same generic category or type (whether or not donated to the same donee), such as stamp collections, coin collections, lithographs, paintings, photographs, books, nonpublicly traded stock, nonpublicly traded securities other than nonpublicly traded stock, land, buildings, clothing, jewelry, furniture, electronic equipment, household appliances, toys, everyday kitchenware, china, crystal, or silver. 2011 amendment tax form For example, if you give books to three schools and you deduct $2,000, $2,500, and $900, respectively, your claimed deduction is more than $5,000 for these books. 2011 amendment tax form You must get a qualified appraisal of the books and for each school you must attach a fully completed Form 8283, Section B, to your tax return. 2011 amendment tax form Exceptions. 2011 amendment tax form   You do not need an appraisal if the property is: Nonpublicly traded stock of $10,000 or less, A vehicle (including a car, boat, or airplane) for which your deduction is limited to the gross proceeds from its sale, Qualified intellectual property, such as a patent, Certain publicly traded securities described next, Inventory and other property donated by a corporation that are “qualified contributions” for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A) of the Internal Revenue Code, or Stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business. 2011 amendment tax form   Although an appraisal is not required for the types of property just listed, you must provide certain information about a donation of any of these types of property on Form 8283. 2011 amendment tax form Publicly traded securities. 2011 amendment tax form   Even if your claimed deduction is more than $5,000, neither a qualified appraisal nor Section B of Form 8283 is required for publicly traded securities that are: Listed on a stock exchange in which quotations are published on a daily basis, Regularly traded in a national or regional over-the-counter market for which published quotations are available, or Shares of an open-end investment company (mutual fund) for which quotations are published on a daily basis in a newspaper of general circulation throughout the United States. 2011 amendment tax form Publicly traded securities that meet these requirements must be reported on Form 8283, Section A. 2011 amendment tax form   A qualified appraisal is not required, but Form 8283, Section B, Parts I and IV, must be completed, for an issue of a security that does not meet the requirements just listed but does meet these requirements: The issue is regularly traded during the computation period (defined later) in a market for which there is an “interdealer quotation system” (defined later), The issuer or agent computes the “average trading price” (defined later) for the same issue for the computation period, The average trading price and total volume of the issue during the computation period are published in a newspaper of general circulation throughout the United States, not later than the last day of the month following the end of the calendar quarter in which the computation period ends, The issuer or agent keeps books and records that list for each transaction during the computation period the date of settlement of the transaction, the name and address of the broker or dealer making the market in which the transaction occurred, and the trading price and volume, and The issuer or agent permits the Internal Revenue Service to review the books and records described in item (4) with respect to transactions during the computation period upon receiving reasonable notice. 2011 amendment tax form   An interdealer quotation system is any system of general circulation to brokers and dealers that regularly disseminates quotations of obligations by two or more identified brokers or dealers who are not related to either the issuer or agent who computes the average trading price of the security. 2011 amendment tax form A quotation sheet prepared and distributed by a broker or dealer in the regular course of business and containing only quotations of that broker or dealer is not an interdealer quotation system. 2011 amendment tax form   The average trading price is the average price of all transactions (weighted by volume), other than original issue or redemption transactions, conducted through a United States office of a broker or dealer who maintains a market in the issue of the security during the computation period. 2011 amendment tax form Bid and asked quotations are not taken into account. 2011 amendment tax form   The computation period is weekly during October through December and monthly during January through September. 2011 amendment tax form The weekly computation periods during October through December begin with the first Monday in October and end with the first Sunday following the last Monday in December. 2011 amendment tax form Nonpublicly traded stock. 2011 amendment tax form   If you contribute nonpublicly traded stock, for which you claim a deduction of $10,000 or less, a qualified appraisal is not required. 2011 amendment tax form However, you must attach Form 8283 to your tax return, with Section B, Parts I and IV, completed. 2011 amendment tax form Deductions of More Than $500,000 If you claim a deduction of more than $500,000 for a donation of property, you must attach a qualified appraisal of the property to your return. 2011 amendment tax form This does not apply to contributions of cash, inventory, publicly traded stock, or intellectual property. 2011 amendment tax form If you do not attach the appraisal, you cannot deduct your contribution, unless your failure to attach the appraisal is due to reasonable cause and not to willful neglect. 2011 amendment tax form Qualified Appraisal Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must get a qualified appraisal made by a qualified appraiser. 2011 amendment tax form You must also complete Form 8283, Section B, and attach it to your tax return. 2011 amendment tax form See Deductions of More Than $5,000, earlier. 2011 amendment tax form A qualified appraisal is an appraisal document that: Is made, signed, and dated by a qualified appraiser (defined later) in accordance with generally accepted appraisal standards, Meets the relevant requirements of Regulations section 1. 