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2011 Tax Form 1040 Ez

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2011 Tax Form 1040 Ez

2011 tax form 1040 ez 4. 2011 tax form 1040 ez   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. 2011 tax form 1040 ez Loan secured by benefits. 2011 tax form 1040 ez Waiver of survivor benefits. 2011 tax form 1040 ez Waiver of 30-day waiting period before annuity starting date. 2011 tax form 1040 ez Involuntary cash-out of benefits not more than dollar limit. 2011 tax form 1040 ez Exception for certain loans. 2011 tax form 1040 ez Exception for QDRO. 2011 tax form 1040 ez SIMPLE and safe harbor 401(k) plan exception. 2011 tax form 1040 ez Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. 2011 tax form 1040 ez Installment percentage. 2011 tax form 1040 ez Extended period for making contributions. 2011 tax form 1040 ez ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. 2011 tax form 1040 ez Caution: Form 5500-EZ not required. 2011 tax form 1040 ez Form 5500. 2011 tax form 1040 ez Electronic filing of Forms 5500 and 5500-SF. 2011 tax form 1040 ez Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. 2011 tax form 1040 ez dol. 2011 tax form 1040 ez gov/ebsa/pdf/2013-5500. 2011 tax form 1040 ez pdf www. 2011 tax form 1040 ez dol. 2011 tax form 1040 ez gov/ebsa/pdf/2013-5500-SF. 2011 tax form 1040 ez pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. 2011 tax form 1040 ez 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2011 tax form 1040 ez 1040 U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. 2011 tax form 1040 ez For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. 2011 tax form 1040 ez For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. 2011 tax form 1040 ez R. 2011 tax form 1040 ez 10 plans. 2011 tax form 1040 ez A sole proprietor or a partnership can set up one of these plans. 2011 tax form 1040 ez A common-law employee or a partner cannot set up one of these plans. 2011 tax form 1040 ez The plans described here can also be set up and maintained by employers that are corporations. 2011 tax form 1040 ez All the rules discussed here apply to corporations except where specifically limited to the self-employed. 2011 tax form 1040 ez The plan must be for the exclusive benefit of employees or their beneficiaries. 2011 tax form 1040 ez These qualified plans can include coverage for a self-employed individual. 2011 tax form 1040 ez As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2011 tax form 1040 ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2011 tax form 1040 ez Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. 2011 tax form 1040 ez You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. 2011 tax form 1040 ez Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. 2011 tax form 1040 ez It provides benefits to a participant largely based on the amount contributed to that participant's account. 2011 tax form 1040 ez Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. 2011 tax form 1040 ez A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. 2011 tax form 1040 ez Profit-sharing plan. 2011 tax form 1040 ez   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). 2011 tax form 1040 ez A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. 2011 tax form 1040 ez An employer may even make no contribution to the plan for a given year. 2011 tax form 1040 ez   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. 2011 tax form 1040 ez   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). 2011 tax form 1040 ez Money purchase pension plan. 2011 tax form 1040 ez   Contributions to a money purchase pension plan are fixed and are not based on your business profits. 2011 tax form 1040 ez For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. 2011 tax form 1040 ez This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. 2011 tax form 1040 ez Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. 2011 tax form 1040 ez Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. 2011 tax form 1040 ez Actuarial assumptions and computations are required to figure these contributions. 2011 tax form 1040 ez Generally, you will need continuing professional help to have a defined benefit plan. 2011 tax form 1040 ez Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. 2011 tax form 1040 ez Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. 2011 tax form 1040 ez The following is a brief overview of important qualification rules that generally have not yet been discussed. 2011 tax form 1040 ez It is not intended to be all-inclusive. 2011 tax form 1040 ez See Setting Up a Qualified Plan , later. 2011 tax form 1040 ez Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. 2011 tax form 1040 ez A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. 2011 tax form 1040 ez Plan assets must not be diverted. 2011 tax form 1040 ez   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. 2011 tax form 1040 ez As a general rule, the assets cannot be diverted to the employer. 2011 tax form 1040 ez Minimum coverage requirement must be met. 2011 tax form 1040 ez   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. 2011 tax form 1040 ez 50 employees, or The greater of: 40% of all employees, or Two employees. 2011 tax form 1040 ez If there is only one employee, the plan must benefit that employee. 2011 tax form 1040 ez Contributions or benefits must not discriminate. 2011 tax form 1040 ez   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. 2011 tax form 1040 ez Contributions and benefits must not be more than certain limits. 2011 tax form 1040 ez   Your plan must not provide for contributions or benefits that are more than certain limits. 2011 tax form 1040 ez The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. 2011 tax form 1040 ez These limits are discussed later in this chapter under Contributions. 2011 tax form 1040 ez Minimum vesting standard must be met. 2011 tax form 1040 ez   Your plan must satisfy certain requirements regarding when benefits vest. 2011 tax form 1040 ez A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. 2011 tax form 1040 ez A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. 2011 tax form 1040 ez Special rules apply to forfeited benefit amounts. 2011 tax form 1040 ez In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. 2011 tax form 1040 ez   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. 2011 tax form 1040 ez Forfeitures must be used instead to reduce employer contributions. 2011 tax form 1040 ez Participation. 2011 tax form 1040 ez   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. 2011 tax form 1040 ez Has reached age 21. 2011 tax form 1040 ez Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). 2011 tax form 1040 ez A plan cannot exclude an employee because he or she has reached a specified age. 2011 tax form 1040 ez Leased employee. 2011 tax form 1040 ez   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. 2011 tax form 1040 ez These rules include those in all the following areas. 2011 tax form 1040 ez Nondiscrimination in coverage, contributions, and benefits. 2011 tax form 1040 ez Minimum age and service requirements. 2011 tax form 1040 ez Vesting. 2011 tax form 1040 ez Limits on contributions and benefits. 2011 tax form 1040 ez Top-heavy plan requirements. 2011 tax form 1040 ez Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. 2011 tax form 1040 ez Benefit payment must begin when required. 2011 tax form 1040 ez   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. 2011 tax form 1040 ez The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. 2011 tax form 1040 ez The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. 2011 tax form 1040 ez The plan year in which the participant separates from service. 2011 tax form 1040 ez Early retirement. 2011 tax form 1040 ez   Your plan can provide for payment of retirement benefits before the normal retirement age. 2011 tax form 1040 ez If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. 2011 tax form 1040 ez Satisfies the service requirement for the early retirement benefit. 2011 tax form 1040 ez Separates from service with a nonforfeitable right to an accrued benefit. 2011 tax form 1040 ez The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. 2011 tax form 1040 ez Required minimum distributions. 2011 tax form 1040 ez   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. 2011 tax form 1040 ez See Required Distributions , under Distributions, later. 2011 tax form 1040 ez Survivor benefits. 2011 tax form 1040 ez   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. 2011 tax form 1040 ez A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. 2011 tax form 1040 ez A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. 2011 tax form 1040 ez   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. 2011 tax form 1040 ez The participant does not choose benefits in the form of a life annuity. 2011 tax form 1040 ez The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. 2011 tax form 1040 ez The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. 2011 tax form 1040 ez Loan secured by benefits. 2011 tax form 1040 ez   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. 2011 tax form 1040 ez Waiver of survivor benefits. 2011 tax form 1040 ez   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. 2011 tax form 1040 ez The plan also must allow the participant to withdraw the waiver. 2011 tax form 1040 ez The spouse's consent must be witnessed by a plan representative or notary public. 2011 tax form 1040 ez Waiver of 30-day waiting period before annuity starting date. 2011 tax form 1040 ez    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. 2011 tax form 1040 ez   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. 2011 tax form 1040 ez Involuntary cash-out of benefits not more than dollar limit. 2011 tax form 1040 ez   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. 2011 tax form 1040 ez   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. 2011 tax form 1040 ez If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. 2011 tax form 1040 ez   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. 2011 tax form 1040 ez   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. 2011 tax form 1040 ez A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. 2011 tax form 1040 ez See Section 402(f) Notice under Distributions, later, for more details. 2011 tax form 1040 ez Consolidation, merger, or transfer of assets or liabilities. 2011 tax form 1040 ez   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. 2011 tax form 1040 ez (if the plan had then terminated). 2011 tax form 1040 ez Benefits must not be assigned or alienated. 2011 tax form 1040 ez   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. 2011 tax form 1040 ez Exception for certain loans. 2011 tax form 1040 ez   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. 2011 tax form 1040 ez A disqualified person is defined later in this chapter under Prohibited Transactions. 2011 tax form 1040 ez Exception for QDRO. 2011 tax form 1040 ez   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. 2011 tax form 1040 ez   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. 2011 tax form 1040 ez Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. 2011 tax form 1040 ez No benefit reduction for social security increases. 2011 tax form 1040 ez   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. 2011 tax form 1040 ez This rule also applies to plans supplementing the benefits provided by other federal or state laws. 2011 tax form 1040 ez Elective deferrals must be limited. 2011 tax form 1040 ez   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. 2011 tax form 1040 ez See Limit on Elective Deferrals later in this chapter. 2011 tax form 1040 ez Top-heavy plan requirements. 