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2012 Taxes Online

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2012 taxes online Internal Revenue Bulletin:  2013-7  February 11, 2013  Rev. 2012 taxes online Proc. 2012 taxes online 2013-16 Table of Contents SECTION 1. 2012 taxes online PURPOSE SECTION 2. 2012 taxes online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE SECTION 3. 2012 taxes online BACKGROUND—APPLICABLE PROVISIONS OF LAW SECTION 4. 2012 taxes online FEDERAL INCOME TAX TREATMENT SECTION 5. 2012 taxes online INFORMATION-REPORTING OBLIGATIONS SECTION 6. 2012 taxes online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA SECTION 7. 2012 taxes online PENALTY RELIEF FOR 2012 SECTION 8. 2012 taxes online SCOPE AND EFFECTIVE DATE SECTION 9. 2012 taxes online DRAFTING INFORMATION SECTION 1. 2012 taxes online PURPOSE This revenue procedure provides guidance to mortgage loan holders, loan servicers, and borrowers who are participating in the Department of the Treasury’s (Treasury) and Department of Housing and Urban Development’s (HUD) Home Affordable Modification Program® (HAMP®). 2012 taxes online Under HAMP, a borrower may be eligible for principal reduction of the outstanding balance of a qualifying mortgage pursuant to the program’s Principal Reduction AlternativeSM (PRA). 2012 taxes online In appropriate cases, HAMP has been offering the PRA as part of a HAMP loan modification since the last quarter of 2010. 2012 taxes online Current plans call for HAMP to continue accepting new borrowers through the end of 2013. 2012 taxes online The Internal Revenue Service (Service) is providing this guidance to address the tax consequences for borrowers (HAMP-PRA borrowers) who are participating in the PRA and the reporting obligations for participating mortgage loan holders and servicers. 2012 taxes online SECTION 2. 2012 taxes online BACKGROUND—HAMP AND THE HAMP PRINCIPAL REDUCTION ALTERNATIVE . 2012 taxes online 01 To help distressed borrowers lower their monthly mortgage payments, Treasury and HUD established HAMP for mortgage loans that are not owned or guaranteed by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). 2012 taxes online A description of the program can be found at www. 2012 taxes online makinghomeaffordable. 2012 taxes online gov. 2012 taxes online . 2012 taxes online 02 Under HAMP, a participating loan servicer, acting on behalf of the mortgage loan holder, must consider a sequence of modification steps for each eligible borrower’s mortgage loan until the borrower’s monthly payment is reduced to a monthly payment amount determined under the HAMP guidelines. 2012 taxes online These steps include a reduction in the mortgage loan’s interest rate, an extension of the mortgage loan’s term, and a reduction in the mortgage loan’s principal balance. 2012 taxes online . 2012 taxes online 03 In some cases, the unpaid principal balance of the modified mortgage loan is divided into (1) an amount that bears stated interest and that is used to calculate the borrower’s new monthly mortgage payment (the “Non-forbearance Portion”), and (2) a forbearance amount, which does not bear stated interest and on which periodic payments of stated principal are not required. 2012 taxes online The stated principal of the forbearance amount is due upon the earliest of the borrower’s transfer of the property, payoff of the balance on the Non-forbearance Portion of the mortgage loan, or maturity of the mortgage loan. 2012 taxes online However, as noted in section 2. 2012 taxes online 06 of this revenue procedure, a HAMP-PRA borrower sometimes may not have to pay all or a portion of the forbearance amount. 2012 taxes online (The forbearance amount associated with a HAMP-PRA principal reduction is called the “PRA Forbearance Amount. 2012 taxes online ”) . 2012 taxes online 04 If a mortgage loan is being considered for a HAMP modification and the amount owed on the mortgage loan is greater than 115 percent of the value of the property, then the servicer must consider whether principal reduction under PRA should be used as part of the HAMP modification. 2012 taxes online . 2012 taxes online 05 The first step toward a HAMP modification is a trial period plan, in which the borrower’s monthly mortgage payment is set at a monthly payment amount determined under the HAMP guidelines. 2012 taxes online The trial period plan effective date is the due date for the first of the reduced payments that are to be made under the trial period plan. 2012 taxes online (It is the first day of either the first or the second month after the servicer transmits the trial period notice to the borrower. 2012 taxes online ) In general, the trial period is three months, and, during this period, the borrower must satisfy certain conditions before the changes to the terms of the mortgage loan become permanent (the “Trial Period Conditions”). 2012 taxes online Specifically, depending on the borrower’s trial period payment history, the borrower’s compliance with HAMP and servicer guidelines, and his or her satisfaction of all other Trial Period Conditions, the borrower will be offered a permanent modification of the terms of the mortgage loan, including monthly mortgage payments that are lower than those under the old mortgage loan. 2012 taxes online Until the effective date of a permanent modification, the terms of the existing mortgage loan continue to apply. 2012 taxes online . 2012 taxes online 06 After the mortgage loan is permanently modified under HAMP, if the modified mortgage loan is in good standing on the first, second, or third annual anniversary of the trial period plan effective date (the “Three-year Period”), the servicer must reduce the unpaid principal balance of the mortgage loan on the respective anniversary date by one-third of the initial PRA Forbearance Amount. 2012 taxes online (The servicer allocates the entire reduction to the remaining PRA Forbearance Amount. 2012 taxes online ) In general, if a HAMP-PRA borrower’s mortgage loan is in good standing and if the HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan prior to the reduction of the entire PRA Forbearance Amount, the servicer must reduce the remaining outstanding principal balance of the mortgage loan by the remaining PRA Forbearance Amount. 2012 taxes online . 2012 taxes online 07 In connection with every HAMP loan modification, the HAMP program administrator (acting on behalf of the federal government) provides incentives to the borrower, the servicer, and the investor (that is, the holder of the mortgage loan). 2012 taxes online If a HAMP loan modification includes a PRA principal reduction, the HAMP program administrator makes additional incentive payments to the investor. 2012 taxes online These additional incentives are called “PRA Investor Incentive Payments” and are generally spread over three years. 2012 taxes online The size of the PRA Investor Incentive Payments depends on the amount of principal reduced, the loan-to-value ratio at the time of the HAMP modification, and the loan’s payment history before the modification. 2012 taxes online The PRA Investor Incentive Payments range from 18 to 63 percent of the principal amounts reduced. 2012 taxes online For purposes of this revenue procedure, the excess of the initial PRA Forbearance Amount of a mortgage loan over the aggregate PRA Investor Incentive Payments scheduled to be paid with respect to that loan is called the “PRA Adjusted Forbearance Amount. 2012 taxes online ” . 2012 taxes online 08 A PRA Investor Incentive Payment is earned by the investor on each date on which the servicer reduces the unpaid principal balance of the mortgage loan by a portion of the PRA Forbearance Amount (generally, on the first three annual anniversaries of the trial period plan effective date). 2012 taxes online . 2012 taxes online 09 If a HAMP-PRA borrower’s early payment in full of the Non-forbearance Portion of the mortgage loan accelerates the reduction of the remaining PRA Forbearance Amount (described above in section 2. 2012 taxes online 06 of this revenue procedure), the remaining PRA Investor Incentive Payments from the HAMP program administrator are also accelerated. 2012 taxes online . 2012 taxes online 10 If, prior to completion of the Three-year Period, a mortgage loan ceases to be in good standing because of the HAMP-PRA borrower’s payment history, then the remaining PRA Forbearance Amount is not further reduced and is due when the HAMP-PRA borrower transfers the property, the HAMP-PRA borrower refinances, or otherwise pays off the Non-forbearance Portion of the mortgage loan, or the mortgage loan matures. 2012 taxes online SECTION 3. 2012 taxes online BACKGROUND—APPLICABLE PROVISIONS OF LAW . 2012 taxes online 01 Under § 61 of the Internal Revenue Code, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. 2012 taxes online See § 61(a)(12). 2012 taxes online . 2012 taxes online 02 Under § 1. 2012 taxes online 1001-3 of the Income Tax Regulations, if a debt instrument undergoes a significant modification, then the modification results in an exchange of the original debt instrument for the modified debt instrument. 2012 taxes online In general, an agreement to change a term of a debt instrument is a modification at the time the borrower and holder enter into the agreement, even if the change in term is not immediately effective. 2012 taxes online However, if the change is conditioned on reasonable closing conditions, a modification occurs on the closing date of the agreement. 2012 taxes online See § 1. 2012 taxes online 1001-3(c)(6). 2012 taxes online . 2012 taxes online 03 Under § 108(e)(10), in the case of a debt-for-debt exchange (including a deemed exchange under § 1. 2012 taxes online 1001-3), the borrower is treated as having satisfied the original debt instrument with an amount of money equal to the issue price of the new debt instrument. 2012 taxes online If the amount of debt satisfied in this manner exceeds that issue price, the borrower realizes discharge of indebtedness income on the exchange. 2012 taxes online See also § 1. 2012 taxes online 61-12(c). 2012 taxes online . 