2011 amendment tax form 170A-13(c)(3) and Notice 2006-96, 2006-46 I. 2011 amendment tax form R. 2011 amendment tax form B. 2011 amendment tax form 902 (available at www. 2011 amendment tax form irs. 2011 amendment tax form gov/irb/2006-46_IRB/ar13. 2011 amendment tax form html), Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property, Does not involve a prohibited appraisal fee, and Includes certain information (covered later). 2011 amendment tax form You must receive the qualified appraisal before the due date, including extensions, of the return on which a charitable contribution deduction is first claimed for the donated property. 2011 amendment tax form If the deduction is first claimed on an amended return, the qualified appraisal must be received before the date on which the amended return is filed. 2011 amendment tax form Form 8283, Section B, must be attached to your tax return. 2011 amendment tax form Generally, you do not need to attach the qualified appraisal itself, but you should keep a copy as long as it may be relevant under the tax law. 2011 amendment tax form There are four exceptions. 2011 amendment tax form If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the appraisal. 2011 amendment tax form See Paintings, Antiques, and Other Objects of Art, earlier. 2011 amendment tax form If you claim a deduction of more than $500,000 for a donation of property, you must attach the appraisal. 2011 amendment tax form See Deductions of More Than $500,000, earlier. 2011 amendment tax form If you claim a deduction of more than $500 for an article of clothing, or a household item, that is not in good used condition or better, that you donated after August 17, 2006, you must attach the appraisal. 2011 amendment tax form See Deduction over $500 for certain clothing or household items, earlier. 2011 amendment tax form If you claim a deduction in a tax year beginning after August 17, 2006, for an easement or other restriction on the exterior of a building in a historic district, you must attach the appraisal. 2011 amendment tax form See Building in registered historic district, earlier. 2011 amendment tax form Prohibited appraisal fee. 2011 amendment tax form   Generally, no part of the fee arrangement for a qualified appraisal can be based on a percentage of the appraised value of the property. 2011 amendment tax form If a fee arrangement is based on what is allowed as a deduction, after Internal Revenue Service examination or otherwise, it is treated as a fee based on a percentage of appraised value. 2011 amendment tax form However, appraisals are not disqualified when an otherwise prohi
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The 2011 Amendment Tax Form

2011 amendment tax form 4. 2011 amendment tax form   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. 2011 amendment tax form Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. 2011 amendment tax form Net unrelated income. 2011 amendment tax form Net unrelated loss. 2011 amendment tax form Control. 2011 amendment tax form Income from property financed with qualified 501(c)(3) bonds. 2011 amendment tax form Disposition of property received from taxable subsidiary and used in unrelated business. 2011 amendment tax form Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. 2011 amendment tax form If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. 2011 amendment tax form In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. 2011 amendment tax form Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. 2011 amendment tax form For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. 2011 amendment tax form Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. 2011 amendment tax form Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. 2011 amendment tax form Dividends, interest, annuities and other investment income. 2011 amendment tax form   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. 2011 amendment tax form Exception for insurance activity income of a controlled foreign corporation. 2011 amendment tax form   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. 2011 amendment tax form The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. 2011 amendment tax form Certain exceptions to this rule apply. 2011 amendment tax form For more information, see section 512(b)(17). 2011 amendment tax form Other exceptions. 2011 amendment tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). 2011 amendment tax form Income from lending securities. 2011 amendment tax form   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. 2011 amendment tax form   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. 2011 amendment tax form The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. 2011 amendment tax form Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. 2011 amendment tax form Royalties. 2011 amendment tax form   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. 2011 amendment tax form   To be considered a royalty, a payment must relate to the use of a valuable right. 2011 amendment tax form Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. 2011 amendment tax form Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. 2011 amendment tax form However, royalties do not include payments for personal services. 2011 amendment tax form Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. 2011 amendment tax form   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. 2011 amendment tax form   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. 2011 amendment tax form However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. 2011 amendment tax form To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. 2011 amendment tax form To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. 2011 amendment tax form Exceptions. 2011 amendment tax form   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). 2011 amendment tax form Rents. 2011 amendment tax form   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. 2011 amendment tax form Rents from personal property are not excluded. 2011 amendment tax form However, special rules apply to “mixed leases” of both real and personal property. 2011 amendment tax form Mixed leases. 2011 amendment tax form   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. 2011 amendment tax form If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. 