2011 tax form 1040 ez   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. 2011 tax form 1040 ez   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. 2011 tax form 1040 ez Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. 2011 tax form 1040 ez   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. 2011 tax form 1040 ez These qualification requirements for top-heavy plans are explained in section 416 and its regulations. 2011 tax form 1040 ez SIMPLE and safe harbor 401(k) plan exception. 2011 tax form 1040 ez   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. 2011 tax form 1040 ez QACAs (discussed later) also are not subject to top-heavy requirements. 2011 tax form 1040 ez Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. 2011 tax form 1040 ez First you adopt a written plan. 2011 tax form 1040 ez Then you invest the plan assets. 2011 tax form 1040 ez You, the employer, are responsible for setting up and maintaining the plan. 2011 tax form 1040 ez If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. 2011 tax form 1040 ez If you have employees, see Participation, under Qualification Rules, earlier. 2011 tax form 1040 ez Set-up deadline. 2011 tax form 1040 ez   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). 2011 tax form 1040 ez Credit for startup costs. 2011 tax form 1040 ez   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. 2011 tax form 1040 ez For more information, see Credit for startup costs under Reminders, earlier. 2011 tax form 1040 ez Adopting a Written Plan You must adopt a written plan. 2011 tax form 1040 ez The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. 2011 tax form 1040 ez Or it can be an individually designed plan. 2011 tax form 1040 ez Written plan requirement. 2011 tax form 1040 ez   To qualify, the plan you set up must be in writing and must be communicated to your employees. 2011 tax form 1040 ez The plan's provisions must be stated in the plan. 2011 tax form 1040 ez It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. 2011 tax form 1040 ez Master or prototype plans. 2011 tax form 1040 ez   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. 2011 tax form 1040 ez Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). 2011 tax form 1040 ez Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. 2011 tax form 1040 ez Under a prototype plan, a separate trust or custodial account is established for each employer. 2011 tax form 1040 ez Plan providers. 2011 tax form 1040 ez   The following organizations generally can provide IRS-approved master or prototype plans. 2011 tax form 1040 ez Banks (including some savings and loan associations and federally insured credit unions). 2011 tax form 1040 ez Trade or professional organizations. 2011 tax form 1040 ez Insurance companies. 2011 tax form 1040 ez Mutual funds. 2011 tax form 1040 ez Individually designed plan. 2011 tax form 1040 ez   If you prefer, you can set up an individually designed plan to meet specific needs. 2011 tax form 1040 ez Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. 2011 tax form 1040 ez You may need professional help for this. 2011 tax form 1040 ez See Rev. 2011 tax form 1040 ez Proc. 2011 tax form 1040 ez 2014-6, 2014-1 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 198, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2014-1_IRB/ar10. 2011 tax form 1040 ez html, as annually updated, that may help you decide whether to apply for approval. 2011 tax form 1040 ez Internal Revenue Bulletins are available on the IRS website at IRS. 2011 tax form 1040 ez gov They are also available at most IRS offices and at certain libraries. 2011 tax form 1040 ez User fee. 2011 tax form 1040 ez   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. 2011 tax form 1040 ez At least one of them must be a non-highly compensated employee participating in the plan. 2011 tax form 1040 ez The fee does not apply to requests made by the later of the following dates. 2011 tax form 1040 ez The end of the 5th plan year the plan is in effect. 2011 tax form 1040 ez The end of any remedial amendment period for the plan that begins within the first 5 plan years. 2011 tax form 1040 ez The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. 2011 tax form 1040 ez   For more information about whether the user fee applies, see Rev. 2011 tax form 1040 ez Proc. 2011 tax form 1040 ez 2014-8, 2014-1 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 242, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2014-1_IRB/ar12. 2011 tax form 1040 ez html, as may be annually updated; Notice 2003-49, 2003-32 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 294, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2003-32_IRB/ar13. 2011 tax form 1040 ez html; and Notice 2011-86, 2011-45 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 698, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2011-45_IRB/ar11. 2011 tax form 1040 ez html. 2011 tax form 1040 ez Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. 2011 tax form 1040 ez You can establish a trust or custodial account to invest the funds. 2011 tax form 1040 ez You, the trust, or the custodial account can buy an annuity contract from an insurance company. 2011 tax form 1040 ez Life insurance can be included only if it is incidental to the retirement benefits. 2011 tax form 1040 ez You set up a trust by a legal instrument (written document). 2011 tax form 1040 ez You may need professional help to do this. 2011 tax form 1040 ez You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. 2011 tax form 1040 ez You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. 2011 tax form 1040 ez If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. 2011 tax form 1040 ez Other plan requirements. 2011 tax form 1040 ez   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. 2011 tax form 1040 ez Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. 2011 tax form 1040 ez Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. 2011 tax form 1040 ez For information on this funding requirement, see section 412 and its regulations. 2011 tax form 1040 ez Quarterly installments of required contributions. 2011 tax form 1040 ez   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. 2011 tax form 1040 ez If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. 2011 tax form 1040 ez Due dates. 2011 tax form 1040 ez   The due dates for the installments are 15 days after the end of each quarter. 2011 tax form 1040 ez For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). 2011 tax form 1040 ez Installment percentage. 2011 tax form 1040 ez   Each quarterly installment must be 25% of the required annual payment. 2011 tax form 1040 ez Extended period for making contributions. 2011 tax form 1040 ez   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. 2011 tax form 1040 ez Contributions A qualified plan is generally funded by your contributions. 2011 tax form 1040 ez However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. 2011 tax form 1040 ez See Employee Contributions and Elective Deferrals later. 2011 tax form 1040 ez Contributions deadline. 2011 tax form 1040 ez   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. 2011 tax form 1040 ez Self-employed individual. 2011 tax form 1040 ez   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. 2011 tax form 1040 ez Your net earnings must be from your personal services, not from your investments. 2011 tax form 1040 ez If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. 2011 tax form 1040 ez Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. 2011 tax form 1040 ez There are also limits on the amount you can deduct. 2011 tax form 1040 ez See Deduction Limits , later. 2011 tax form 1040 ez Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. 2011 tax form 1040 ez The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. 2011 tax form 1040 ez Defined benefit plan. 2011 tax form 1040 ez   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. 2011 tax form 1040 ez 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. 2011 tax form 1040 ez $205,000 ($210,000 for 2014). 2011 tax form 1040 ez Defined contribution plan. 2011 tax form 1040 ez   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. 2011 tax form 1040 ez 100% of the participant's compensation. 2011 tax form 1040 ez $51,000 ($52,000 for 2014). 2011 tax form 1040 ez   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. 2011 tax form 1040 ez Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. 2011 tax form 1040 ez Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. 2011 tax form 1040 ez Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. 2011 tax form 1040 ez See Regulations sections 1. 2011 tax form 1040 ez 401(k)-2 and 1. 2011 tax form 1040 ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2011 tax form 1040 ez When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. 2011 tax form 1040 ez But you can apply them to the previous year if all the following requirements are met. 2011 tax form 1040 ez You make them by the due date of your tax return for the previous year (plus extensions). 2011 tax form 1040 ez The plan was established by the end of the previous year. 2011 tax form 1040 ez The plan treats the contributions as though it had received them on the last day of the previous year. 2011 tax form 1040 ez You do either of the following. 2011 tax form 1040 ez You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. 2011 tax form 1040 ez You deduct the contributions on your tax return for the previous year. 2011 tax form 1040 ez A partnership shows contributions for partners on Form 1065. 2011 tax form 1040 ez Employer's promissory note. 2011 tax form 1040 ez   Your promissory note made out to the plan is not a payment that qualifies for the deduction. 2011 tax form 1040 ez Also, issuing this note is a prohibited transaction subject to tax. 2011 tax form 1040 ez See Prohibited Transactions , later. 2011 tax form 1040 ez Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. 2011 tax form 1040 ez The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. 2011 tax form 1040 ez Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. 2011 tax form 1040 ez Defined contribution plans. 2011 tax form 1040 ez   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. 2011 tax form 1040 ez If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. 2011 tax form 1040 ez See Deduction Limit for Self-Employed Individuals , later. 2011 tax form 1040 ez   When figuring the deduction limit, the following rules apply. 2011 tax form 1040 ez Elective deferrals (discussed later) are not subject to the limit. 2011 tax form 1040 ez Compensation includes elective deferrals. 2011 tax form 1040 ez The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). 2011 tax form 1040 ez Defined benefit plans. 2011 tax form 1040 ez   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. 2011 tax form 1040 ez Consequently, an actuary must figure your deduction limit. 2011 tax form 1040 ez    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. 2011 tax form 1040 ez Table 4–1. 2011 tax form 1040 ez Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. 2011 tax form 1040 ez Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. 2011 tax form 1040 ez Compensation is your net earnings from self-employment, defined in chapter 1. 2011 tax form 1040 ez This definition takes into account both the following items. 2011 tax form 1040 ez The deduction for the deductible part of your self-employment tax. 2011 tax form 1040 ez The deduction for contributions on your behalf to the plan. 2011 tax form 1040 ez The deduction for your own contributions and your net earnings depend on each other. 2011 tax form 1040 ez For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. 2011 tax form 1040 ez To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. 