2012 taxes online 04 The issue price of a non-publicly traded debt instrument issued for non-publicly traded property generally reflects the amount of principal that the borrower is required to pay to the holder of the instrument. 2012 taxes online If a borrower has the ability to avoid paying certain amounts (including principal) without violating the terms of the instrument, the payment schedule for the instrument is generally determined based on an assumption that the borrower will avoid any requirement to make those payments. 2012 taxes online See, e. 2012 taxes online g. 2012 taxes online , §§ 1. 2012 taxes online 1272-1(c)(5) and 1. 2012 taxes online 1274-2(d). 2012 taxes online . 2012 taxes online 05 Under § 108(a), gross income does not include any amount that but for § 108(a) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if (1) the indebtedness discharged is qualified principal residence indebtedness that is discharged before January 1, 2014, or (2) the discharge occurs when the taxpayer is insolvent. 2012 taxes online Section 108(a)(1)(E) and 108(a)(1)(B). 2012 taxes online (Although § 108 contains other exclusions as well, this revenue procedure focuses on these two exclusions because they are the most likely to apply to the greatest number of HAMP-PRA borrowers. 2012 taxes online ) . 2012 taxes online 06 Under §§ 108(h) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence. 2012 taxes online . 2012 taxes online 07 Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. 2012 taxes online See §§ 108(h) and 163(h)(3)(B)(i). 2012 taxes online . 2012 taxes online 08 The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). 2012 taxes online Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness. 2012 taxes online . 2012 taxes online 09 Under § 108(a)(3), the insolvency exclusion applies to the lesser of the amount of the debt discharged or the amount by which the taxpayer is insolvent immediately before the discharge. 2012 taxes online . 2012 taxes online 10 Section 108(d)(3) provides that, for purposes of the insolvency exclusion, a taxpayer is insolvent to the extent that the taxpayer’s total liabilities exceed the fair market value of all of the taxpayer’s assets immediately before the discharge of indebtedness. 2012 taxes online Under § 108(a)(2)(C), the qualified principal residence indebtedness exclusion takes precedence over the insolvency exclusion when both exclusions apply to discharged indebtedness, unless the taxpayer elects to apply the insolvency exclusion. 2012 taxes online . 2012 taxes online 11 If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. 2012 taxes online See § 108(h)(1). 2012 taxes online If a discharged amount is excluded from gross income because the taxpayer was insolvent when the discharge occurred, the taxpayer must reduce certain tax attributes (possibly including basis). 2012 taxes online See § 108(b). 2012 taxes online For further discussion of income from the discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). 2012 taxes online . 2012 taxes online 12 Taxpayers who exclude any discharged amounts from gross income report both the exclusion and the resulting reduction in basis or other tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). 2012 taxes online See Form 982 instructions and Publication 4681. 2012 taxes online This form is to be filed with the tax return for the taxable year in which the amount is discharged but is excluded from gross income. 2012 taxes online . 2012 taxes online 13 Governmental payments made to or on behalf of individuals or other persons are included within the broad definition of gross income under § 61 unless an exception applies. 2012 taxes online See Notice 2003-18, 2003-1 C. 2012 taxes online B. 2012 taxes online 699, and Rev. 2012 taxes online Rul. 2012 taxes online 79-356, 1979-2 C. 2012 taxes online B. 2012 taxes online 28. 2012 taxes online However, if disbursements are made by a governmental unit to individuals in the interest of the general welfare (that is, are generally based on individual or family need) and the disbursements do not represent compensation for services, then the amounts disbursed are excluded from the income of the recipient (general welfare exclusion). 2012 taxes online See Rev. 2012 taxes online Rul. 2012 taxes online 2005-46, 2005-2 C. 2012 taxes online B. 2012 taxes online 120, and Rev. 2012 taxes online Rul. 2012 taxes online 75-246, 1975-1 C. 2012 taxes online B. 2012 taxes online 24. 2012 taxes online . 2012 taxes online 14 Under § 451 and § 1. 2012 taxes online 451-1(a), a taxpayer that uses the cash receipts and disbursements method of accounting includes income in gross income when the taxpayer actually or constructively receives the income. 2012 taxes online . 2012 taxes online 15 Section 6041 requires every person engaged in a trade or business (including the United States and its agencies) to (1) file an information return (Form 1099-MISC, Miscellaneous Income, is used for this purpose) for each calendar year in which the person makes, in the course of its trade or business, payments to another person of fixed or determinable income aggregating $600 or more, and (2) furnish a copy of the information return to that other person. 2012 taxes online See § 6041(a) and (d) and § 1. 2012 taxes online 6041-1(a)(1) and (b). 2012 taxes online . 2012 taxes online 16 Section 6050P requires applicable entities (including the United States and its agencies, financial entities, and any organization a significant trade or business of which is the lending of money) to (1) file an information return (Form 1099-C, Cancellation of Debt, is used for this purpose) for each calendar year in which it discharges indebtedness of another person of $600 or more, and (2) furnish a copy of the information return to that other person. 2012 taxes online See § 6050P(a)-(c) and §§ 1. 2012 taxes online 6050P-1(a) and 1. 2012 taxes online 6050P-2(a) and (d). 2012 taxes online . 2012 taxes online 17 Section 6721 imposes penalties with respect to information returns required to be filed with the Service. 2012 taxes online These penalties apply in the case of a failure to timely file an information return, a failure to include all required information on the return, or the inclusion of incorrect information on the return. 2012 taxes online Section 6724(d)(1) includes Forms 1099-MISC and 1099-C in the term “information return. 2012 taxes online ” . 2012 taxes online 18 Section 6722 imposes penalties with respect to payee statements required to be furnished to payees. 2012 taxes online These penalties apply in the case of a failure to timely furnish a payee statement, a failure to include all required information on the statement, or the inclusion of incorrect information on the payee statement. 2012 taxes online Section 6724(d)(2) includes in the term “payee statement” copies of Forms 1099-MISC and 1099-C that are required to be furnished to taxpayers. 2012 taxes online SECTION 4. 2012 taxes online FEDERAL INCOME TAX TREATMENT . 2012 taxes online 01 Because a HAMP modification with a PRA principal reduction is a significant modification, it results in a deemed debt-for-debt exchange in which the HAMP-PRA borrower satisfies the old mortgage loan by issuing a new one. 2012 taxes online See § 1. 2012 taxes online 1001-3. 2012 taxes online At the time of the modification, therefore, under § 108 and this revenue procedure, the HAMP-PRA borrower realizes discharge of indebtedness income equal to any excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new (post-modification) mortgage loan. 2012 taxes online See also § 61(a)(12) and § 1. 2012 taxes online 61-12(c). 2012 taxes online . 2012 taxes online 02 A HAMP-PRA borrower has the ability to avoid payment of the PRA Adjusted Forbearance Amount. 2012 taxes online Because the HAMP-PRA borrower has this ability, that amount should not be taken into account in determining the issue price of the new mortgage loan. 2012 taxes online Because the issue price of the new mortgage loan does not include the PRA Adjusted Forbearance Amount, the PRA Adjusted Forbearance Amount contributes to the excess of the adjusted issue price of the old mortgage loan (which was satisfied in the deemed exchange) over the issue price of the new mortgage loan. 2012 taxes online . 2012 taxes online 03 On the other hand, the investor has not given up its right to receive the remainder of the PRA Forbearance Amount, because the HAMP program administrator is expected to make those payments on the HAMP-PRA borrower’s behalf by making the PRA Investor Incentive Payments. 2012 taxes online Because the remainder of the PRA Forbearance Amount is payable in this manner, that remainder is included in the issue price of the new mortgage loan. 2012 taxes online . 2012 taxes online 04 The Trial Period Conditions are reasonable closing conditions that must be satisfied before the changes to the terms of the mortgage loan become permanent. 2012 taxes online Therefore, for purposes of § 1. 2012 taxes online 1001-3, the date of the modification is the date of the permanent modification. 2012 taxes online . 2012 taxes online 05 Unless an exclusion applies, the HAMP-PRA borrower includes in gross income the discharge of indebtedness income described in section 4. 2012 taxes online 01 of this revenue procedure for the taxable year in which the permanent modification occurs. 2012 taxes online Under certain conditions, however, section 6 of this revenue procedure permits a borrower to report the discharge of indebtedness under HAMP-PRA over the Three-year Period. 2012 taxes online The qualified principal residence indebtedness exclusion under § 108(a)(1)(E) and the insolvency exclusion under § 108(a)(1)(B) are two exclusions that may apply to the discharge. 2012 taxes online . 2012 taxes online 06 The PRA Investor Incentive Payment is treated as a payment on the mortgage loan by the HAMP program administrator on behalf of the HAMP-PRA borrower. 2012 taxes online . 