2011 amendment tax form If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. 2011 amendment tax form   Property is placed in service when the lessee first may use it under the terms of a lease. 2011 amendment tax form For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. 2011 amendment tax form   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. 2011 amendment tax form   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). 2011 amendment tax form Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. 2011 amendment tax form Exception for rents based on net profit. 2011 amendment tax form   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. 2011 amendment tax form Exception for income from personal services. 2011 amendment tax form   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. 2011 amendment tax form Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. 2011 amendment tax form Other exceptions. 2011 amendment tax form   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. 2011 amendment tax form ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). 2011 amendment tax form See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. 2011 amendment tax form Income from research. 2011 amendment tax form   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. 2011 amendment tax form However, the extent of the exclusion depends on the nature of the organization and the type of research. 2011 amendment tax form   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. 2011 amendment tax form   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. 2011 amendment tax form   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. 2011 amendment tax form   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. 2011 amendment tax form In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. 2011 amendment tax form Gains and losses from disposition of property. 2011 amendment tax form   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. 2011 amendment tax form   It should be noted that the last exception relates only to cut timber. 2011 amendment tax form The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. 2011 amendment tax form Lapse or termination of options. 2011 amendment tax form   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. 2011 amendment tax form The exclusion applies only if the option is written in connection with the exempt organization's investment activities. 2011 amendment tax form Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. 2011 amendment tax form Exception. 2011 amendment tax form   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. 2011 amendment tax form Gain or loss on disposition of certain brownfield property. 2011 amendment tax form   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. 2011 amendment tax form See sections 512(b)(19) and 514(b)(1)(E). 2011 amendment tax form Income from services provided under federal license. 2011 amendment tax form   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. 2011 amendment tax form   This exclusion applies only if the following requirements are met. 2011 amendment tax form The trade or business must have been operated by the order or by the institution before May 27, 1959. 2011 amendment tax form The trade or business must provide services under a license issued by a federal regulatory agency. 2011 amendment tax form More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. 2011 amendment tax form The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. 2011 amendment tax form Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. 2011 amendment tax form Exception. 2011 amendment tax form    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). 2011 amendment tax form Member income of mutual or cooperative electric companies. 2011 amendment tax form   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. 2011 amendment tax form Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. 2011 amendment tax form For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. 2011 amendment tax form Exception. 2011 amendment tax form   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. 2011 amendment tax form The limit on dues paid by an associate member is $148 for 2011. 2011 amendment tax form   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. 2011 amendment tax form Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. 2011 amendment tax form They cannot be directly connected with excluded income. 2011 amendment tax form For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. 2011 amendment tax form Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. 2011 amendment tax form For an exception, see Expenses attributable to exploitation of exempt activities, later. 2011 amendment tax form Expenses attributable solely to unrelated business. 2011 amendment tax form   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. 2011 amendment tax form   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. 2011 amendment tax form Expenses attributable to dual use of facilities or personnel. 2011 amendment tax form   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. 2011 amendment tax form The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. 2011 amendment tax form Example 1. 2011 amendment tax form A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. 2011 amendment tax form The school provides the tennis courts, housing, and dining facilities. 2011 amendment tax form The contracted individual hires the instructors, recruits campers, and provides supervision. 2011 amendment tax form The income the school receives from this activity is from a dual use of the facilities and personnel. 2011 amendment tax form The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. 2011 amendment tax form Example 2. 2011 amendment tax form An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. 2011 amendment tax form The president devotes approximately 10% of his time to the unrelated business. 2011 amendment tax form To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. 2011 amendment tax form Expenses attributable to exploitation of exempt activities. 2011 amendment tax form   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. 2011 amendment tax form (See Exploitation of exempt functions under Not substantially related in chapter 3. 