2011 tax form 1040 ez Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. 2011 tax form 1040 ez Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. 2011 tax form 1040 ez For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. 2011 tax form 1040 ez Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. 2011 tax form 1040 ez (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. 2011 tax form 1040 ez ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. 2011 tax form 1040 ez Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. 2011 tax form 1040 ez For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. 2011 tax form 1040 ez However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. 2011 tax form 1040 ez See Deduction Limit for Self-Employed Individuals, earlier. 2011 tax form 1040 ez The amount you carry over and deduct may be subject to the excise tax discussed next. 2011 tax form 1040 ez Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. 2011 tax form 1040 ez Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. 2011 tax form 1040 ez In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. 2011 tax form 1040 ez Special rule for self-employed individuals. 2011 tax form 1040 ez   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. 2011 tax form 1040 ez Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. 2011 tax form 1040 ez See Minimum Funding Requirement , earlier. 2011 tax form 1040 ez Reporting the tax. 2011 tax form 1040 ez   You must report the tax on your nondeductible contributions on Form 5330. 2011 tax form 1040 ez Form 5330 includes a computation of the tax. 2011 tax form 1040 ez See the separate instructions for completing the form. 2011 tax form 1040 ez Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. 2011 tax form 1040 ez A plan with this type of arrangement is popularly known as a “401(k) plan. 2011 tax form 1040 ez ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. 2011 tax form 1040 ez ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. 2011 tax form 1040 ez In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. 2011 tax form 1040 ez A profit-sharing plan. 2011 tax form 1040 ez A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. 2011 tax form 1040 ez Partnership. 2011 tax form 1040 ez   A partnership can have a 401(k) plan. 2011 tax form 1040 ez Restriction on conditions of participation. 2011 tax form 1040 ez   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. 2011 tax form 1040 ez Matching contributions. 2011 tax form 1040 ez   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. 2011 tax form 1040 ez For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. 2011 tax form 1040 ez Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. 2011 tax form 1040 ez Nonelective contributions. 2011 tax form 1040 ez   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. 2011 tax form 1040 ez These are called nonelective contributions. 2011 tax form 1040 ez Employee compensation limit. 2011 tax form 1040 ez   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. 2011 tax form 1040 ez This limit is $260,000 in 2014. 2011 tax form 1040 ez SIMPLE 401(k) plan. 2011 tax form 1040 ez   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. 2011 tax form 1040 ez A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. 2011 tax form 1040 ez For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. 2011 tax form 1040 ez Distributions. 2011 tax form 1040 ez   Certain rules apply to distributions from 401(k) plans. 2011 tax form 1040 ez See Distributions From 401(k) Plans , later. 2011 tax form 1040 ez Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. 2011 tax form 1040 ez This limit applies without regard to community property laws. 2011 tax form 1040 ez Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. 2011 tax form 1040 ez For 2013 and 2014, the basic limit on elective deferrals is $17,500. 2011 tax form 1040 ez This limit applies to all salary reduction contributions and elective deferrals. 2011 tax form 1040 ez If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. 2011 tax form 1040 ez Catch-up contributions. 2011 tax form 1040 ez   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. 2011 tax form 1040 ez The catch-up contribution limit for 2013 and 2014 is $5,500. 2011 tax form 1040 ez Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). 2011 tax form 1040 ez However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. 2011 tax form 1040 ez The catch-up contribution limit. 2011 tax form 1040 ez The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. 2011 tax form 1040 ez Treatment of contributions. 2011 tax form 1040 ez   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. 2011 tax form 1040 ez Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. 2011 tax form 1040 ez Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. 2011 tax form 1040 ez Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. 2011 tax form 1040 ez Forfeiture. 2011 tax form 1040 ez   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. 2011 tax form 1040 ez Reporting on Form W-2. 2011 tax form 1040 ez   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. 2011 tax form 1040 ez You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. 2011 tax form 1040 ez You must also include them in box 12. 2011 tax form 1040 ez Mark the “Retirement plan” checkbox in box 13. 2011 tax form 1040 ez For more information, see the Form W-2 instructions. 2011 tax form 1040 ez Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. 2011 tax form 1040 ez Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. 2011 tax form 1040 ez These contributions are elective deferrals. 2011 tax form 1040 ez An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). 2011 tax form 1040 ez For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. 2011 tax form 1040 ez Eligible automatic contribution arrangement. 2011 tax form 1040 ez   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. 2011 tax form 1040 ez This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). 2011 tax form 1040 ez There is no required deferral percentage. 2011 tax form 1040 ez Withdrawals. 2011 tax form 1040 ez   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. 2011 tax form 1040 ez The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. 2011 tax form 1040 ez The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. 2011 tax form 1040 ez   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. 2011 tax form 1040 ez The additional 10% tax on early distributions will not apply to the distribution. 2011 tax form 1040 ez Notice requirement. 2011 tax form 1040 ez   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. 2011 tax form 1040 ez The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. 2011 tax form 1040 ez The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. 2011 tax form 1040 ez The notice also must explain how contributions will be invested in the absence of an investment election by the employee. 2011 tax form 1040 ez Qualified automatic contribution arrangement. 2011 tax form 1040 ez    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. 2011 tax form 1040 ez It contains an automatic enrollment feature, and mandatory employer contributions are required. 2011 tax form 1040 ez If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). 2011 tax form 1040 ez Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. 2011 tax form 1040 ez Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. 2011 tax form 1040 ez In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). 2011 tax form 1040 ez If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. 2011 tax form 1040 ez It must be applied uniformly. 2011 tax form 1040 ez It must not exceed 10%. 2011 tax form 1040 ez It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. 2011 tax form 1040 ez It must increase to at least 4% in the following plan year. 2011 tax form 1040 ez It must increase to at least 5% in the following plan year. 2011 tax form 1040 ez It must increase to at least 6% in subsequent plan years. 2011 tax form 1040 ez Matching or nonelective contributions. 2011 tax form 1040 ez   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. 2011 tax form 1040 ez Matching contributions. 2011 tax form 1040 ez You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. 2011 tax form 1040 ez An amount equal to 100% of elective deferrals, up to 1% of compensation. 2011 tax form 1040 ez An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. 2011 tax form 1040 ez Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. 2011 tax form 1040 ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2011 tax form 1040 ez Nonelective contributions. 2011 tax form 1040 ez You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. 2011 tax form 1040 ez Vesting requirements. 2011 tax form 1040 ez   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. 2011 tax form 1040 ez These contributions are subject to special withdrawal restrictions, discussed later. 2011 tax form 1040 ez Notice requirements. 2011 tax form 1040 ez   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. 2011 tax form 1040 ez The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. 2011 tax form 1040 ez The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. 2011 tax form 1040 ez Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. 2011 tax form 1040 ez The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. 2011 tax form 1040 ez Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. 2011 tax form 1040 ez He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. 2011 tax form 1040 ez The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. 2011 tax form 1040 ez Excess withdrawn by April 15. 2011 tax form 1040 ez   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. 2011 tax form 1040 ez However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. 2011 tax form 1040 ez The distribution is not subject to the additional 10% tax on early distributions. 2011 tax form 1040 ez   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. 2011 tax form 1040 ez   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. 2011 tax form 1040 ez Excess not withdrawn by April 15. 2011 tax form 1040 ez   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. 2011 tax form 1040 ez In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. 2011 tax form 1040 ez Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. 2011 tax form 1040 ez Reporting corrective distributions on Form 1099-R. 2011 tax form 1040 ez   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. 2011 tax form 1040 ez For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. 2011 tax form 1040 ez Tax on excess contributions of highly compensated employees. 2011 tax form 1040 ez   The law provides tests to detect discrimination in a plan. 2011 tax form 1040 ez If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. 2011 tax form 1040 ez Report the tax on Form 5330. 2011 tax form 1040 ez The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. 2011 tax form 1040 ez Also, the ACP test does not apply to these plans if certain additional requirements are met. 2011 tax form 1040 ez   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. 2011 tax form 1040 ez Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. 2011 tax form 1040 ez   See Regulations sections 1. 2011 tax form 1040 ez 401(k)-2 and 1. 2011 tax form 1040 ez 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). 2011 tax form 1040 ez    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. 2011 tax form 1040 ez Safe harbor 401(k) plan. 2011 tax form 1040 ez If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. 2011 tax form 1040 ez For your plan to be a safe harbor plan, you must meet the following conditions. 