2012 taxes online 07 To the extent that the HAMP-PRA borrower uses the property as the HAMP-PRA borrower’s principal residence or the property is occupied by the HAMP-PRA borrower’s legal dependent, parent, or grandparent without rent being charged or collected, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the PRA Investor Incentive Payments that the HAMP program administrator makes to the investor in the mortgage loan. 2012 taxes online This is consistent with Rev. 2012 taxes online Rul. 2012 taxes online 2009-19, 2009-28 I. 2012 taxes online R. 2012 taxes online B. 2012 taxes online 111, which addressed the treatment of Pay-for-Performance Success Payments. 2012 taxes online . 2012 taxes online 08 To the extent that the HAMP-PRA borrower uses the property as a rental property or holds the property vacant and available for rent, the HAMP-PRA borrower includes PRA Investor Incentive Payments in gross income. 2012 taxes online If the HAMP-PRA borrower uses the cash receipts and disbursements method of accounting, then the HAMP-PRA borrower includes a PRA Investor Incentive Payment in gross income in the taxable year in which it is applied as a payment on the HAMP-PRA borrower’s mortgage loan. 2012 taxes online . 2012 taxes online 09 As described in section 2. 2012 taxes online 09 of this revenue procedure, if a HAMP-PRA borrower pays in full the Non-forbearance Portion of the mortgage loan while the loan is in good standing and prior to completion of the Three-year Period, that payment accelerates both the reduction in the remaining PRA Forbearance Amount and the PRA Investor Incentive Payments from the HAMP program administrator. 2012 taxes online To the extent that the HAMP-PRA borrower is described in section 4. 2012 taxes online 07 of this revenue procedure, the HAMP-PRA borrower excludes from his or her gross income under the general welfare exclusion the accelerated PRA Investor Incentive Payments. 2012 taxes online To the extent that the HAMP-PRA borrower is described in section 4. 2012 taxes online 08 of this revenue procedure, the HAMP-PRA borrower includes in income in the year of the acceleration the remaining amount of the PRA Investor Incentive Payment. 2012 taxes online SECTION 5. 2012 taxes online INFORMATION-REPORTING OBLIGATIONS . 2012 taxes online 01 Under § 6050P, the investor is required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness of $600 or more. 2012 taxes online A copy of this form is required to be furnished to the borrower. 2012 taxes online . 2012 taxes online 02 As stated in sections 4. 2012 taxes online 01 and 4. 2012 taxes online 04 of this revenue procedure, the HAMP-PRA discharge of indebtedness is realized at the time of the permanent modification of the mortgage loan. 2012 taxes online . 2012 taxes online 03 An investor is an applicable entity that is required under § 1. 2012 taxes online 6050P-1 and this revenue procedure to issue a Form 1099-C for discharge of indebtedness. 2012 taxes online Under § 1. 2012 taxes online 6050P-1(b)(2)(F), the permanent modification of a mortgage loan is an identifiable event. 2012 taxes online Identifiable events determine when Forms 1099-C have to be issued. 2012 taxes online Thus, the Form 1099-C is issued for the calendar year in which the permanent mortgage loan modification occurs. 2012 taxes online This rule under § 1. 2012 taxes online 6050P-1(b)(2)(F) applies even if, under section 6 of this revenue procedure, the HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the times when the unpaid principal balance of the new mortgage loan is reduced. 2012 taxes online . 2012 taxes online 04 The investor (or the loan servicer acting on behalf of the investor) reports the full amount of the discharge on the Form 1099-C regardless of whether some or all of the amount is excludible from income under the qualified principal residence indebtedness exclusion, the insolvency exclusion, or any other exclusion that may apply. 2012 taxes online That discharged amount will generally be the PRA Adjusted Forbearance Amount (which does not include the amounts expected to be satisfied by PRA Investor Incentive Payments). 2012 taxes online . 2012 taxes online 05 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 2012 taxes online 07 of this revenue procedure, the PRA Investor Incentive Payments are excluded from the gross income of the HAMP-PRA borrower, and thus they are not fixed or determinable income to the HAMP-PRA borrower. 2012 taxes online Under § 6041, these payments are not subject to information reporting. 2012 taxes online See Notice 2011-14, 2011-11 I. 2012 taxes online R. 2012 taxes online B. 2012 taxes online 544, 546. 2012 taxes online . 2012 taxes online 06 To the extent that PRA Investor Incentive Payments are made on behalf of a HAMP-PRA borrower who is described in section 4. 2012 taxes online 08 of this revenue procedure, the PRA Investor Incentive Payments are includible in gross income as fixed or determinable income in the taxable year required by the HAMP-PRA borrower’s method of accounting. 2012 taxes online The payment is subject to the information reporting requirements of § 6041, as described in section 3. 2012 taxes online 15 of this revenue procedure. 2012 taxes online Accordingly, the HAMP program administrator is required to issue a Form 1099-MISC reporting the PRA Investor Incentive Payment. 2012 taxes online SECTION 6. 2012 taxes online HAMP-PRA BORROWERS’ REPORTING OF DISCHARGES OF INDEBTEDNESS UNDER HAMP-PRA . 2012 taxes online 01 In general. 2012 taxes online The HAMP-PRA program began in the last quarter of 2010, and since that time there has been uncertainty about whether the amount of the discharge of indebtedness should be reported in the year of the permanent modification or over the Three-year Period (when the unpaid principal balance on the new mortgage loan is reduced). 2012 taxes online As a result, some HAMP-PRA borrowers have been reporting the discharge of indebtedness under HAMP-PRA over the Three-year Period. 2012 taxes online Given the temporary nature of the program and the issuance of this guidance after participation in the program has begun, in the interests of equitable and sound tax administration, HAMP-PRA borrowers may report discharges of indebtedness under HAMP-PRA under the rules in this section 6. 2012 taxes online A HAMP-PRA borrower may choose to report discharges of indebtedness under HAMP-PRA pursuant to the rules in this section 6 only if the borrower applies the same borrower option under section 6. 2012 taxes online 02 of this revenue procedure consistently to the taxable year of the permanent modification and to all subsequent taxable years. 2012 taxes online Thus, a HAMP-PRA borrower may not choose a borrower option under section 6. 2012 taxes online 02 of this revenue procedure if a statute of limitations has expired for any of the taxable years that are necessary for consistent application of that option. 2012 taxes online . 2012 taxes online 02 HAMP-PRA borrower options. 2012 taxes online A HAMP-PRA borrower may treat the HAMP-PRA discharge as being realized in either of the following ways— (1) One hundred percent of the PRA Adjusted Forbearance Amount at the time of the permanent modification; or (2) One third of the PRA Adjusted Forbearance Amount on each of the first three annual anniversaries of the trial period plan effective date (described in section 2. 2012 taxes online 06 of this revenue procedure), when, as required by the terms of the new mortgage loan, the servicer reduces the unpaid principal balance of the new mortgage loan. 2012 taxes online If some or all of the reduction in the unpaid principal balance is accelerated (as described in section 2. 2012 taxes online 06 of this revenue procedure) because the HAMP-PRA borrower prepays the Non-forbearance Portion of the mortgage loan, then the HAMP-PRA discharge represented by the amount of the reduction that was accelerated is treated as being realized at the time of the accelerated reduction. 2012 taxes online . 2012 taxes online 03 HAMP-PRA borrowers who choose to realize the HAMP-PRA discharge at the time of the permanent modification. 2012 taxes online (1) If a HAMP-PRA borrower chooses to treat the HAMP-PRA discharge as being realized at the time of the permanent modification, then for the taxable year in which the permanent modification occurs, the HAMP-PRA borrower reports on Form 982 the amount, if any, of the discharge that is excluded from gross income and includes in gross income any remaining discharge. 2012 taxes online (2) If a HAMP-PRA borrower’s mortgage loan was permanently modified under HAMP in 2010 or 2011, and if the borrower was reporting the discharge of indebtedness using the method described in section 6. 2012 taxes online 02(2) of this revenue procedure, then the borrower may change to reporting the discharge of indebtedness using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure by filing a 2012 Form 982 with the borrower’s timely filed (with extensions) 2012 income tax return. 2012 taxes online This section 6. 2012 taxes online 03(2) applies only if the change to reporting the discharge using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure does not change the borrower’s federal income tax liability (including any change in federal income tax liability due to a change in basis or tax attributes (under § 108(h)(1) or § 108(b))) for any taxable year prior to the borrower’s 2012 taxable year. 2012 taxes online To make this change, the borrower must— (i) Compute the amount of discharge of indebtedness that would be included in income under § 61(a)(12) or excluded from gross income under § 108, basing the computation of the discharge on the facts as of the year of the permanent modification; and (ii) Report on a 2012 Form 982 the reduction in basis or tax attributes (under § 108(h)(1) or § 108(b)) due to the permanent modification that the borrower would have reported on the Form 982 for the taxable year of the permanent modification, minus any reductions due to the permanent modification that the borrower actually reported on Forms 982 for taxable years prior to 2012. 2012 taxes online (3) Example. 2012 taxes online The following example illustrates the application of section 6. 2012 taxes online 03(2) of this revenue procedure. 2012 taxes online In 2010, B’s basis in B’s principal residence was $330,000. 