2011 amendment tax form ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. 2011 amendment tax form Exception. 2011 amendment tax form   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. 2011 amendment tax form The unrelated business exploits the exempt activity. 2011 amendment tax form The unrelated business is a type normally conducted for profit by taxable organizations. 2011 amendment tax form The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. 2011 amendment tax form The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. 2011 amendment tax form   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. 2011 amendment tax form Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. 2011 amendment tax form Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. 2011 amendment tax form (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. 2011 amendment tax form ) Figuring unrelated business taxable income (UBTI). 2011 amendment tax form   The UBTI of an advertising activity is the amount shown in the following chart. 2011 amendment tax form IF gross advertising income is . 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form THEN UBTI is . 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. 2011 amendment tax form Equal to or less than direct advertising costs Zero. 2011 amendment tax form   • Circulation income and readership costs are not taken into account. 2011 amendment tax form   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. 2011 amendment tax form   The terms used in the chart are explained in the following discussions. 2011 amendment tax form Periodical Income Gross advertising income. 2011 amendment tax form   This is all the income from the unrelated advertising activities of an exempt organization periodical. 2011 amendment tax form Circulation income. 2011 amendment tax form   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). 2011 amendment tax form It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. 2011 amendment tax form It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. 2011 amendment tax form Allocable membership receipts. 2011 amendment tax form   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. 2011 amendment tax form   The amount used to allocate membership receipts is the amount shown in the following chart. 2011 amendment tax form   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. 2011 amendment tax form The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. 2011 amendment tax form IF . 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form THEN the amount used to allocate membership receipts is . 2011 amendment tax form . 2011 amendment tax form . 2011 amendment tax form 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. 2011 amendment tax form The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. 2011 amendment tax form Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. 2011 amendment tax form U is an exempt scientific organization with 10,000 members who pay annual dues of $15. 2011 amendment tax form One of U's activities is publishing a monthly periodical distributed to all of its members. 2011 amendment tax form U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. 2011 amendment tax form Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. 2011 amendment tax form Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). 2011 amendment tax form Example 2. 2011 amendment tax form Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. 2011 amendment tax form Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. 2011 amendment tax form U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. 2011 amendment tax form Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. 2011 amendment tax form Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. 2011 amendment tax form Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). 2011 amendment tax form U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). 2011 amendment tax form Periodical Costs Direct advertising costs. 2011 amendment tax form   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. 2011 amendment tax form   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. 2011 amendment tax form Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. 2011 amendment tax form   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. 2011 amendment tax form For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. 2011 amendment tax form Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. 2011 amendment tax form   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. 2011 amendment tax form Readership costs. 2011 amendment tax form   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. 2011 amendment tax form Costs partly attributable to other activities. 2011 amendment tax form   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. 2011 amendment tax form When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. 2011 amendment tax form The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. 2011 amendment tax form Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. 2011 amendment tax form Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. 2011 amendment tax form It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. 2011 amendment tax form Consolidated treatment, once adopted, must be followed consistently and is binding. 2011 amendment tax form This treatment can be changed only with the consent of the Internal Revenue Service. 2011 amendment tax form An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. 2011 amendment tax form Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. 2011 amendment tax form The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. 2011 amendment tax form For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. 2011 amendment tax form The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. 2011 amendment tax form Example. 2011 amendment tax form Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. 2011 amendment tax form Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. 2011 amendment tax form Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. 2011 amendment tax form The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. 2011 amendment tax form The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. 