2011 tax form 1040 ez Matching or nonelective contributions. 2011 tax form 1040 ez You must make matching or nonelective contributions according to one of the following formulas. 2011 tax form 1040 ez Matching contributions. 2011 tax form 1040 ez You must make matching contributions according to the following rules. 2011 tax form 1040 ez You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. 2011 tax form 1040 ez You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. 2011 tax form 1040 ez The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. 2011 tax form 1040 ez Nonelective contributions. 2011 tax form 1040 ez You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. 2011 tax form 1040 ez These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. 2011 tax form 1040 ez Notice requirement. 2011 tax form 1040 ez You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. 2011 tax form 1040 ez The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. 2011 tax form 1040 ez Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. 2011 tax form 1040 ez Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. 2011 tax form 1040 ez However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. 2011 tax form 1040 ez Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. 2011 tax form 1040 ez Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. 2011 tax form 1040 ez Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. 2011 tax form 1040 ez An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. 2011 tax form 1040 ez The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. 2011 tax form 1040 ez Rollover. 2011 tax form 1040 ez   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. 2011 tax form 1040 ez For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 872, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2010-51_IRB/ar11. 2011 tax form 1040 ez html, and Notice 2013-74. 2011 tax form 1040 ez A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. 2011 tax form 1040 ez Rollover amounts do not apply toward the annual deferral limit. 2011 tax form 1040 ez Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. 2011 tax form 1040 ez See the Form W-2 and 1099-R instructions for detailed information. 2011 tax form 1040 ez Distributions Amounts paid to plan participants from a qualified plan are called distributions. 2011 tax form 1040 ez Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. 2011 tax form 1040 ez Also, certain loans may be treated as distributions. 2011 tax form 1040 ez See Loans Treated as Distributions in Publication 575. 2011 tax form 1040 ez Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). 2011 tax form 1040 ez These distribution rules apply individually to each qualified plan. 2011 tax form 1040 ez You cannot satisfy the requirement for one plan by taking a distribution from another. 2011 tax form 1040 ez The plan must provide that these rules override any inconsistent distribution options previously offered. 2011 tax form 1040 ez Minimum distribution. 2011 tax form 1040 ez   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. 2011 tax form 1040 ez This minimum is figured by dividing the account balance by the applicable life expectancy. 2011 tax form 1040 ez The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. 2011 tax form 1040 ez For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. 2011 tax form 1040 ez Required beginning date. 2011 tax form 1040 ez   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. 2011 tax form 1040 ez   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. 2011 tax form 1040 ez Calendar year in which he or she reaches age 70½. 2011 tax form 1040 ez Calendar year in which he or she retires from employment with the employer maintaining the plan. 2011 tax form 1040 ez However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. 2011 tax form 1040 ez   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. 2011 tax form 1040 ez For more information, see Tax on Excess Accumulation in Publication 575. 2011 tax form 1040 ez Distributions after the starting year. 2011 tax form 1040 ez   The distribution required to be made by April 1 is treated as a distribution for the starting year. 2011 tax form 1040 ez (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. 2011 tax form 1040 ez ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. 2011 tax form 1040 ez If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). 2011 tax form 1040 ez Distributions after participant's death. 2011 tax form 1040 ez   See Publication 575 for the special rules covering distributions made after the death of a participant. 2011 tax form 1040 ez Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. 2011 tax form 1040 ez The employee retires, dies, becomes disabled, or otherwise severs employment. 2011 tax form 1040 ez The plan ends and no other defined contribution plan is established or continued. 2011 tax form 1040 ez In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. 2011 tax form 1040 ez For the rules on hardship distributions, including the limits on them, see Regulations section 1. 2011 tax form 1040 ez 401(k)-1(d). 2011 tax form 1040 ez The employee becomes eligible for a qualified reservist distribution (defined next). 2011 tax form 1040 ez Certain distributions listed above may be subject to the tax on early distributions discussed later. 2011 tax form 1040 ez Qualified reservist distributions. 2011 tax form 1040 ez   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. 2011 tax form 1040 ez All or part of a qualified reservist distribution can be recontributed to an IRA. 2011 tax form 1040 ez The additional 10% tax on early distributions does not apply to a qualified reservist distribution. 2011 tax form 1040 ez Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. 2011 tax form 1040 ez Since most recipients have no cost basis, a distribution is generally fully taxable. 2011 tax form 1040 ez An exception is a distribution that is properly rolled over as discussed under Rollover, next. 2011 tax form 1040 ez The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. 2011 tax form 1040 ez See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. 2011 tax form 1040 ez Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. 2011 tax form 1040 ez See Qualified distributions under Qualified Roth Contribution Program, earlier. 2011 tax form 1040 ez Rollover. 2011 tax form 1040 ez   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. 2011 tax form 1040 ez However, it may be subject to withholding as discussed under Withholding requirement, later. 2011 tax form 1040 ez A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. 2011 tax form 1040 ez Eligible rollover distribution. 2011 tax form 1040 ez   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. 2011 tax form 1040 ez A required minimum distribution. 2011 tax form 1040 ez See Required Distributions , earlier. 2011 tax form 1040 ez Any of a series of substantially equal payments made at least once a year over any of the following periods. 2011 tax form 1040 ez The employee's life or life expectancy. 2011 tax form 1040 ez The joint lives or life expectancies of the employee and beneficiary. 2011 tax form 1040 ez A period of 10 years or longer. 2011 tax form 1040 ez A hardship distribution. 2011 tax form 1040 ez The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. 2011 tax form 1040 ez See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. 2011 tax form 1040 ez Loans treated as distributions. 2011 tax form 1040 ez Dividends on employer securities. 2011 tax form 1040 ez The cost of any life insurance coverage provided under a qualified retirement plan. 2011 tax form 1040 ez Similar items designated by the IRS in published guidance. 2011 tax form 1040 ez See, for example, the Instructions for Forms 1099-R and 5498. 2011 tax form 1040 ez Rollover of nontaxable amounts. 2011 tax form 1040 ez   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. 2011 tax form 1040 ez If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. 2011 tax form 1040 ez If the rollover is to an IRA, the transfer can be made by any rollover method. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. 2011 tax form 1040 ez If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). 2011 tax form 1040 ez More information. 2011 tax form 1040 ez   For more information about rollovers, see Rollovers in Pubs. 2011 tax form 1040 ez 575 and 590. 2011 tax form 1040 ez Withholding requirement. 2011 tax form 1040 ez   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. 2011 tax form 1040 ez Exceptions. 2011 tax form 1040 ez   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. 2011 tax form 1040 ez   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. 2011 tax form 1040 ez Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). 2011 tax form 1040 ez However, the participant can choose not to have tax withheld from these distributions. 2011 tax form 1040 ez If the participant does not make this choice, the following withholding rules apply. 2011 tax form 1040 ez For periodic distributions, withholding is based on their treatment as wages. 2011 tax form 1040 ez For nonperiodic distributions, 10% of the taxable part is withheld. 2011 tax form 1040 ez Estimated tax payments. 2011 tax form 1040 ez   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. 2011 tax form 1040 ez For more information, see Withholding Tax and Estimated Tax in Publication 575. 2011 tax form 1040 ez Section 402(f) Notice. 2011 tax form 1040 ez   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. 2011 tax form 1040 ez That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. 2011 tax form 1040 ez That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. 2011 tax form 1040 ez That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. 2011 tax form 1040 ez Certain other rules that may be applicable. 2011 tax form 1040 ez   Notice 2009-68, 2009-39 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 423, available at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2009-39_IRB/ar14. 2011 tax form 1040 ez html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. 2011 tax form 1040 ez If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. 2011 tax form 1040 ez Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. 2011 tax form 1040 ez Timing of notice. 2011 tax form 1040 ez   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. 2011 tax form 1040 ez Method of notice. 2011 tax form 1040 ez   The written notice must be provided individually to each distributee of an eligible rollover distribution. 2011 tax form 1040 ez Posting of the notice is not sufficient. 2011 tax form 1040 ez However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. 2011 tax form 1040 ez See Regulations section 1. 2011 tax form 1040 ez 401(a)-21. 2011 tax form 1040 ez Tax on failure to give notice. 2011 tax form 1040 ez   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. 2011 tax form 1040 ez The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. 2011 tax form 1040 ez Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. 2011 tax form 1040 ez This tax applies to the amount received that the employee must include in income. 2011 tax form 1040 ez Exceptions. 2011 tax form 1040 ez   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. 2011 tax form 1040 ez Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. 2011 tax form 1040 ez Made due to the employee having a qualifying disability. 2011 tax form 1040 ez Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. 2011 tax form 1040 ez (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. 2011 tax form 1040 ez ) Made to an employee after separation from service if the separation occurred during o
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Frequently Asked Questions on Gift Taxes