2012 taxes online In 2010, B’s mortgage loan on the principal residence is permanently modified under HAMP-PRA. 2012 taxes online B realized $30,000 of cancellation of indebtedness from the permanent modification, all of which qualifies for the exclusion from income for qualified principal residence indebtedness under § 108(a)(1)(E). 2012 taxes online The trial period plan effective date also fell in 2010. 2012 taxes online B’s federal income tax return for 2010 was consistent with B’s reporting this discharge of indebtedness using the method described in section 6. 2012 taxes online 02(2) of this revenue procedure. 2012 taxes online That is, B’s 2010 return did not include income from discharge of indebtedness under HAMP-PRA, nor did the return contain a Form 982 reporting exclusion of any such discharge of indebtedness. 2012 taxes online The next year, B reported on line 10(b) of the 2011 Form 982 that B filed with B’s 2011 federal income tax return a $10,000 reduction in basis in the principal residence. 2012 taxes online For 2012, B chooses to change to reporting the discharge of indebtedness using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure. 2012 taxes online Thus, B files a 2012 Form 982 with B’s timely filed (including extensions) 2012 federal income tax return, and on line 10(b) of that form, B reports a $20,000 basis reduction in the principal residence ($30,000 basis reduction that B would have excluded from income in 2010 using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure, minus the $10,000 basis reduction that B reported on B’s 2011 Form 982). 2012 taxes online (4) If a HAMP-PRA borrower reports the entire HAMP-PRA discharge using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure, and if that HAMP-PRA borrower’s mortgage loan ceases to be in good standing during the Three-year Period as described in section 2. 2012 taxes online 10 of this revenue procedure, then some or all of the anticipated reductions in the PRA Adjusted Forbearance Amount will not take place. 2012 taxes online Because the amount of these anticipated reductions was not included in determining the issue price of the new mortgage loan that, pursuant to § 1. 2012 taxes online 1001-3, the HAMP-PRA borrower is deemed to issue in satisfaction of the old mortgage loan, the issue price of the new mortgage loan was understated. 2012 taxes online Under these circumstances, the discharge of indebtedness income determined as of the date of the permanent modification will have been overstated. 2012 taxes online (5) The Service will not challenge a HAMP-PRA borrower who is described in section 6. 2012 taxes online 03(4) of this revenue procedure and who takes the following corrective measures: (i) If a HAMP-PRA borrower included any of the discharge of indebtedness in gross income, the HAMP-PRA borrower may file an amended return that does not include the amount of the discharge of indebtedness that was previously reported as gross income but that, because of the HAMP-PRA borrower’s failure to keep the new mortgage loan in good standing, was not ultimately discharged. 2012 taxes online The amended return should be for the taxable year in which the income was included (that is, the year of the permanent modification), provided the applicable statute of limitations remains open for that taxable year. 2012 taxes online (ii) If the HAMP-PRA borrower did not include any of the discharge of indebtedness in gross income (that is, if the HAMP-PRA borrower excluded all of it), the HAMP-PRA borrower may file a new Form 982 that the Service will treat as superseding the earlier Form 982. 2012 taxes online The new Form 982 will reflect the revised reduction in basis or in tax attributes (under § 108(h)(1) or § 108(b)). 2012 taxes online The new Form 982 should be the Form 982 for the year of the permanent modification and should be filed with the return for the taxable year in which the HAMP-PRA borrower’s mortgage loan ceased to be in good standing. 2012 taxes online . 2012 taxes online 04 HAMP-PRA borrowers who choose to treat the HAMP-PRA discharge as being realized on the dates on which the unpaid principal balance of the mortgage loan is reduced. 2012 taxes online (1) If a HAMP-PRA borrower chooses to realize the HAMP-PRA discharge at the times that the unpaid principal balance on the new mortgage loan is reduced, instead of at the time of the permanent modification, then the HAMP-PRA borrower’s federal income tax returns for the taxable year that contains the permanent modification and for the subsequent taxable years must not treat any of the discharge as being realized at the time of the permanent modification and must treat the entire HAMP-PRA discharge as being realized in the amounts—and at the times—of the reductions in the unpaid principal balance. 2012 taxes online Except as described in the last sentence of this paragraph, therefore, the income tax return for the year of the permanent modification must include no gross income from—nor report on Form 982 an exclusion of—any amount of the HAMP-PRA discharge. 2012 taxes online Instead, the HAMP-PRA discharge is included in gross income (or is reported on Form 982 as excluded from gross income) in the subsequent years in which the unpaid principal balance is reduced. 2012 taxes online If the first such reduction occurs in the year of the permanent modification, however, then the amount of any such reduction is reflected as an inclusion or exclusion on the federal income tax return for that year. 2012 taxes online (2) A HAMP-PRA borrower who has been using the method described in section 6. 2012 taxes online 02(1) of this revenue procedure may change to the method described in section 6. 2012 taxes online 02(2) but must comply with the consistency and open-year requirements described in section 6. 2012 taxes online 01 of this revenue procedure. 2012 taxes online SECTION 7. 2012 taxes online PENALTY RELIEF FOR 2012 . 2012 taxes online 01 The Service will not assert penalties under § 6721 or § 6722 against an investor for failing to timely file and furnish a 2012 Form 1099-C as required by section 5. 2012 taxes online 03 through 5. 2012 taxes online 04 and section 8. 2012 taxes online 02 of this revenue procedure with respect to discharge of indebtedness resulting from HAMP-PRA permanent modifications that take place during calendar year 2012 if the following requirements are satisfied: (1) Not later than February 28, 2013, a statement is sent to the HAMP-PRA borrower containing the following: (a) The HAMP-PRA borrower’s name, address, and taxpayer identification number; and (b) The date and amount of the discharge of indebtedness (as described in sections 4. 2012 taxes online 01 through 4. 2012 taxes online 04 of this revenue procedure) that is required to be reported for 2012. 2012 taxes online (2) Not later than March 28, 2013, a statement is sent to the Service. 2012 taxes online It must be in the form of a single statement that separately lists for each HAMP-PRA borrower the information specified in section 7. 2012 taxes online 01(1) of this revenue procedure. 2012 taxes online The statement should be sent to the Service at the following address: Internal Revenue Service Center Stop 6728AUSC Austin, TX 73301 . 2012 taxes online 02 The Service will not assert penalties under § 6721 or § 6722 with respect to any Forms 1099-MISC for 2012 that sections 5. 2012 taxes online 06 and 8. 2012 taxes online 02 of this revenue procedure require to be filed with the Service and furnished to taxpayers. 2012 taxes online . 2012 taxes online 03 Section 8. 2012 taxes online 03 and 8. 2012 taxes online 04 of this revenue procedure, below, describes penalty relief regarding Forms 1099-C and 1099-MISC for 2010 and 2011. 2012 taxes online SECTION 8. 2012 taxes online SCOPE AND EFFECTIVE DATE . 2012 taxes online 01 This revenue procedure applies to all borrowers, investors, and servicers who participate, or have participated, in the HAMP-PRA, regardless of when the permanent modification occurs. 2012 taxes online . 2012 taxes online 02 Section 5 of this revenue procedure is effective for Forms 1099-C and 1099-MISC due or filed after January 24, 2013. 2012 taxes online . 2012 taxes online 03 Because of the effective date in section 8. 2012 taxes online 02 of this revenue procedure, an investor is not subject to penalties under § 6721 or § 6722 on the grounds that the investor failed to timely file and furnish a 2010 or 2011 Form 1099-C as described in section 5. 2012 taxes online 03 through 5. 2012 taxes online 04 of this revenue procedure (or on the grounds that the investor filed or furnished a 2010 or 2011 Form 1099-C that is inconsistent with section 5. 2012 taxes online 03 through 5. 2012 taxes online 04 of this revenue procedure), provided that the investor demonstrates a good faith attempt to comply with the requirements of § 6050P and that the failure was not due to willful neglect. 2012 taxes online . 2012 taxes online 04 Because of the effective date in section 8. 2012 taxes online 02 of this revenue procedure, the Service will not assert penalties under § 6721 or § 6722 on the grounds of a failure to timely file and furnish a 2010 or 2011 Form 1099-MISC, as described in section 5. 2012 taxes online 06 of this revenue procedure. 2012 taxes online SECTION 9. 2012 taxes online DRAFTING INFORMATION The principal authors of this revenue procedure are Ronald J. 2012 taxes online Goldstein of the Office of Chief Counsel (Procedure and Administration); Shareen S. 2012 taxes online Pflanz and Sheldon A. 2012 taxes online Iskow of the Office of Chief Counsel (Income Tax and Accounting); and Andrea M. 2012 taxes online Hoffenson of the Office of Chief Counsel (Financial Institutions and Products). 2012 taxes online For further information regarding this revenue procedure, contact Procedure and Administration branch 1 at (202) 622-4910, Income Tax and Accounting branch 4 at (202) 622-4920, or Financial Institutions and Products branch 1 at (202) 622-3920 (not toll-free calls). 2012 taxes online Prev  Up  Next   Home   More Internal Revenue Bulletins
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Consumer Resources for Military Personnel