2011 amendment tax form It is not engaged in for profit. 2011 amendment tax form Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. 2011 amendment tax form It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. 2011 amendment tax form Modifications Net operating loss deduction. 2011 amendment tax form   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. 2011 amendment tax form However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. 2011 amendment tax form For example, a loss from an unrelated trade or business is not diminished because dividend income was received. 2011 amendment tax form   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. 2011 amendment tax form This would reduce the loss that could be applied against unrelated business income of prior or future tax years. 2011 amendment tax form Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. 2011 amendment tax form   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. 2011 amendment tax form   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. 2011 amendment tax form   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. 2011 amendment tax form For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. 2011 amendment tax form   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2011 amendment tax form Charitable contributions deduction. 2011 amendment tax form   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. 2011 amendment tax form   To be deductible, the contribution must be paid to another qualified organization. 2011 amendment tax form For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. 2011 amendment tax form   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. 2011 amendment tax form Deduction limits. 2011 amendment tax form   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. 2011 amendment tax form See the Instructions for Form 990-T for more information. 2011 amendment tax form    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. 2011 amendment tax form However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. 2011 amendment tax form   Contributions in excess of the limits just described may be carried over to the next 5 tax years. 2011 amendment tax form A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. 2011 amendment tax form Suspension of deduction limits for farmers and ranchers. 2011 amendment tax form   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. 2011 amendment tax form See the Instructions for Form 990-T for details. 2011 amendment tax form Specific deduction. 2011 amendment tax form   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. 2011 amendment tax form However, the specific deduction is not allowed in computing an NOL or the NOL deduction. 2011 amendment tax form   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. 2011 amendment tax form Exception. 2011 amendment tax form   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. 2011 amendment tax form In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. 2011 amendment tax form   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. 2011 amendment tax form The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. 2011 amendment tax form The local units cannot file separate returns. 2011 amendment tax form However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. 2011 amendment tax form See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. 2011 amendment tax form Example. 2011 amendment tax form X is an association of churches and is divided into local units A, B, C, and D. 2011 amendment tax form Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. 2011 amendment tax form X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. 2011 amendment tax form Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. 2011 amendment tax form If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. 2011 amendment tax form No distinction is made between limited and general partners. 2011 amendment tax form The organization is required to notify the partnership of its tax-exempt status. 2011 amendment tax form Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. 2011 amendment tax form The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. 2011 amendment tax form The partnership is required to provide the organization this information on Schedule K-1. 2011 amendment tax form Example. 2011 amendment tax form An exempt educational organization is a partner in a partnership that operates a factory. 2011 amendment tax form The partnership also holds stock in a corporation. 2011 amendment tax form The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. 2011 amendment tax form Different tax years. 2011 amendment tax form   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. 2011 amendment tax form S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. 2011 amendment tax form For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. 2011 amendment tax form The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. 2011 amendment tax form Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. 2011 amendment tax form To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. 2011 amendment tax form Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). 2011 amendment tax form These organizations must figure unrelated business taxable income under special rules. 2011 amendment tax form Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. 2011 amendment tax form ). 2011 amendment tax form (See Exclusions under Income, earlier. 2011 amendment tax form ) Therefore, they are generally subject to unrelated business income tax on this income. 2011 amendment tax form The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. 2011 amendment tax form The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. 2011 amendment tax form Losses from nonexempt activities. 2011 amendment tax form   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. 2011 amendment tax form Example. 2011 amendment tax form A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. 2011 amendment tax form The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. 2011 amendment tax form Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. 2011 amendment tax form Modifications. 2011 amendment tax form   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). 