Below are some of the more common questions and answers about Gift Tax issues. You may also find additional information in Publication 950 or some of the other forms and publications offered on our Forms Page. Included in this area are the instructions to Forms 706 and 709. Within these instructions, you will find the tax rate schedules to the related returns. If the answers to your questions can not be found in these resources, we strongly recommend visiting with a tax practitioner.


Who pays the gift tax?
The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What is considered a gift?
Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return.

What can be excluded from gifts?
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse.
  4. Gifts to a political organization for its use.

In addition to this, gifts to qualifying charities are deductible from the value of the gift(s) made.

May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than gifts that are deductible charitable contributions). If you are not sure whether the gift tax or the estate tax applies to your situation, refer to Publication 950, Introduction to Estate and Gift Taxes.

How many annual exclusions are available?
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?
You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013.

What other information do I need to include with the return?
Refer to Form 709 (PDF), 709 Instructions and Publication 950. Among other items listed:

  1. Copies of appraisals.
  2. Copies of relevant documents regarding the transfer.
  3. Documentation of any unusual items shown on the return (partially-gifted assets, other items relevant to the transfer(s)).

What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1.

Who should I hire to represent me and prepare and file the return?
The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:

  1. How complex is the transfer?
  2. How large is the transfer?
  3. Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?

For most simple, small transfers (less than the annual exclusion amount) you may not need the services of a professional.

However, if the transfer is large or complicated or both, then these actions should be considered; It is a good idea to discuss the matter with several attorneys and CPAs or EAs. Ask about how much experience they have had and ask for referrals. This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on transfer matters, make sure the lines of communication remain open so that there are no surprises.

Finally, people who make gifts as a part of their overall estate and financial plan often engage the services of both attorneys and CPAs, EAs and other professionals. The attorney usually handles wills, trusts and transfer documents that are involved and reviews the impact of documents on the gift tax return and overall plan. The CPA or EA often handles the actual return preparation and some representation of the donor in matters with the IRS. However, some attorneys handle all of the work. CPAs or EAs may also handle most of the work, but cannot take care of wills, trusts, deeds and other matters where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time

Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that the professional(s) they have employed handle this phase of the examination. You may delegate authority for this by executing Form 2848 "Power of Attorney."

What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS.  See Publications 1 and 5 (PDF) for an explanation of these options.

What if I sell property that has been given to me?
The general rule is that your basis in the property is the same as the basis of the donor. For example, if you were given stock that the donor had purchased for $10 per share (and that was his/her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share. (Note: The rules are different for property acquired from an estate).

Most information for this page came from the Internal Revenue Code: Chapter 12--Gift Tax (generally Internal Revenue Code §2501 and following, related regulations and other sources)

Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

Gifts to your spouse are eligible for the marital deduction.

For further information, including the timeframes regarding filing claims or amended returns, see Revenue Ruling 2013-17.

Revenue Ruling 2013-17, along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See also Publication 555, Community Property.


If you have suggestions or comments (or suggested FAQs) for the Estate and Gift Tax web site, please contact us: CONTACT ESTATE AND GIFT TAX.  We will not be able to respond to your email, but will consider it when making improvements or additions to this site.