Today's military family faces many common consumer challenges, as well as the additional stress associated with frequent separation. To ease such difficulties, Family Centers, along with the other programs described below, provide help and support for military families.


U.S. Military Family Centers

Located on most military installations, Family Centers provide information, life skills education, and support services to military members and their families. One key function of a Family Center is to link people with appropriate services available in the local community and/or through state and federal assistance programs such as those related to health and human services, school systems, employment assistance, law enforcement and recreation.

Airman and Family Readiness Centers (A&FRC)
A&FRCs are located on every Air Force Installation and offer a wealth of to Airmen and their families. One-on-one consultations are available on information such as financial management, transition assistance, spouse employment, readiness, deployment, family life and relocation assistance.

Marine Corps Community Services (MCCS)
Headquarters and Service Battalion, Henderson Hall
1550 Southgate Rd.
Building 29, Room 305 Arlington, VA 22214-5103
Phone: 703-614-7171
The Personal and Family Readiness Division (MR) provides a number of Marine Corps personnel service programs, such as Casualty Assistance, DEERS Dependency Determination, Voting Assistance, Postal Services, and Personal Claims.

Commander, Navy Installations Command
Fleet and Family Support Programs
716 Sicard St., SE, Suite 1000
Washington Navy Yard, DC 20374-5140
The Fleet and Family Support Program delivered by Commander, Navy Installations Command, provides support, references, information and a wide range of assistance for members of the Navy and their families to meet the unique challenges of the military lifestyle. Up-to-date news, messages, links and resources are provided, including assistance with relocation, employment, career and benefits, healthy lifestyles, casualties, domestic violence, and retirement.

U.S. Army
Family and Morale, Welfare and Recreation Command
Directorate, Army Community Service
4700 King St., NW
Alexandria, VA 22302
The Army provides comprehensive information on the support available to personnel and families, including resources to strengthen home and family life, Army basic training, lifelong learning, finances, employment, relevant news, along with links to other resources

U.S. Coast Guard
Office of Worklife
2100 Second St., SW, Stop 7013
Washington, DC 20593-7001
Phone: 202-267-6160
The U.S. Coast Guard can provide key resources, including core publications, career information and related news, as well as comprehensive background about its mission, community services, history, photos and reports.

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Useful Websites

Military OneSource is a comprehensive resource for military members and their families relating to nearly every aspect of personal and professional life, with topics that range from health and wellness, finances, family matters and resiliency.  The website includes blogs, discussion boards, podcasts and live chat. You may also call them at 1-800-342-9647.

National Resource Directory provides wounded, ill and injured service members, veterans, their families and those who support them with a web-based yellow book. It provides information on, and access to, the full range of medical and non-medical services and resources needed to achieve their personal and professional goals across the transitions from recovery to rehabilitation to community reintegration. The National Resource Directory is an online partnership of the Departments of Defense, Labor and Veterans Affairs and provides links to the services and resources of federal, state and local governmental agencies; veterans' service, non-profit, community based and philanthropic organizations; professional associations and academic institutions.

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Additional Consumer Resources for Military Personnel

Be sure to take advantage of resources designed for military personnel and their families. Check with family readiness centers on your installation to get access to financial help.

The Consumer Financial Protection Bureau’s Office of Servicemember Affairs offers resources to plan your financial future and prevent being victim of fraud.

The Better Business Bureau also offers consumer education and advocacy to service members through their Military Line®.

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Predatory Lending Restrictions

As of October 1, 2007, the Talent Nelson amendment to the John Warner National Defense Authorization Act allows the Department of Defense to regulate the terms of payday loans, vehicle title loans and tax refund loans to active duty service members and their dependents. These three products have high interest rates, coupled with short payback terms.

The rule for service members and their dependents limits the annual percentage rate on these loans to 36%. All fees and charges should be included in the calculation of the rate. The rule also prohibits contracts requiring the use of a check or access to a bank account, mandatory arbitration, and unreasonable legal notice. Any credit agreement subject to the regulation that fails to comply with this regulation is void and cannot be enforced. The rule further provides that a creditor or assignee that knowingly violates the regulation shall be subject to certain criminal penalties.

The Department of Defense strongly encourages service members and their families to choose alternatives which are designed to help resolve financial crises, rebuild credit ratings and establish savings for emergencies. Payday loans, vehicle title loans and tax refund loans can propel an already over extended borrower into a deeper spiral of debt.