2011 amendment tax form Exempt function income. 2011 amendment tax form   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. 2011 amendment tax form Exempt function income also includes income set aside for qualified purposes. 2011 amendment tax form Income that is set aside. 2011 amendment tax form   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 2011 amendment tax form In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. 2011 amendment tax form   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. 2011 amendment tax form Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. 2011 amendment tax form These rules are explained in section 512(a)(3)(E)(ii). 2011 amendment tax form   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. 2011 amendment tax form In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. 2011 amendment tax form   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. 2011 amendment tax form However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. 2011 amendment tax form The income set aside must have been includible in gross income for that earlier year. 2011 amendment tax form Nonrecognition of gain. 2011 amendment tax form   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. 2011 amendment tax form The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. 2011 amendment tax form   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. 2011 amendment tax form Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. 2011 amendment tax form The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. 2011 amendment tax form For details, see section 512(a)(4) and the regulations under that section. 2011 amendment tax form Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. 2011 amendment tax form The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. 2011 amendment tax form All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. 2011 amendment tax form Excess qualifying specified payments. 2011 amendment tax form   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. 2011 amendment tax form Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. 2011 amendment tax form   If a controlled participant is not required to file a U. 2011 amendment tax form S. 2011 amendment tax form income tax return, the participant must ensure that the copy or copies of the Regulations section 1. 2011 amendment tax form 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. 2011 amendment tax form S. 2011 amendment tax form Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. 2011 amendment tax form S. 2011 amendment tax form Corporation or a Foreign Corporation Engaged in a U. 2011 amendment tax form S. 2011 amendment tax form Trade or Business, or any Form 8865, Return of U. 2011 amendment tax form S. 2011 amendment tax form Persons With Respect to Certain Foreign Partnerships, filed for that participant. 2011 amendment tax form Addition to tax for valuation misstatements. 2011 amendment tax form   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. 2011 amendment tax form See section 512(b)(13)(E)(ii) for more information. 2011 amendment tax form Net unrelated income. 2011 amendment tax form   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. 2011 amendment tax form Net unrelated loss. 2011 amendment tax form   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. 2011 amendment tax form Control. 2011 amendment tax form   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. 2011 amendment tax form For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. 2011 amendment tax form   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). 2011 amendment tax form Income from property financed with qualified 501(c)(3) bonds. 2011 amendment tax form If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. 2011 amendment tax form No deduction is allowed for interest on the private activity bond. 2011 amendment tax form See sections 150(b)(3) and (c) for more information. 2011 amendment tax form Disposition of property received from taxable subsidiary and used in unrelated business. 2011 amendment tax form A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). 2011 amendment tax form The assets are treated as if sold at fair market value. 2011 amendment tax form Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. 2011 amendment tax form S. 2011 amendment tax form and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. 2011 amendment tax form A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. 2011 amendment tax form However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. 2011 amendment tax form In such a case the built-in appreciation is preserved in the replacement property received in the transaction. 2011 amendment tax form A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). 2011 amendment tax form This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. 2011 amendment tax form In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. 2011 amendment tax form If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. 2011 amendment tax form If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. 2011 amendment tax form Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. 2011 amendment tax form Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. 2011 amendment tax form Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. 2011 amendment tax form The amount of income included is proportionate to the debt on the property. 2011 amendment tax form Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). 2011 amendment tax form It includes rental real estate, tangible personal property, and corporate stock. 2011 amendment tax form Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. 2011 amendment tax form The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. 2011 amendment tax form That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. 2011 amendment tax form Example 1. 2011 amendment tax form Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. 2011 amendment tax form The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. 2011 amendment tax form Example 2. 2011 amendment tax form X, an exempt organization, forms a partnership with A and B. 2011 amendment tax form The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. 2011 amendment tax form X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. 