Page Last Reviewed or Updated: 20-Feb-2014

The 2011 Tax Form 1040 Ez

2011 tax form 1040 ez Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). 2011 tax form 1040 ez Low Income Taxpayer Clinics (LITCs). 2011 tax form 1040 ez Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. 2011 tax form 1040 ez All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. 2011 tax form 1040 ez The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). 2011 tax form 1040 ez After notice and hearing, the bankruptcy court may extend the period for another 30 days. 2011 tax form 1040 ez Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez Individual debtors should use their home address when filing Form 1040 with the IRS. 2011 tax form 1040 ez Returns should not be filed “in care of” the trustee's address. 2011 tax form 1040 ez Ordering tax transcripts and copies of returns. 2011 tax form 1040 ez   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. 2011 tax form 1040 ez The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. 2011 tax form 1040 ez If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. 2011 tax form 1040 ez Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. 2011 tax form 1040 ez Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. 2011 tax form 1040 ez A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. 2011 tax form 1040 ez To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. 2011 tax form 1040 ez It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. 2011 tax form 1040 ez 00 per tax return for copies of the returns. 2011 tax form 1040 ez Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. 2011 tax form 1040 ez If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. 2011 tax form 1040 ez Tax returns and payment of taxes in chapter 11 cases. 2011 tax form 1040 ez   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. 2011 tax form 1040 ez Disclosure of debtor's return information to trustee. 2011 tax form 1040 ez   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. 2011 tax form 1040 ez If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. 2011 tax form 1040 ez    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. 2011 tax form 1040 ez Material interest is generally defined as a financial or monetary interest. 2011 tax form 1040 ez Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. 2011 tax form 1040 ez   However, the U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. 2011 tax form 1040 ez Disclosure of bankruptcy estate's return information to debtor. 2011 tax form 1040 ez    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. 2011 tax form 1040 ez Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. 2011 tax form 1040 ez Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. 2011 tax form 1040 ez Chapter 13 relief is not available to corporations or partnerships. 2011 tax form 1040 ez The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. 2011 tax form 1040 ez In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Individual Income Tax Return. 2011 tax form 1040 ez On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. 2011 tax form 1040 ez Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. 2011 tax form 1040 ez To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. 2011 tax form 1040 ez See Debt Cancellation, later. 2011 tax form 1040 ez Interest on trust accounts in chapter 13 cases. 2011 tax form 1040 ez   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. 2011 tax form 1040 ez This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Trustee system. 2011 tax form 1040 ez The interest is also not taxable to the trustee as income. 2011 tax form 1040 ez Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. 2011 tax form 1040 ez The bankruptcy estate in a chapter 7 case is represented by a trustee. 2011 tax form 1040 ez The trustee is appointed to administer the estate and liquidate any nonexempt assets. 2011 tax form 1040 ez In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. 2011 tax form 1040 ez However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. 2011 tax form 1040 ez During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. 2011 tax form 1040 ez The bankruptcy trustee files a Form 1041 for the bankruptcy estate. 2011 tax form 1040 ez However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). 2011 tax form 1040 ez Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. 2011 tax form 1040 ez Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). 2011 tax form 1040 ez For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. 2011 tax form 1040 ez Debtor's Election To End Tax Year – Form 1040 Short tax years. 2011 tax form 1040 ez   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. 2011 tax form 1040 ez If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. 2011 tax form 1040 ez The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. 2011 tax form 1040 ez   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. 2011 tax form 1040 ez Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. 2011 tax form 1040 ez    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. 2011 tax form 1040 ez Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. 2011 tax form 1040 ez Making the Election - Filing Requirements First short tax year. 2011 tax form 1040 ez   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. 2011 tax form 1040 ez The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. 2011 tax form 1040 ez Second short tax year. 2011 tax form 1040 ez   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. 2011 tax form 1040 ez   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. 2011 tax form 1040 ez To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. 2011 tax form 1040 ez Example. 2011 tax form 1040 ez Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. 2011 tax form 1040 ez If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. 2011 tax form 1040 ez Jane's second short year runs from May 8, 2012, through December 31, 2012. 2011 tax form 1040 ez To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. 2011 tax form 1040 ez To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. 2011 tax form 1040 ez The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Individual Tax Return. 2011 tax form 1040 ez The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. 2011 tax form 1040 ez The debtor must file Form 4868 by the due date of the return for the first short tax year. 2011 tax form 1040 ez The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. 2011 tax form 1040 ez Election by debtor's spouse. 2011 tax form 1040 ez   If the debtor is married, the debtor's spouse may join in the election to end the tax year. 2011 tax form 1040 ez If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. 2011 tax form 1040 ez The debtor must elect by the due date for filing the return for the first short tax year. 2011 tax form 1040 ez Once the election is made, it cannot be revoked for the first short tax year. 2011 tax form 1040 ez However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. 2011 tax form 1040 ez Later bankruptcy of spouse. 2011 tax form 1040 ez    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. 2011 tax form 1040 ez   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. 2011 tax form 1040 ez If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. 2011 tax form 1040 ez However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. 2011 tax form 1040 ez The debtor and the spouse are precluded from this election because they have different tax years. 2011 tax form 1040 ez This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. 2011 tax form 1040 ez Example 1. 2011 tax form 1040 ez Paul and Mary Harris are calendar-year taxpayers. 2011 tax form 1040 ez Paul's voluntary chapter 7 bankruptcy case begins on March 4. 2011 tax form 1040 ez If Paul does not make an election, his tax year does not end on March 3. 2011 tax form 1040 ez If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. 2011 tax form 1040 ez Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. 2011 tax form 1040 ez They must make the election by July 15, the due date for filing the joint return. 2011 tax form 1040 ez Example 2. 2011 tax form 1040 ez Fred and Ethel Barnes are calendar-year taxpayers. 2011 tax form 1040 ez Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. 2011 tax form 1040 ez Ethel could elect to end her tax year on October 31. 2011 tax form 1040 ez If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. 2011 tax form 1040 ez Her first tax year is January 1–October 31, and her second year is November 1–December 31. 2011 tax form 1040 ez If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. 2011 tax form 1040 ez If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. 2011 tax form 1040 ez Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. 2011 tax form 1040 ez Example 3. 2011 tax form 1040 ez Jack and Karen Thomas are calendar-year taxpayers. 2011 tax form 1040 ez Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. 2011 tax form 1040 ez Karen elected to close her tax year on April 9 and Jack joins in Karen's election. 2011 tax form 1040 ez Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. 2011 tax form 1040 ez The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. 2011 tax form 1040 ez Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). 2011 tax form 1040 ez If Karen does join in, she would have the same 3 short tax years as Jack. 2011 tax form 1040 ez Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. 2011 tax form 1040 ez Annualizing taxable income. 2011 tax form 1040 ez   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. 2011 tax form 1040 ez See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. 2011 tax form 1040 ez Dismissal of bankruptcy case. 2011 tax form 1040 ez   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. 2011 tax form 1040 ez It is as if no bankruptcy estate was created for tax purposes. 2011 tax form 1040 ez In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. 2011 tax form 1040 ez Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. 2011 tax form 1040 ez Attach a statement to the amended returns explaining why the debtor is filing an amended return. 2011 tax form 1040 ez Taxes and the Bankruptcy Estate Property of the bankruptcy estate. 2011 tax form 1040 ez   At the commencement of a bankruptcy case a bankruptcy estate is created. 2011 tax form 1040 ez Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. 2011 tax form 1040 ez This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. 2011 tax form 1040 ez However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. 2011 tax form 1040 ez Excluded property is never included in the estate. 2011 tax form 1040 ez Transfer of assets between debtor and bankruptcy estate. 2011 tax form 1040 ez   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. 2011 tax form 1040 ez The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. 2011 tax form 1040 ez For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. 2011 tax form 1040 ez The estate assumes the same basis, holding period, and character of the transferred assets. 2011 tax form 1040 ez Also, the estate generally accounts for the transferred assets in the same manner as debtor. 2011 tax form 1040 ez   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. 2011 tax form 1040 ez The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. 2011 tax form 1040 ez Abandoned property. 2011 tax form 1040 ez    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. 2011 tax form 1040 ez If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. 2011 tax form 1040 ez Separate taxable entity. 2011 tax form 1040 ez   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. 2011 tax form 1040 ez The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Income Tax Return for Estates and Trusts, and paying its taxes. 2011 tax form 1040 ez The debtor remains responsible for filing his or her own returns on Form 1040, U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Individual Income Tax Return, and paying taxes on income that does not belong to the estate. 2011 tax form 1040 ez Employer identification number. 2011 tax form 1040 ez   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. 2011 tax form 1040 ez The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. 2011 tax form 1040 ez See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. 2011 tax form 1040 ez    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. 2011 tax form 1040 ez Income, deductions, and credits – Form 1040. 2011 tax form 1040 ez   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). 2011 tax form 1040 ez Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. 2011 tax form 1040 ez The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. 2011 tax form 1040 ez See Debt Cancellation, below. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. 2011 tax form 1040 ez Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. 2011 tax form 1040 ez However, other exclusions, such as the insolvency exclusion, may apply. 2011 tax form 1040 ez Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. 2011 tax form 1040 ez    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. 2011 tax form 1040 ez Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. 2011 tax form 1040 ez   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. 2011 tax form 1040 ez Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. 2011 tax form 1040 ez Income of the estate in individual chapter 11 cases. 2011 tax form 1040 ez    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. 