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The 2012 Taxes Online

2012 taxes online 5. 2012 taxes online   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Prohibited Tax Shelter TransactionsEntity Level Tax Excess Benefit TransactionsTax on Disqualified Persons Tax on Organization Managers Excess Benefit Transaction Excess Business Holdings Taxable Distributions of Sponsoring Organizations Exception. 2012 taxes online A donor advised fund does not include: Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Excise Taxes on Private Foundations Excise Taxes on Black Lung Benefit Trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements Introduction An excise tax may be imposed on certain tax-exempt organizations. 2012 taxes online Topics - This chapter discusses: Prohibited tax shelter transactions Excess benefit transactions Excess business holdings Taxable distributions of sponsoring organizations Taxes on prohibited benefits distributed from donor advised funds Excise taxes on private foundations Excise taxes on 501(c)(21) black lung benefit trusts Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements of Hospitals Useful Items - You may want to see: Forms (and Instructions) 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code See chapter 6 for more information about getting Form 4720. 2012 taxes online Prohibited Tax Shelter Transactions Section 4965 imposes an excise tax on: Certain tax-exempt entities that are party to prohibited tax shelter transactions, and Any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows or has reason to know that the transaction is a prohibited tax shelter transaction. 2012 taxes online  Additionally, section 6033 provides new disclosure requirements on a tax-exempt entity that is a party to a prohibited tax shelter transaction. 2012 taxes online Tax-exempt entities. 2012 taxes online   Tax-exempt entities that are subject to section 4965 include: Entities described in section 501(c), including but not limited to the following common types of entities: Instrumentalities of the United States described in section 501(c)(1); Churches, hospitals, museums, schools, scientific research organizations, and other charities described in section 501(c)(3); Civic leagues, social welfare organizations, and local associations of employees described in section 501(c)(4); Labor, agricultural, or horticultural organizations described in section 501(c)(5); Business leagues, chambers of commerce, trade associations, and other organizations described in section 501(c)(6); Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9); Credit unions described in section 501(c)(14); Insurance companies described in section 501(c)(15); and Veterans' organizations described in section 501(c)(19). 2012 taxes online Religious or apostolic associations or corporations described in section 501(d). 2012 taxes online Entities described in section 170(c), including states, possessions of the United States, the District of Columbia, political subdivisions of states and political subdivisions of possessions of the United States (but not including the United States). 2012 taxes online Indian tribal governments within the meaning of section 7701(a)(40). 2012 taxes online Entity manager. 2012 taxes online    An entity manager is any person with authority or responsibility similar to that exercised by an officer, director, or trustee, and, for any act, the person that has authority or responsibility with respect to the prohibited transaction. 2012 taxes online Prohibited tax shelter transaction. 2012 taxes online   A prohibited tax shelter transaction is any listed transaction, within the meaning of section 6707A(c)(2), and any prohibited reportable transactions. 2012 taxes online A prohibited reportable transaction is a confidential transaction within the meaning of Regulations section 1. 2012 taxes online 6011-4(b)(3), and a transaction with contractual protection within the meaning of Regulations section 1. 2012 taxes online 6011-4(b)(4). 2012 taxes online See the Instructions for Form 8886 for more information on listed transactions and prohibited reportable transactions. 2012 taxes online Subsequently listed transaction. 2012 taxes online   Any transaction to which the tax-exempt entity is a party and is later determined to be a listed transaction after the entity has become a party to it, is a subsequently listed transaction. 2012 taxes online Entity Level Tax Section 4965(a)(1) imposes an entity level excise tax on any tax-exempt entity described in 1, 2, 3, or 4 above that becomes a party to a prohibited tax shelter transaction or is a party to a subsequently listed transaction (defined earlier). 2012 taxes online The excise tax imposed on a tax-exempt entity applies to tax years in which the entity becomes a party to the prohibited tax shelter transaction and any subsequent tax years. 2012 taxes online The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction. 2012 taxes online To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720. 2012 taxes online For more information about this excise tax, including information about how it is figured, see the Instructions for Form 4720. 2012 taxes online Manager Level Tax Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. 2012 taxes online The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. 2012 taxes online To report this tax, file Form 4720. 2012 taxes online Excess Benefit Transactions Excise tax on excess benefit transactions. 2012 taxes online   A disqualified person who benefits from an excess benefit transaction, such as compensation, fringe benefits, or contract payments from certain section 501(c)(3), 501(c)(4), or 501(c)(29) organizations, must correct the transaction and may have to pay an excise tax under section 4958. 2012 taxes online A manager of the organization may also have to pay an excise tax under section 4958. 2012 taxes online These taxes are reported on Form 4720. 2012 taxes online   The excise taxes are imposed if an applicable tax-exempt organization provides an excess benefit to a disqualified person and that benefit exceeds the value of the benefit received in exchange. 2012 taxes online   There are three taxes under section 4958. 2012 taxes online Disqualified persons are liable for the first two taxes and certain organization managers are liable for the third tax. 2012 taxes online    Taxes imposed on excess benefit transactions do not apply to a transaction under a written contract that was binding on September 13, 1995, and at all times thereafter before the transaction occurred. 2012 taxes online Tax on Disqualified Persons An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person. 2012 taxes online The disqualified person who benefited from the transaction is liable for the tax. 2012 taxes online See definition of Disqualified person, later at Disqualified person. 2012 taxes online Additional tax on the disqualified person. 2012 taxes online   If the 25% tax is imposed and the excess benefit transaction is not corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed on any disqualified person involved. 2012 taxes online   If a disqualified person makes a payment of less than the full correction amount, the 200% tax is imposed only on the unpaid portion of the correction amount. 2012 taxes online If more than one disqualified person received an excess benefit from an excess benefit transaction, all such disqualified persons are jointly and severally liable for the taxes. 2012 taxes online   To avoid the 200% tax, a disqualified person must correct the excess benefit transaction during the taxable period. 2012 taxes online The 200% tax is abated (refunded if collected) if the excess benefit transaction is corrected within a 90-day correction period beginning on the date a statutory notice of deficiency is issued. 2012 taxes online Taxable period. 2012 taxes online   The taxable period means the period beginning with the date on which the excess benefit transaction occurs and ending on the earlier of: The date a notice of deficiency was mailed to the disqualified person for the initial tax on the excess benefit transaction, or The date on which the initial tax on the excess benefit transaction for the disqualified person is assessed. 2012 taxes online Tax on Organization Managers If tax is imposed on a disqualified person for any excess benefit transaction, an excise tax equal to 10% of the excess benefit is imposed on an organization manager who knowingly participated in an excess benefit transaction, unless such participation was not willful and was due to reasonable cause. 2012 taxes online This tax cannot exceed $20,000 ($10,000 for transactions entered in a tax year beginning before August 18, 2006), for each transaction. 2012 taxes online There is also joint and several liability for this tax. 2012 taxes online A person can be liable for both the tax paid by the disqualified person and the organization manager tax for a particular excess benefit transaction. 2012 taxes online Organization Manager. 2012 taxes online   An organization manager is any officer, director, or trustee of an applicable tax-exempt organization, or any individual having powers or responsibilities similar to officers, directors, or trustees of the organization, regardless of title. 2012 taxes online An organization manager is not considered to have participated in an excess benefit transaction where the manager has opposed the transaction in a manner consistent with the fulfillment of the manager's responsibilities to the organization. 2012 taxes online For example, a director who votes against giving an excess benefit would ordinarily not be subject to the 10% tax. 2012 taxes online A person participates in a transaction knowingly if the person: Has actual knowledge of sufficient facts so that, based solely upon those facts, such transaction would be an excess benefit transaction; Is aware that such a transaction under these circumstances may violate the provisions of federal tax law governing excess benefit transactions; and Negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction, or the manager is in fact aware that it is such a transaction. 2012 taxes online Knowing does not mean having reason to know. 2012 taxes online The organization manager ordinarily will not be considered knowing if, after full disclosure of the factual situation to an appropriate professional, the organization manager relied on the professional's reasoned written opinion on matters within the professional's expertise or if the manager relied on the fact that the requirements for the rebuttable presumption of reasonableness have been satisfied. 2012 taxes online Participation by an organization manager is willful if it is voluntary, conscious, and intentional. 2012 taxes online An organization manager's participation is due to reasonable cause if the manager has exercised responsibility on behalf of the organization with ordinary business care and prudence. 2012 taxes online Excess Benefit Transaction An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. 2012 taxes online The excess benefit transaction rules apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined in whole or in part by the revenues of one or more activities of the organization. 2012 taxes online To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account. 2012 taxes online For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. 2012 taxes online Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts. 2012 taxes online Donor advised fund transactions occurring after August 17, 2006. 2012 taxes online   For a donor advised fund, an excess benefit transaction includes a grant, loan, compensation, or other similar payment from the fund to a: Donor or donor advisor, Family member of a donor, or donor advisor, 35% controlled entity of a donor, or donor advisor, or 35% controlled entity of a family member of a donor, or donor advisor. 2012 taxes online   The excess benefit in this transaction is the amount of the grant, loan, compensation, or other similar payment. 2012 taxes online For additional information, see the Instructions for Form 4720. 2012 taxes online Supporting organization transactions occurring after July 25, 2006. 2012 taxes online   For any supporting organization, defined in section 509(a)(3), an excess benefit transaction includes grants, loans, compensation, or other similar payment provided by the supporting organization to a: Substantial contributor, Family member of a substantial contributor, 35% controlled entity of a substantial contributor, or 35% controlled entity of a family member of a substantial contributor. 2012 taxes online   Additionally, an excess benefit transaction includes any loans provided by the supporting organization to a disqualified person (other than an organization described in section 509(a)(1), (2), or (4)). 2012 taxes online   The excess benefit for substantial contributors and parties related to those contributors includes the amount of the grant, loan, compensation, or other similar payment. 2012 taxes online For additional information, see the Instructions for Form 4720. 2012 taxes online   Excess benefit transaction rules generally do not apply to transactions between a supporting organization and its supported organization described in section 501(c)(4), (5), or (6) in furtherance of charitable purposes. 2012 taxes online Date of Occurrence An excess benefit transaction occurs on the date the disqualified person receives the economic benefit from the organization for federal income tax purposes. 2012 taxes online However, when a single contractual arrangement provides for a series of compensation or other payments to or for the use of a disqualified person during the disqualified person's tax year, any excess benefit transaction with respect to these payments occurs on the last day of the taxpayer's tax year. 2012 taxes online In the case of benefits provided to a qualified pension, profit-sharing, or stock bonus plan, the transaction occurs on the date the benefit is vested. 2012 taxes online In the case of the transfer of property subject to a substantial risk of forfeiture, or in the case of rights to future compensation or property, the transaction occurs on the date the property, or the rights to future compensation or property, is not subject to a substantial risk of forfeiture. 