2011 amendment tax form The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. 2011 amendment tax form The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. 2011 amendment tax form The loan is secured by a mortgage on the entire office building. 2011 amendment tax form By agreement with Y bank, X is not personally liable for payment of the mortgage. 2011 amendment tax form X has acquisition indebtedness of $7 million. 2011 amendment tax form This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). 2011 amendment tax form Example 3. 2011 amendment tax form A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. 2011 amendment tax form The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. 2011 amendment tax form Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. 2011 amendment tax form The union has no outstanding debt on the property. 2011 amendment tax form The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. 2011 amendment tax form The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. 2011 amendment tax form Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. 2011 amendment tax form In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. 2011 amendment tax form Accordingly, the debt is not acquisition indebtedness. 2011 amendment tax form Change in use of property. 2011 amendment tax form   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. 2011 amendment tax form Example. 2011 amendment tax form Four years ago a university borrowed funds to acquire an apartment building as housing for married students. 2011 amendment tax form Last year, the university rented the apartment building to the public for nonexempt purposes. 2011 amendment tax form The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. 2011 amendment tax form Continued debt. 2011 amendment tax form   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. 2011 amendment tax form This is true even if the original property was not debt-financed property. 2011 amendment tax form Example. 2011 amendment tax form To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. 2011 amendment tax form The office building was not debt-financed property. 2011 amendment tax form The organization later sold the building for $1 million without repaying the $400,000 loan. 2011 amendment tax form It used the sale proceeds to buy an apartment building it rents to the general public. 2011 amendment tax form The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. 2011 amendment tax form Property acquired subject to mortgage or lien. 2011 amendment tax form   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. 2011 amendment tax form Example. 2011 amendment tax form An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. 2011 amendment tax form The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. 2011 amendment tax form Liens similar to a mortgage. 2011 amendment tax form   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. 2011 amendment tax form A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. 2011 amendment tax form However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. 2011 amendment tax form Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). 2011 amendment tax form Exception for property acquired by gift, bequest, or devise. 2011 amendment tax form   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. 2011 amendment tax form However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. 2011 amendment tax form   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). 2011 amendment tax form   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. 2011 amendment tax form Modifying existing debt. 2011 amendment tax form   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. 2011 amendment tax form When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. 2011 amendment tax form Extension or renewal. 2011 amendment tax form   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. 2011 amendment tax form   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. 2011 amendment tax form Debt increase. 2011 amendment tax form   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. 2011 amendment tax form Example. 2011 amendment tax form An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. 2011 amendment tax form The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. 2011 amendment tax form A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. 2011 amendment tax form Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. 2011 amendment tax form These include the following. 2011 amendment tax form Debts incurred in performing an exempt purpose. 2011 amendment tax form Annuity obligations. 2011 amendment tax form Securities loans. 2011 amendment tax form Real property debts of qualified organizations. 2011 amendment tax form Certain Federal financing. 2011 amendment tax form Debt incurred in performing exempt purpose. 2011 amendment tax form   A debt incurred in performing an exempt purpose is not acquisition indebtedness. 2011 amendment tax form For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. 2011 amendment tax form Annuity obligation. 2011 amendment tax form   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. 2011 amendment tax form It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. 2011 amendment tax form Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. 2011 amendment tax form It must be payable over the lives of either one or two individuals living when issued. 2011 amendment tax form It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. 2011 amendment tax form Example. 2011 amendment tax form X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. 2011 amendment tax form In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. 2011 amendment tax form The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. 2011 amendment tax form The present value of this annuity is $81,156, determined from IRS valuation tables. 2011 amendment tax form Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. 2011 amendment tax form Securities loans. 2011 amendment tax form   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). 2011 amendment tax form This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. 2011 amendment tax form   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from