2011 tax form 1040 ez Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez C. 2011 tax form 1040 ez section 1115). 2011 tax form 1040 ez Note. 2011 tax form 1040 ez A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. 2011 tax form 1040 ez Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). 2011 tax form 1040 ez Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. 2011 tax form 1040 ez See Administrative expenses, below. 2011 tax form 1040 ez Conversion or dismissal of chapter 11 cases. 2011 tax form 1040 ez   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. 2011 tax form 1040 ez If the chapter 11 case is converted to a chapter 7 case, 11 U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez C. 2011 tax form 1040 ez section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. 2011 tax form 1040 ez Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. 2011 tax form 1040 ez If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. 2011 tax form 1040 ez Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). 2011 tax form 1040 ez Administrative expenses. 2011 tax form 1040 ez   Allowable expenses include administrative expenses. 2011 tax form 1040 ez    Administrative expenses can only be deducted by the estate, never by the debtor. 2011 tax form 1040 ez   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. 2011 tax form 1040 ez These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. 2011 tax form 1040 ez See IRC section 67(e). 2011 tax form 1040 ez Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. 2011 tax form 1040 ez See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. 2011 tax form 1040 ez Administrative expense loss. 2011 tax form 1040 ez   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. 2011 tax form 1040 ez The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. 2011 tax form 1040 ez The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. 2011 tax form 1040 ez For a discussion of NOLs, see Publication 536. 2011 tax form 1040 ez Attribute carryovers. 2011 tax form 1040 ez   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. 2011 tax form 1040 ez These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. 2011 tax form 1040 ez The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. 2011 tax form 1040 ez   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. 2011 tax form 1040 ez See Debt Cancellation, later. 2011 tax form 1040 ez   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. 2011 tax form 1040 ez The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. 2011 tax form 1040 ez See Administrative expense loss, above. 2011 tax form 1040 ez Passive and at-risk activities. 2011 tax form 1040 ez   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. 2011 tax form 1040 ez Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. 2011 tax form 1040 ez These transfers include the return of exempt property and abandonment of estate property to the debtor. 2011 tax form 1040 ez Carrybacks from the debtor's activities. 2011 tax form 1040 ez   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. 2011 tax form 1040 ez Carrybacks from the bankruptcy estate. 2011 tax form 1040 ez   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. 2011 tax form 1040 ez The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. 2011 tax form 1040 ez Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. 2011 tax form 1040 ez    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. 2011 tax form 1040 ez The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. 2011 tax form 1040 ez These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. 2011 tax form 1040 ez The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. 2011 tax form 1040 ez The same method must be used to allocate the income and the withheld tax. 2011 tax form 1040 ez Example. 2011 tax form 1040 ez If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. 2011 tax form 1040 ez Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. 2011 tax form 1040 ez See IRC section 31(a). 2011 tax form 1040 ez   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. 2011 tax form 1040 ez In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. 2011 tax form 1040 ez    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. 2011 tax form 1040 ez The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). 2011 tax form 1040 ez   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. 2011 tax form 1040 ez Self-employment taxes in individual chapter 11 cases. 2011 tax form 1040 ez   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. 2011 tax form 1040 ez Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. 2011 tax form 1040 ez   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. 2011 tax form 1040 ez Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. 2011 tax form 1040 ez This schedule includes self-employment income earned post-petition and the attributable deductions. 2011 tax form 1040 ez The debtor must pay any self-employment tax imposed by IRC section 1401. 2011 tax form 1040 ez Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. 2011 tax form 1040 ez   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. 2011 tax form 1040 ez However, section 1115 of the Bankruptcy Code (11 U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez C. 2011 tax form 1040 ez section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. 2011 tax form 1040 ez See Notice 2006-83. 2011 tax form 1040 ez   The reporting and withholding obligations of a debtor's employer also do not change. 2011 tax form 1040 ez An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. 2011 tax form 1040 ez Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. 2011 tax form 1040 ez   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. 2011 tax form 1040 ez See IRC section 6109(a)(2). 2011 tax form 1040 ez As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). 2011 tax form 1040 ez   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. 2011 tax form 1040 ez See Notice 2006-83. 2011 tax form 1040 ez An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. 2011 tax form 1040 ez   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. 2011 tax form 1040 ez However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. 2011 tax form 1040 ez See Employment Tax Regulations section 31. 2011 tax form 1040 ez 3402(f)(2)-1. 2011 tax form 1040 ez Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. 2011 tax form 1040 ez See IRC section 6654(a). 2011 tax form 1040 ez Notice required in converted and dismissed cases. 2011 tax form 1040 ez   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. 2011 tax form 1040 ez The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. 2011 tax form 1040 ez This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. 2011 tax form 1040 ez   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. 2011 tax form 1040 ez Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. 2011 tax form 1040 ez However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. 2011 tax form 1040 ez After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. 2011 tax form 1040 ez Employment taxes. 2011 tax form 1040 ez   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. 2011 tax form 1040 ez See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. 2011 tax form 1040 ez   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. 2011 tax form 1040 ez For a further discussion of employment taxes, see Employment Taxes, later. 2011 tax form 1040 ez Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . 2011 tax form 1040 ez The bankruptcy court case number is . 2011 tax form 1040 ez Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. 2011 tax form 1040 ez   Year Taxpayer   Estate 1. 2011 tax form 1040 ez Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. 2011 tax form 1040 ez Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. 2011 tax form 1040 ez Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. 2011 tax form 1040 ez Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. 2011 tax form 1040 ez   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. 2011 tax form 1040 ez This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. 2011 tax form 1040 ez   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). 2011 tax form 1040 ez   These amounts are generally adjusted annually. 2011 tax form 1040 ez See the present year Form 1041 Instructions at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/form1041 for the current dollar amounts. 2011 tax form 1040 ez Accounting period. 2011 tax form 1040 ez   A bankruptcy estate may have a fiscal year. 2011 tax form 1040 ez However, this period cannot be longer than 12 months. 2011 tax form 1040 ez Change of accounting period. 2011 tax form 1040 ez   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. 2011 tax form 1040 ez This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. 2011 tax form 1040 ez The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. 2011 tax form 1040 ez Employer identification number. 2011 tax form 1040 ez   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. 2011 tax form 1040 ez The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. 2011 tax form 1040 ez    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. 2011 tax form 1040 ez   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/businesses/small. 2011 tax form 1040 ez The EIN is issued immediately once the application information is validated. 2011 tax form 1040 ez By telephone at 1-800-829-4933 from 7:00 a. 2011 tax form 1040 ez m. 2011 tax form 1040 ez to 7:00 p. 2011 tax form 1040 ez m. 2011 tax form 1040 ez in the trustee's or debtor-in-possession's local time zone. 2011 tax form 1040 ez Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. 2011 tax form 1040 ez   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. 2011 tax form 1040 ez For more details, see Pub. 2011 tax form 1040 ez 583, Starting a Business and Keeping Records. 2011 tax form 1040 ez   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. 2011 tax form 1040 ez Figuring tax due. 2011 tax form 1040 ez   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. 2011 tax form 1040 ez However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. 2011 tax form 1040 ez The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. 2011 tax form 1040 ez The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. 2011 tax form 1040 ez Tax rate schedule. 2011 tax form 1040 ez The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. 2011 tax form 1040 ez When to file. 2011 tax form 1040 ez   Calendar year bankruptcy estates must file Form 1041 by April 15th. 2011 tax form 1040 ez Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. 2011 tax form 1040 ez For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. 2011 tax form 1040 ez If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. 2011 tax form 1040 ez Transmittal for Form 1040. 2011 tax form 1040 ez   Form 1041 is used as a transmittal for Form 1040. 2011 tax form 1040 ez If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. 2011 tax form 1040 ez   Prepare the bankruptcy estate's return by completing Form 1040. 2011 tax form 1040 ez In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. 2011 tax form 1040 ez ” Then, attach Form 1040 to the Form 1041 transmittal. 2011 tax form 1040 ez Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. 2011 tax form 1040 ez An example of a bankruptcy estate's tax return is prepared below. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. 2011 tax form 1040 ez Payment of Tax Due Payment methods. 2011 tax form 1040 ez   Payment of tax due may be made by check or money order or by credit or debit card. 2011 tax form 1040 ez For information on how to make payments electronically by credit or debit card, go to irs. 2011 tax form 1040 ez gov/e-pay. 2011 tax form 1040 ez      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. 2011 tax form 1040 ez To enroll in EFTPS, go to eftps. 2011 tax form 1040 ez gov or call 1-800-555-4477. 2011 tax form 1040 ez For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. 2011 tax form 1040 ez Payment voucher – Form 1041-V. 2011 tax form 1040 ez   Form 1041-V accompanies payments made by check or money order for Form 1041. 2011 tax form 1040 ez The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. 2011 tax form 1040 ez Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. 2011 tax form 1040 ez We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. 2011 tax form 1040 ez Estimated tax – Form 1041-ES. 2011 tax form 1040 ez   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. 2011 tax form 1040 ez See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. 2011 tax form 1040 ez Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. 2011 tax form 1040 ez Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. 2011 tax form 1040 ez If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. 2011 tax form 1040 ez   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. 2011 tax form 1040 ez Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. 2011 tax form 1040 ez The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. 2011 tax form 1040 ez If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2011 tax form 1040 ez , with their individual income tax returns. 2011 tax form 1040 ez Tax Return Example – Form 1041 This publication is not revised annually. 2011 tax form 1040 ez Future changes to the forms and their instructions may not be reflected in this example. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez The following return was prepared for tax year 2011. 2011 tax form 1040 ez In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). 