2012 taxes online Where the disqualified person elects to include an amount in gross income in the tax year of transfer under section 83(b), the excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. 2012 taxes online Correcting the excess benefit. 2012 taxes online   An excess benefit transaction is corrected by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than what it would have been if the disqualified person were dealing under the highest fiduciary standards. 2012 taxes online   A disqualified person corrects an excess benefit by making a payment in cash or cash equivalents, excluding payment by a promissory note, equal to the correction amount to the applicable tax-exempt organization. 2012 taxes online The correction amount equals the excess benefit plus the interest on the excess benefit. 2012 taxes online The interest rate can be no lower than the applicable federal rate, compounded annually, for the month the transaction occurred. 2012 taxes online   A disqualified person can, with the agreement of the applicable tax-exempt organization, make a payment by returning the specific property previously transferred in the excess transaction. 2012 taxes online In this case, the disqualified person is treated as making a payment equal to the lesser of: The fair market value of the property on the date the property is returned to the organization, or The fair market value of the property on the date the excess benefit transaction occurred. 2012 taxes online   If the payment resulting from the return of property is less than the correction amount, the disqualified person must make an additional cash payment to the organization equal to the difference. 2012 taxes online   If the payment resulting from the return of the property exceeds the correction amount described above, the organization can make a cash payment to the disqualified person equal to the difference. 2012 taxes online Exception. 2012 taxes online   For a correction of an excess benefit transaction (discussed earlier), no amount repaid in a manner prescribed by the Secretary can be held in a donor advised fund. 2012 taxes online Applicable Tax-Exempt Organization An applicable tax-exempt organization is a section 501(c)(3), 501(c)(4), or 501(c)(29) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction. 2012 taxes online An applicable tax-exempt organization does not include: A private foundation as defined in section 509(a), A governmental entity that is: Exempt from (or not subject to) taxation without regard to section 501(a), or Not required to file an annual return, or A foreign organization, recognized by the IRS or by treaty, that receives substantially all of its support (other than gross investment income) from sources outside the United States. 2012 taxes online An organization is not treated as a section 501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination that the organization was not tax-exempt under section 501(a), but only if the determination was not based on private inurement or one or more excess benefit transactions. 2012 taxes online Disqualified Person A disqualified person is: Any person (at any time during the 5-year period ending on the date of the transaction) in a position to exercise substantial influence over the affairs of the organization, A family member of an individual described in 1, and A 35% controlled entity. 2012 taxes online For donor advised funds, sponsoring organizations, and certain supporting organizations occurring after August 17, 2006. 2012 taxes online   The following persons will be considered disqualified persons along with certain family members and 35% controlled entities associated with them. 2012 taxes online Donors of donor advised funds, Investment advisors of sponsoring organizations, and Disqualified persons of a section 509(a)(3) supporting organization that supports the applicable tax-exempt organization. 2012 taxes online For certain supporting organization transactions occurring after July 25, 2006. 2012 taxes online   Substantial contributors to supporting organizations will also be considered disqualified persons with respect to the supporting organizations, along with their family members and 35% controlled entities. 2012 taxes online Investment advisor. 2012 taxes online   Investment advisor means for any sponsoring organization, any person compensated by such organization (but not an employee of such organization) for managing the investment of, or providing investment advice for, assets maintained in donor advised funds owned by such sponsoring organization. 2012 taxes online Substantial contributor. 2012 taxes online   In general, a substantial contributor means any person who contributed or bequeathed an aggregate of more than $5,000 to the organization, if that amount is more than 2% of the total contributions and bequests received by the end of the organization's tax year in which the contribution or bequest is received. 2012 taxes online A substantial contributor includes the grantor of a trust. 2012 taxes online Family members. 2012 taxes online   Family members of a disqualified person include a disqualified person's spouse, brothers or sisters (whether by whole or half-blood), spouses of brothers or sisters (whether by whole or half-blood), ancestors, children (including a legally adopted child), grandchildren, great grandchildren, and spouses of children, grandchildren, and great grandchildren (whether by whole or half-blood). 2012 taxes online 35% controlled entity. 2012 taxes online   A 35% controlled entity is: A corporation in which disqualified persons own more than 35% of the total combined voting power, A partnership in which such persons own more than 35% of the profits interest, or A trust or estate in which such persons own more than 35% of the beneficial interest. 2012 taxes online   In determining the holdings of a business enterprise, any stock or other interest owned directly or indirectly shall apply. 2012 taxes online Persons having substantial influence. 2012 taxes online   Among those who are in a position to exercise substantial influence over the affairs of the organization are, for example, voting members of the governing body, and persons holding the power of: Presidents, chief executives, or chief operating officers. 2012 taxes online Treasurers and chief financial officers. 2012 taxes online Persons with a material financial interest in a provider-sponsored organization. 2012 taxes online Persons not considered to have substantial influence. 2012 taxes online   Persons who are not considered to be in a position to exercise substantial influence over the affairs of an organization include: An employee who receives benefits that total less than the highly compensated amount in section 414(q)(1)(B)(i) and who does not hold the executive or voting powers mentioned earlier in the discussion on Disqualified Person, is not a family member of a disqualified person, and is not a substantial contributor, Tax-exempt organizations described in section 501(c)(3), and Section 501(c)(4) organizations with respect to transactions engaged in with other section 501(c)(4) organizations. 2012 taxes online Facts and circumstances. 2012 taxes online   The determination of whether a person has substantial influence over the affairs of an organization is based on all the facts and circumstances. 2012 taxes online Facts and circumstances that tend to show a person has substantial influence over the affairs of an organization include, but are not limited to, the following. 2012 taxes online The person founded the organization. 2012 taxes online The person is a substantial contributor to the organization under the section 507(d)(2)(A) definition, only taking into account contributions to the organization for the past 5 years. 2012 taxes online The person's compensation is primarily based on revenues derived from activities of the organization that the person controls. 2012 taxes online The person has or shares authority to control or determine a substantial portion of the organization's capital expenditures, operating budget, or compensation for employees. 2012 taxes online The person manages a discrete segment or activity of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. 2012 taxes online The person owns a controlling interest (measured by either vote or value) in a corporation, partnership, or trust that is a disqualified person. 2012 taxes online The person is a nonstock organization controlled directly or indirectly by one or more disqualified persons. 2012 taxes online   Facts and circumstances tending to show that a person does not have substantial influence over the affairs of an organization include, but are not limited to, the following. 2012 taxes online The person has taken a bona fide vow of poverty as an employee or agent of a religious organization or on its behalf. 2012 taxes online The person is an independent contractor whose sole relationship to the organization is providing professional advice (without having decision-making authority) with respect to transactions from which the independent contractor will not economically benefit either directly or indirectly aside from customary fees received for the professional advice rendered. 2012 taxes online Any preferential treatment the person receives based on the size of the person's donation is also offered to others making comparable widely solicited donations. 2012 taxes online The direct supervisor of the person is not a disqualified person. 2012 taxes online The person does not participate in any management decisions affecting the organization as a whole or a discrete segment of the organization that represents a substantial portion of the activities, assets, income, or expenses of the organization, as compared to the organization as a whole. 2012 taxes online   In the case of multiple organizations affiliated by common control or governing documents, the determination of whether a person does or does not have substantial influence is made separately for each applicable tax-exempt organization. 2012 taxes online A person may be a disqualified person with respect to transactions with more than one organization. 2012 taxes online Reasonable Compensation. 2012 taxes online    Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. 2012 taxes online The section 162 standard will apply in determining the reasonableness of compensation. 2012 taxes online The fact that a bonus or revenue-sharing arrangement is subject to a cap is a relevant factor in determining reasonableness of compensation. 2012 taxes online   To determine the reasonableness of compensation, all items of compensation provided by an applicable tax-exempt organization in exchange for performance of services are taken into account in determining the value of compensation (except for economic benefits that are disregarded under the discussion Disregarded benefits , later). 2012 taxes online Items of compensation include: All forms of cash and noncash compensation, including salary, fees, bonuses, severance payments, and deferred noncash compensation, The payment of liability insurance premiums for, or the payment or reimbursement by the organization of penalties, taxes, or certain expenses under section 4958, unless excludable from income as a de minimis fringe benefit under section 132(a)(4), All other compensatory benefits, whether or not included in gross income for income tax purposes, Taxable and nontaxable fringe benefits, except fringe benefits described in section 132, and Foregone interest on loans. 2012 taxes online    Intent to treat benefits as compensation. 2012 taxes online An economic benefit is not treated as consideration for the performance of services unless the organization providing the benefit clearly indicates its intent to treat the benefit as compensation when the benefit is paid. 2012 taxes online   An applicable tax-exempt organization (or entity that it controls) is treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the organization provides written substantiation that is contemporaneous with the transfer of the economic benefits under consideration. 2012 taxes online Ways to provide contemporaneous written substantiation of its intent to provide an economic benefit as compensation include: The organization produces a signed written employment contract, The organization reports the benefit as compensation on an original Form W-2, Form 1099, or Form 990, or on an amended form filed before starting an IRS examination, or The disqualified person reports the benefit as income on the person's original Form 1040, or on an amended form filed before starting an IRS examination. 2012 taxes online Exception. 2012 taxes online   If the economic benefit is excluded from the disqualified person's gross income for income tax purposes, the applicable tax-exempt organization is not required to indicate its intent to provide an economic benefit as compensation for services. 2012 taxes online Rebuttable presumption that a transaction is not an excess benefit transaction. 2012 taxes online   Payments under a compensation arrangement are presumed to be reasonable and the transfer of property (or right to use property) is presumed to be at fair market value, if the following three conditions are met. 2012 taxes online The transaction is approved in advance by an authorized body of the organization (or an entity it controls) which is composed of individuals who do not have a conflict of interest concerning the transaction. 2012 taxes online Before making its determination, the authorized body obtained and relied upon appropriate data as to comparability. 2012 taxes online (There is a special safe harbor for small organizations. 2012 taxes online If the organization has gross receipts of less than $1 million, appropriate comparability data includes data on compensation paid by three comparable organizations in the same or similar communities for similar services. 2012 taxes online ) The authorized body adequately documents the basis for its determination concurrently with making that determination. 2012 taxes online The documentation should include: The terms of the approved transaction and the date approved, The members of the authorized body who were present during debate on the transaction that was approved and those who voted on it, The comparability data obtained and relied upon by the authorized body and how the data was obtained, Any actions by a member of the authorized body having conflict of interest, and Documentation of the basis of the determination before the later of the next meeting of the authorized body or 60 days after the final actions of the authorized body are taken, and approval of records as reasonable, accurate, and complete within a reasonable time thereafter. 2012 taxes online Disregarded benefits. 2012 taxes online   The following economic benefits are disregarded for section 4958 purposes. 2012 taxes online Nontaxable fringe benefits that are excluded from income under section 132. 2012 taxes online Benefits provided to a volunteer for the organization if the benefit is provided to the general public in exchange for a membership fee or contribution of $75 or less. 2012 taxes online Benefits provided to a member of an organization due to the payment of a membership fee or to a donor as a result of a deductible contribution, if a significant number of disqualified persons make similar payments or contributions and are offered a similar economic benefit. 2012 taxes online Benefits provided to a person solely as a member of a charitable class that the applicable tax-exempt organization intends to benefit as part of the accomplishment of its exempt purpose. 2012 taxes online A transfer of an economic benefit to or for the use of a governmental unit, as defined in section 170(c)(1), if exclusively for public purposes. 2012 taxes online Special Exception for Initial Contracts      Section 4958 does not apply to any fixed payment made to a person under an initial contract. 2012 taxes online   A fixed payment is an amount of cash or other property specified in the contract, or determined by a fixed formula that is specified in the contract, which is to be paid or transferred in exchange for the provision of specified services or property. 2012 taxes online   A fixed formula can, generally, incorporate an amount that depends upon future specified events or contingencies, as long as no one has discretion when calculating the amount of a payment or deciding whether to make a payment (such as a bonus). 2012 taxes online   An initial contract is a binding written contract between an applicable tax-exempt organization and a person who was not a disqualified person immediately before entering into the contract. 2012 taxes online   A binding written contract, providing it can be terminated or canceled by the applicable tax-exempt organization without the other party's consent (except as a result of substantial nonperformance) and without substantial penalty, is treated as a new contract, as of the earliest date any termination or cancellation would be effective. 2012 taxes online Also, if the parties make a material change to a contract, which includes an extension or renewal of the contract (except for an extension or renewal resulting from the exercise of an option by the disqualified person), or a more than incidental change to the amount payable under the contract, it is treated as a new contract as of the effective date of the material change. 2012 taxes online More information. 2012 taxes online   For more information, see the Instructions to Forms 990 and 4720. 2012 taxes online Excess Business Holdings Private foundations are generally not permitted to hold more than a 20% interest in an unrelated business enterprise. 2012 taxes online They may be subject to an excise tax on the amount of any excess business holdings. 2012 taxes online For purposes of section 4943, for tax years beginning after August 17, 2006, donor advised funds and certain supporting organizations are considered private foundations. 2012 taxes online Donor advised fund. 2012 taxes online   In general, a donor advised fund is a fund or account separately identified by reference to contributions of a donor or donors that is owned and controlled by a sponsoring organization and for which the donor has or expects to have advisory privileges concerning the distribution or investment of the funds. 2012 taxes online Supporting organizations. 2012 taxes online   Only certain supporting organizations are subject to the excess business holdings tax under section 4943. 2012 taxes online These include (1) Type III supporting organizations that are not functionally integrated and (2) Type II supporting organizations that accept any gift or contribution from a person who by himself or in connection with a related party controls the supported organization that the Type II supporting organization supports. 2012 taxes online Taxes. 2012 taxes online   A private foundation that has excess holdings in a business enterprise may become liable for an excise tax based on the amount of holdings. 2012 taxes online The initial tax is 10% (5% for tax years beginning before August 18, 2006) of the value of the excess holdings and is imposed on the last day of each tax year that ends during the taxable period. 2012 taxes online The excess holdings are determined on the day during the tax year when they were the largest. 2012 taxes online   A foundation that fails to correct the excess business holdings becomes liable for an additional tax of 200% of the remaining excess business holdings as of the earlier of tax assessment or mailing of a notice of deficiency. 2012 taxes online   For more information on the tax on excess business holdings, see the Instructions for Form 4720. 2012 taxes online Taxable Distributions of Sponsoring Organizations An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. 2012 taxes online An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution. 2012 taxes online Taxable distribution. 2012 taxes online   A taxable distribution is any distribution from a donor advised fund to any natural person or to any other person if: The distribution is for any purpose other than one specified in section 170(c)(2)(B), or The sponsoring organization maintaining the donor advised fund does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h). 2012 taxes online    However, a taxable distribution does not include a distribution from a donor advised fund to: Any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), The sponsoring organization of the donor advised fund, or Any other donor advised fund. 2012 taxes online The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006. 2012 taxes online Sponsoring organization. 2012 taxes online   A sponsoring organization is a section 170(c) organization that is neither a government organization (as referred to in section 170(c)(1) and (2)(A)) nor a private foundation. 2012 taxes online Donor advised fund. 2012 taxes online    A donor advised fund is a fund or account: Which is separately identified by reference to contributions of a donor or donors, Which is owned and controlled by a sponsoring organization, and For which the donor (or any person appointed or designated by the donor) has or expects to have advisory privileges concerning the distribution or investment of the funds held in the donor advised funds or accounts because of the donor's status as a donor. 2012 taxes online Exception. 2012 taxes online A donor advised fund does not include:    A fund or account that makes distributions only to a single identified organization or governmental entity, or Any fund or account for a person described in 3 above that gives advice about which individuals receive grants for travel, study, or similar purposes, if the following three requirements are met: The person's advisory privileges are performed exclusively by such person in their capacity as a committee member of which all the committee members are appointed by the sponsoring organization, No combination of persons with advisory privileges, described in 3 above, or persons related to those in 3 above directly or indirectly control the committee, and All grants from the fund or account are awarded on an objective and nondiscriminatory basis according to a procedure approved in advance by the board of directors of the sponsoring organization. 2012 taxes online The procedure must be designed to ensure that all grants meet the requirements of section 4945(g)(1), (2), or (3). 2012 taxes online Disqualified supporting organization. 2012 taxes online   A disqualified supporting organization includes (1) a Type III supporting organization that is not functionally integrated and (2) any supporting organization where the donor or donor advisor (and any related parties) directly or indirectly controls a supported organization of the supporting organization. 2012 taxes online Tax on sponsoring organization. 2012 taxes online   A tax of 20% of the amount of each taxable distribution is imposed on the sponsoring organization. 2012 taxes online Tax on fund manager. 2012 taxes online   If a tax is imposed on a taxable distribution of the sponsoring organization, a tax of 5% of the distribution will be imposed on any fund manager who agreed to the distribution knowing that it was a taxable distribution. 2012 taxes online Any fund manager who took part in the distribution and is liable for the tax must pay the tax. 2012 taxes online The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. 2012 taxes online If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. 2012 taxes online   For more information on the tax on taxable distributions of sponsoring organizations, see the Instructions for Form 4720. 2012 taxes online Taxes on Prohibited Benefits Resulting From Donor Advised Fund Distributions Prohibited benefit. 2012 taxes online   If any donor, donor advisor, or related party advises the sponsoring organization about making a distribution which results in a donor, donor advisor, or related party receiving (either directly or indirectly) a more than incidental benefit, then such benefit is a prohibited benefit. 2012 taxes online The tax on prohibited benefits applies to distributions occurring in tax years beginning after August 17, 2006. 2012 taxes online Donor advisor. 2012 taxes online   A donor advisor is any person appointed or designated by a donor to advise a sponsoring organization on the distribution or investment of amounts held in the donor's fund or account. 2012 taxes online Related party. 2012 taxes online   A related party includes any family member or 35% controlled entity. 2012 taxes online See the definition of those terms under Disqualified Person , earlier. 2012 taxes online Tax on donor, donor advisor, or related person. 2012 taxes online    A tax of 125% of the benefit resulting from the distribution is imposed on both the party who advised as to the distribution (which might be a donor, donor advisor, or related party) and the party who received such benefit (which might be a donor, donor advisor, or related party). 2012 taxes online The advisor and the party who received the benefit are jointly and severally liable for the tax. 2012 taxes online Tax on fund managers. 2012 taxes online   If a tax is imposed on a prohibited benefit received by a donor, donor advisor, or related person, a tax of 10% of the amount of the prohibited benefit is imposed on any fund manager who agreed to the distribution knowing that it would confer a prohibited benefit. 2012 taxes online Any fund manager who took part in the distribution and is liable for the tax must pay the tax. 2012 taxes online The maximum amount of tax on all fund managers for any one taxable distribution is $10,000. 2012 taxes online If more than one fund manager is liable for tax on a taxable distribution, all such managers are jointly and severally liable for the tax. 2012 taxes online Exception. 2012 taxes online   If a person engaged in an excess benefit transaction and received a prohibited benefit for the same transaction, the person is taxed under section 4958, and no tax is imposed under section 4967 for a prohibited benefit. 2012 taxes online   For more information on taxes on prohibited benefits distributed from donor advised funds, see the Instructions for Form 4720. 2012 taxes online Excise Taxes on Private Foundations There is an excise tax on the net investment income of most domestic private foundations. 2012 taxes online Capital gains from appreciation are included in the tax base on private foundation net investment income. 2012 taxes online This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. 2012 taxes online Form 990-W is used to calculate the estimated tax. 2012 taxes online In addition, there are several other rules that apply to excise taxes on private foundations. 2012 taxes online These include: Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons, Requirements that the foundation annually distribute income for charitable purposes, Limits on their holdings in any business enterprise (see Excess Business Holdings, earlier), Provisions that investments must not jeopardize the carrying out of exempt purposes, and Provisions to assure that expenditures further the organization's exempt purposes. 2012 taxes online Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons. 2012 taxes online For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF. 2012 taxes online Excise Taxes on Black Lung Benefit Trusts A black lung benefit trust that makes any expenditures, payments, or investments other than those described in chapter 4 under 501(c)(21) - Black Lung Benefit Trusts must pay a tax equal to 10% of the amount of such expenditures. 2012 taxes online If there are any acts of self-dealing between the trust and a disqualified person, a tax equal to 10% of the amount involved is imposed on the disqualified person. 2012 taxes online Both of these excise taxes are reported on Schedule A (Form 990-BL). 2012 taxes online See the Form 990-BL instructions for more information on these taxes and what has to be filed, even if the trust is excepted from filing. 2012 taxes online Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements For tax years beginning after March 23, 2012, new section 4959 imposes an excise tax on hospital organizations which fail to meet certain section 501(r) requirements for each of their hospital facilities. 2012 taxes online These entities must meet section 501(r)(3) requirements at all times during their tax year. 2012 taxes online Section 501(r)(3) requirements pertain to a hospital organization preparing a community health needs assessment (CHNA). 2012 taxes online See Schedule H, Hospitals (Form 990), for details. 2012 taxes online Prev  Up  Next   Home   More Online Publications