2011 tax form 1040 ez Facts and circumstances. 2011 tax form 1040 ez   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. 2011 tax form 1040 ez Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. 2011 tax form 1040 ez   The estate received the following assets from Mr. 2011 tax form 1040 ez Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. 2011 tax form 1040 ez   Also, the estate received a $251,500 capital loss carryover. 2011 tax form 1040 ez   Mr. 2011 tax form 1040 ez Smith's bankruptcy case was closed on December 31, 2011. 2011 tax form 1040 ez During 2011, Mr. 2011 tax form 1040 ez Smith was relieved of $70,000 of debt by the bankruptcy court. 2011 tax form 1040 ez The estate chose a calendar year as its tax year. 2011 tax form 1040 ez Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. 2011 tax form 1040 ez Schedule B (Form 1040). 2011 tax form 1040 ez    The certificate of deposit earned $5,500 of interest during 2011. 2011 tax form 1040 ez Joan reports this interest on Schedule B. 2011 tax form 1040 ez She completes this schedule and enters the result on Form 1040. 2011 tax form 1040 ez Form 4562. 2011 tax form 1040 ez   Joan enters the depreciation allowed on Form 4562. 2011 tax form 1040 ez She completes the form and enters the result on Schedule E. 2011 tax form 1040 ez Schedule E (Form 1040). 2011 tax form 1040 ez   The commercial real estate was rented through the date of sale. 2011 tax form 1040 ez Joan reports the income and expenses on Schedule E. 2011 tax form 1040 ez She enters the net income on Form 1040. 2011 tax form 1040 ez Form 4797. 2011 tax form 1040 ez   The commercial real estate was sold on July 1, 2011, for $280,000. 2011 tax form 1040 ez The property was purchased in 2001 at a cost of $250,000. 2011 tax form 1040 ez The total depreciation allowable as of the date of sale was $120,000. 2011 tax form 1040 ez Additionally, $25,000 of selling expenses were incurred. 2011 tax form 1040 ez Joan reports the gain or loss from the sale on Form 4797. 2011 tax form 1040 ez She completes the form and enters the gain on Schedule D (Form 1040). 2011 tax form 1040 ez   Mr. 2011 tax form 1040 ez Smith's former residence was sold on September 30, 2011. 2011 tax form 1040 ez The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. 2011 tax form 1040 ez This sale is excluded from gross income under IRC section 121. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). 2011 tax form 1040 ez Bankruptcy estates succeed to this exclusion at the commencement of the case. 2011 tax form 1040 ez See Regulation section 1. 2011 tax form 1040 ez 1398-3. 2011 tax form 1040 ez Schedule D (Form 1040). 2011 tax form 1040 ez   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). 2011 tax form 1040 ez She enters the results on Form 1040. 2011 tax form 1040 ez Form 1040, page 1. 2011 tax form 1040 ez   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. 2011 tax form 1040 ez Schedule A (Form 1040). 2011 tax form 1040 ez   During 2011, the estate paid mortgage interest and real property tax on Mr. 2011 tax form 1040 ez Smith's former residence. 2011 tax form 1040 ez It also paid income tax to the state. 2011 tax form 1040 ez Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. 2011 tax form 1040 ez Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. 2011 tax form 1040 ez She completes the Schedule A and enters the result on page 2 of Form 1040. 2011 tax form 1040 ez Form 1040, page 2. 2011 tax form 1040 ez   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. 2011 tax form 1040 ez She then enters the estate's estimated tax payments and figures the amount the estate still owes. 2011 tax form 1040 ez Form 982. 2011 tax form 1040 ez   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. 2011 tax form 1040 ez Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. 2011 tax form 1040 ez See Debt Cancellation, later. 2011 tax form 1040 ez After the bankruptcy case ends, Mr. 2011 tax form 1040 ez Smith will assume the estate's tax attributes. 2011 tax form 1040 ez Mr. 2011 tax form 1040 ez Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). 2011 tax form 1040 ez Note. 2011 tax form 1040 ez If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. 2011 tax form 1040 ez Form 1041. 2011 tax form 1040 ez   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. 2011 tax form 1040 ez She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. 2011 tax form 1040 ez This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Schedule A This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Schedule B This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Schedule D This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Schedule E This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 2119 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 4562 This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. 2011 tax form 1040 ez Please click the link to view the image. 2011 tax form 1040 ez Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. 2011 tax form 1040 ez Otherwise, you do not have any carryovers. 2011 tax form 1040 ez 1. 2011 tax form 1040 ez Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. 2011 tax form 1040 ez If a loss, enclose the amount in parentheses 1. 2011 tax form 1040 ez 19,880   2. 2011 tax form 1040 ez Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. 2011 tax form 1040 ez 1,500   3. 2011 tax form 1040 ez Combine lines 1 and 2. 2011 tax form 1040 ez If zero or less, enter -0- 3. 2011 tax form 1040 ez 21,380   4. 2011 tax form 1040 ez Enter the smaller of line 2 or line 3 4. 2011 tax form 1040 ez 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. 2011 tax form 1040 ez       5. 2011 tax form 1040 ez Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. 2011 tax form 1040 ez 0   6. 2011 tax form 1040 ez Enter any gain from your 2010 Schedule D, line 15. 2011 tax form 1040 ez If a loss, enter -0- 6. 2011 tax form 1040 ez         7. 2011 tax form 1040 ez Add lines 4 and 6 7. 2011 tax form 1040 ez 1,500   8. 2011 tax form 1040 ez Short-term capital loss carryover for 2011. 2011 tax form 1040 ez Subtract line 7 from line 5. 2011 tax form 1040 ez If zero or less, enter -0-. 2011 tax form 1040 ez If more than zero, also enter this amount on Schedule D, line 6 8. 2011 tax form 1040 ez 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. 2011 tax form 1040 ez       9. 2011 tax form 1040 ez Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. 2011 tax form 1040 ez 251,500   10. 2011 tax form 1040 ez Enter any gain from your 2010 Schedule D, line 7. 2011 tax form 1040 ez If a loss, enter -0- 10. 2011 tax form 1040 ez 0       11. 2011 tax form 1040 ez Subtract line 5 from line 4. 2011 tax form 1040 ez If zero or less, enter -0- 11. 2011 tax form 1040 ez 1,500       12. 2011 tax form 1040 ez Add lines 10 and 11 12. 2011 tax form 1040 ez 1,500   13. 2011 tax form 1040 ez Long-term capital loss carryover for 2011. 2011 tax form 1040 ez Subtract line 12 from line 9. 2011 tax form 1040 ez If zero or less, enter -0-. 2011 tax form 1040 ez If more than zero, also enter this amount on Schedule D, line 14 13. 2011 tax form 1040 ez 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. 2011 tax form 1040 ez The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. 2011 tax form 1040 ez In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. 2011 tax form 1040 ez The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. 2011 tax form 1040 ez Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. 2011 tax form 1040 ez However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. 2011 tax form 1040 ez A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. 2011 tax form 1040 ez However, It may or may not be included in the individual partners' income. 2011 tax form 1040 ez See Partnerships, below under Debt Cancellation. 2011 tax form 1040 ez Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. 2011 tax form 1040 ez A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. 2011 tax form 1040 ez The following discussion only highlights bankruptcy tax rules applying to corporations. 2011 tax form 1040 ez The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. 2011 tax form 1040 ez Therefore, you may wish to seek the help of a professional tax advisor. 2011 tax form 1040 ez See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. 2011 tax form 1040 ez Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. 2011 tax form 1040 ez However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. 2011 tax form 1040 ez A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. 2011 tax form 1040 ez In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. 2011 tax form 1040 ez In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. 2011 tax form 1040 ez Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. 2011 tax form 1040 ez In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. 2011 tax form 1040 ez IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. 2011 tax form 1040 ez IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. 2011 tax form 1040 ez In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. 2011 tax form 1040 ez No loss is recognized in this situation. 2011 tax form 1040 ez Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. 2011 tax form 1040 ez To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. 2011 tax form 1040 ez The exemption request must be submitted to the local IRS Insolvency Office handling the case. 2011 tax form 1040 ez The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. 2011 tax form 1040 ez The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. 2011 tax form 1040 ez ” The statement must be signed by the trustee, receiver or assignee. 2011 tax form 1040 ez The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). 2011 tax form 1040 ez The IRS will act on your request within 90 days. 2011 tax form 1040 ez Disclosure of return information to trustee. 2011 tax form 1040 ez   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. 2011 tax form 1040 ez However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. 2011 tax form 1040 ez Material interest is generally defined as a financial or monetary interest. 2011 tax form 1040 ez Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. 2011 tax form 1040 ez Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. 2011 tax form 1040 ez Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. 2011 tax form 1040 ez QSFs are required to file an annual income tax return, Form 1120-SF, U. 2011 tax form 1040 ez S. 2011 tax form 1040 ez Income Tax Return for Settlement Funds. 2011 tax form 1040 ez More information about QSFs may be found in Treasury Regulation sections 1. 2011 tax form 1040 ez 468B-1 through -5. 2011 tax form 1040 ez Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. 2011 tax form 1040 ez After a return is filed, the IRS will either accept the return as filed or select the return for examination. 2011 tax form 1040 ez Under examination the IRS may redetermine the tax liability shown on the return. 2011 tax form 1040 ez If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. 2011 tax form 1040 ez See Court Jurisdiction over Tax Matters, later. 2011 tax form 1040 ez Prompt Determination Requests Pursuant to Rev. 2011 tax form 1040 ez Proc. 2011 tax form 1040 ez 2006-24, 2006-22 I. 2011 tax form 1040 ez R. 2011 tax form 1040 ez B. 2011 tax form 1040 ez 943, www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. 2011 tax form 1040 ez irs. 2011 tax form 1040 ez gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. 2011 tax form 1040 ez Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). 2011 tax form 1040 ez Making the request for determination. 2011 tax form 1040 ez   As detailed in Rev. 2011 tax form 1040 ez Proc. 2011 tax form 1040 ez 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. 2011 tax form 1040 ez O. 2011 tax form 1040 ez Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). 2011 tax form 1040 ez   The request must be submitted in duplicate and must be executed under penalties of perjury. 2011 tax form 1040 ez In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. 2011 tax form 1040 ez The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. 2011 tax form 1040 ez The name and location of the office where the return was filed. 2011 tax form 1040 ez The name of the debtor. 2011 tax form 1040 ez Debtor's social security number, TIN, or EIN. 2011 tax form 1040 ez Type of bankruptcy estate. 2011 tax form 1040 ez Bankruptcy case number. 2011 tax form 1040 ez Court where the bankruptcy case is pending. 2011 tax form 1040 ez   The copy of the return(s) submitted with the request must be an exact copy of a valid return. 2011 tax form 1040 ez A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. 2011 tax form 1040 ez    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. 2011 tax form 1040 ez A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. 2011 tax form 1040 ez Examination of return. 2011 tax form 1040 ez   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. 2011 tax form 1040 ez If the return is selected for examination, it will be examined as soon as possible. 2011 tax form 1040 ez The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. 2011 tax form 1040 ez   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. 2011 tax form 1040 ez   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. 2011 tax form 1040 ez   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. 2011 tax form 1040 ez Note. 2011 tax form 1040 ez An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. 2011 tax form 1040 ez   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei