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Federal Tax Amendment Form

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Federal Tax Amendment Form

Federal tax amendment form 4. Federal tax amendment form   Underpayment Penalty for 2013 Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: General RuleFarmers and fishermen. Federal tax amendment form Higher income taxpayers. Federal tax amendment form Minimum required for higher income taxpayers. Federal tax amendment form Estate or trust payments of estimated tax. Federal tax amendment form Lowering or eliminating the penalty. Federal tax amendment form ExceptionsLess Than $1,000 Due No Tax Liability Last Year Figuring Your Required Annual Payment (Part I) Short Method for Figuring the Penalty (Part III) Regular Method for Figuring the Penalty (Part IV)Figuring Your Underpayment (Part IV, Section A) Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Annualized Income Installment Method (Schedule AI) Farmers and Fishermen Waiver of PenaltyFarmers and fishermen. Federal tax amendment form Introduction If you did not pay enough tax, either through withholding or by making timely estimated tax payments, you will have underpaid your estimated tax and may have to pay a penalty. Federal tax amendment form You may understand this chapter better if you can refer to a copy of your latest federal income tax return. Federal tax amendment form No penalty. Federal tax amendment form   Generally, you will not have to pay a penalty for 2013 if any of the following apply. Federal tax amendment form The total of your withholding and timely estimated tax payments was at least as much as your 2012 tax. Federal tax amendment form (See Special rules for certain individuals for higher income taxpayers and farmers and fishermen. Federal tax amendment form ) The tax balance due on your 2013 return is no more than 10% of your total 2013 tax, and you paid all required estimated tax payments on time. Federal tax amendment form Your total tax for 2013 (defined later) minus your withholding is less than $1,000. Federal tax amendment form You did not have a tax liability for 2012. Federal tax amendment form You did not have any withholding taxes and your current year tax (less any household employment taxes) is less than $1,000. Federal tax amendment form IRS can figure the penalty for you. Federal tax amendment form   If you think you owe the penalty, but you do not want to figure it yourself when you file your tax return, you may not have to. Federal tax amendment form Generally, the IRS will figure the penalty for you and send you a bill. Federal tax amendment form   You only need to figure your penalty in the following three situations. Federal tax amendment form You are requesting a waiver of part, but not all, of the penalty. Federal tax amendment form You are using the annualized income installment method to figure the penalty. Federal tax amendment form You are treating the federal income tax withheld from your income as paid on the dates actually withheld. Federal tax amendment form However, if these situations do not apply to you, and you think you can lower or eliminate your penalty, complete Form 2210 or Form 2210-F and attach it to your return. Federal tax amendment form See Form 2210 , later. Federal tax amendment form Topics - This chapter discusses: The general rule for the underpayment penalty, Special rules for certain individuals, Exceptions to the underpayment penalty, How to figure your underpayment and the amount of your penalty on Form 2210, and How to ask the IRS to waive the penalty. Federal tax amendment form Useful Items - You may want to see: Form (and Instructions) 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts 2210-F Underpayment of Estimated Tax by Farmers and Fishermen See chapter 5 for information about getting these forms. Federal tax amendment form General Rule In general, you may owe a penalty for 2013 if the total of your withholding and timely estimated tax payments did not equal at least the smaller of: 90% of your 2013 tax, or 100% of your 2012 tax. Federal tax amendment form (Your 2012 tax return must cover a 12-month period. Federal tax amendment form ) Your 2013 tax, for this purpose, is defined under Total tax for 2013 , later. Federal tax amendment form Special rules for certain individuals. Federal tax amendment form   There are special rules for farmers and fishermen and certain higher income taxpayers. Federal tax amendment form Farmers and fishermen. Federal tax amendment form   If at least two-thirds of your gross income for 2012 or 2013 is from farming or fishing, substitute  662/3% for 90% in (1) above. Federal tax amendment form   See Farmers and Fishermen , later. Federal tax amendment form Higher income taxpayers. Federal tax amendment form   If your AGI for 2012 was more than $150,000 ($75,000 if your 2013 filing status is married filing a separate return), substitute 110% for 100% in (2) under General Rule . Federal tax amendment form This rule does not apply to farmers or fishermen. Federal tax amendment form   For 2012, AGI is the amount shown on Form 1040, line 37; Form 1040A, line 21; and Form 1040EZ, line 4. Federal tax amendment form Penalty figured separately for each period. Federal tax amendment form   Because the penalty is figured separately for each payment period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. Federal tax amendment form This is true even if you are due a refund when you file your income tax return. Federal tax amendment form Example. Federal tax amendment form You did not make estimated tax payments for 2013 because you thought you had enough tax withheld from your wages. Federal tax amendment form Early in January 2014, you made an estimate of your total 2013 tax. Federal tax amendment form Then you realized that your withholding was $2,000 less than the amount needed to avoid a penalty for underpayment of estimated tax. Federal tax amendment form On January 10, you made an estimated tax payment of $3,000, which is the difference between your withholding and your estimate of your total tax. Federal tax amendment form Your final return shows your total tax to be $50 less than your estimate, so you are due a refund. Federal tax amendment form You do not owe a penalty for your payment due January 15, 2014. Federal tax amendment form However, you may owe a penalty through January 10, 2014, the day you made the $3,000 payment, for your underpayments for the earlier payment periods. Federal tax amendment form Minimum required each period. Federal tax amendment form   You will owe a penalty for any 2013 payment period for which your estimated tax payment plus your withholding for the period and overpayments applied from previous periods was less than the smaller of: 22. Federal tax amendment form 5% of your 2013 tax, or 25% of your 2012 tax. Federal tax amendment form (Your 2012 tax return must cover a 12-month period. Federal tax amendment form ) Minimum required for higher income taxpayers. Federal tax amendment form   If you are subject to the rule for higher income taxpayers, discussed above, substitute 27. Federal tax amendment form 5% for 25% in (2) under General Rule . Federal tax amendment form When penalty is charged. Federal tax amendment form   If you miss a payment or you paid less than the minimum required in a period, you may be charged an underpayment penalty from the date the amount was due to the date the payment is made. Federal tax amendment form If a payment is mailed, the date of the U. Federal tax amendment form S. Federal tax amendment form postmark is considered the date of payment. Federal tax amendment form   If a payment is made electronically, the date the payment is shown on your payment account (checking, savings, etc. Federal tax amendment form ) is considered to be the date of payment. Federal tax amendment form Estate or trust payments of estimated tax. Federal tax amendment form   If you have estimated taxes credited to you from an estate or trust (Schedule K-1 (Form 1041)), treat the payment as made by you on January 15, 2014. Federal tax amendment form Amended returns. Federal tax amendment form    If you file an amended return by the due date of your original return, use the tax shown on your amended return to figure your required estimated tax payments. Federal tax amendment form If you file an amended return after the due date of the original return, use the tax shown on the original return. Federal tax amendment form   However, if you and your spouse file a joint return after the due date to replace separate returns you originally filed by the due date, use the tax shown on the joint return to figure your required estimated tax payments. Federal tax amendment form This rule applies only if both original separate returns were filed on time. Federal tax amendment form 2012 separate returns and 2013 joint return. Federal tax amendment form    If you file a joint return with your spouse for 2013, but you filed separate returns for 2012, your 2012 tax is the total of the tax shown on your separate returns. Federal tax amendment form You filed a separate return if you filed as single, head of household, or married filing separately. Federal tax amendment form 2012 joint return and 2013 separate returns. Federal tax amendment form    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, your 2012 tax is your share of the tax on the joint return. Federal tax amendment form You are filing a separate return if you file as single, head of household, or married filing separately. Federal tax amendment form   To figure your share of the taxes on a joint return, first figure the tax both you and your spouse would have paid had you filed separate returns for 2012 using the same filing status as for 2013. Federal tax amendment form Then multiply the tax on the joint return by the following fraction. Federal tax amendment form   The tax you would have paid had you filed a separate return   The total tax you and your spouse would have paid had you filed separate returns Example. Federal tax amendment form Lisa and Paul filed a joint return for 2012 showing taxable income of $49,000 and a tax of $6,484. Federal tax amendment form Of the $49,000 taxable income, $41,000 was Lisa's and the rest was Paul's. Federal tax amendment form For 2013, they file married filing separately. Federal tax amendment form Lisa figures her share of the tax on the 2012 joint return as follows. Federal tax amendment form 2012 tax on $41,000 based on a separate return $ 6,286 2012 tax on $8,000 based on a  separate return 803 Total $ 7,089 Lisa's percentage of total tax  ($6,286 ÷ $ 7,089) 88. Federal tax amendment form 67% Lisa's part of tax on joint return ($6,484 × 88. Federal tax amendment form 67%) $ 5,749 Form 2210. Federal tax amendment form   In most cases, you do not need to file Form 2210. Federal tax amendment form The IRS will figure the penalty for you and send you a bill. Federal tax amendment form If you want us to figure the penalty for you, leave the penalty line on your return blank. Federal tax amendment form Do not file Form 2210. Federal tax amendment form   To determine if you should file Form 2210, see Part II of Form 2210. Federal tax amendment form If you decide to figure your penalty, complete Part I, Part II, and either Part III or Part IV of the form and the Penalty Worksheet in the Instructions for Form 2210. Federal tax amendment form If you use Form 2210, you cannot file Form 1040EZ. Federal tax amendment form   On Form 1040, enter the amount of your penalty on line 77. Federal tax amendment form If you owe tax on line 76, add the penalty to your tax due and show your total payment on line 76. Federal tax amendment form If you are due a refund, subtract the penalty from the overpayment and enter the result on line 73. Federal tax amendment form   On Form 1040A, enter the amount of your penalty on line 46. Federal tax amendment form If you owe tax on line 45, add the penalty to your tax due and show your total payment on line 45. Federal tax amendment form If you are due a refund, subtract the penalty from the overpayment and enter the result on line 42. Federal tax amendment form Lowering or eliminating the penalty. Federal tax amendment form    You may be able to lower or eliminate your penalty if you file Form 2210. Federal tax amendment form You must file Form 2210 with your return if any of the following applies. Federal tax amendment form You request a waiver. Federal tax amendment form See Waiver of Penalty , later. Federal tax amendment form You use the annualized income installment method. Federal tax amendment form See the explanation of this method under Annualized Income Installment Method (Schedule AI) . Federal tax amendment form You use your actual withholding for each payment period for estimated tax purposes. Federal tax amendment form See Actual withholding method under Figuring Your Underpayment (Part IV, Section A). Federal tax amendment form You base any of your required installments on the tax shown on your 2012 return and you filed or are filing a joint return for either 2012 or 2013, but not for both years. Federal tax amendment form Exceptions Generally, you do not have to pay an underpayment penalty if either: Your total tax is less than $1,000, or You had no tax liability last year. Federal tax amendment form Less Than $1,000 Due You do not owe a penalty if the total tax shown on your return minus the amount you paid through withholding (including excess social security and tier 1 railroad retirement (RRTA) tax withholding) is less than $1,000. Federal tax amendment form Total tax for 2013. Federal tax amendment form   For 2013, your total tax on Form 1040 is the amount on line 61 reduced by the following. Federal tax amendment form    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Federal tax amendment form Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Federal tax amendment form The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Federal tax amendment form Any refundable credit amounts listed on lines 64a, 65, 66, 70, and any credit from Form 8885 included on line 71. Federal tax amendment form   If you filed Form 1040A, your 2013 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Federal tax amendment form   If you filed Form 1040EZ, your 2013 total tax is the amount on line 10 reduced by the amount on line 8a. Federal tax amendment form Note. Federal tax amendment form When figuring the amount on line 60, include household employment taxes only if you had federal income tax withheld from your income or you would owe the penalty even if you did not include those taxes. Federal tax amendment form Paid through withholding. Federal tax amendment form    For 2013, the amount you paid through withholding on Form 1040 is the amount on line 62 plus any excess social security or tier 1 RRTA tax withholding on line 69. Federal tax amendment form Add to that any write-in amount on line 72 identified as “Form 8689. Federal tax amendment form ” On Form 1040A, the amount you paid through withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included on line 41. Federal tax amendment form On Form 1040EZ, it is the amount on line 7. Federal tax amendment form No Tax Liability Last Year You do not owe a penalty if you had no tax liability last year and you were a U. Federal tax amendment form S. Federal tax amendment form citizen or resident for the whole year. Federal tax amendment form For this rule to apply, your tax year must have included all 12 months of the year. Federal tax amendment form You had no tax liability for 2012 if your total tax was zero or you were not required to file an income tax return. Federal tax amendment form Example. Federal tax amendment form Ray, who is single and 22 years old, was unemployed for a few months during 2012. Federal tax amendment form He earned $6,700 in wages before he was laid off, and he received $1,400 in unemployment compensation afterwards. Federal tax amendment form He had no other income. Federal tax amendment form Even though he had gross income of $8,100, he did not have to pay income tax because his gross income was less than the filing requirement for a single person under age 65 ($9,750 for 2012). Federal tax amendment form He filed a return only to have his withheld income tax refunded to him. Federal tax amendment form In 2013, Ray began regular work as an independent contractor. Federal tax amendment form Ray made no estimated tax payments in 2013. Federal tax amendment form Even though he did owe tax at the end of the year, Ray does not owe the underpayment penalty for 2013 because he had no tax liability in 2012. Federal tax amendment form Total tax for 2012. Federal tax amendment form   For 2012, your total tax on Form 1040 is the amount on line 61 reduced by the following. Federal tax amendment form    Unreported social security and Medicare tax or RRTA tax from Forms 4137 or 8919 (line 57). Federal tax amendment form Any tax included on line 58 for excess contributions to IRAs, Archer MSAs, Coverdell education savings accounts, and health savings accounts, or any tax on excess accumulations in qualified retirement plans. Federal tax amendment form The following write-ins on line 60: Uncollected social security and Medicare tax or RRTA tax on tips or group-term life insurance, Tax on excess golden parachute payments, Excise tax on insider stock compensation from an expatriated corporation, Look-back interest due under section 167(g), Look-back interest due under section 460(b), Recapture of federal mortgage subsidy, and Additional tax on advance payments of health coverage tax credit when not eligible. Federal tax amendment form Any refundable credit amounts listed on lines 64a, 65, 66, 70, and credits from Forms 8801 (line 27 only), and 8885 included on line 71. Federal tax amendment form   If you filed Form 1040A, your 2012 total tax is the amount on line 35 reduced by any refundable credits on lines 38a, 39, and 40. Federal tax amendment form   If you filed Form 1040EZ, your 2012 total tax is the amount on line 11 reduced by the amount on line 8a. Federal tax amendment form Figuring Your Required Annual Payment (Part I) Figure your required annual payment in Part I of Form 2210, following the line-by-line instructions. Federal tax amendment form If you rounded the entries on your tax return to whole dollars, you can round on Form 2210. Federal tax amendment form Example. Federal tax amendment form The tax on Lori Lane's 2012 return was $12,400. Federal tax amendment form Her AGI was not more than $150,000 for either 2012 or 2013. Federal tax amendment form The tax on her 2013 return (Form 1040, line 55) is $13,044. Federal tax amendment form Line 56 (self-employment tax) is $8,902. Federal tax amendment form Her 2013 total tax is $21,946. Federal tax amendment form For 2013, Lori had $1,600 income tax withheld and made four equal estimated tax payments ($1,000 each). Federal tax amendment form 90% of her 2013 tax is $19,751. Federal tax amendment form Because she paid less than her 2012 tax ($12,400) and less than 90% of her 2013 tax ($19,751), and does not meet an exception, Lori knows that she owes a penalty for underpayment of estimated tax. Federal tax amendment form The IRS will figure the penalty for Lori, but she decides to figure it herself on Form 2210 and pay it with her taxes when she files her tax return. Federal tax amendment form Lori's required annual payment is $12,400 (100% of 2012 tax) because that is smaller than 90% of her 2013 tax. Federal tax amendment form Different 2012 filing status. Federal tax amendment form    If you file a separate return for 2013, but you filed a joint return with your spouse for 2012, see 2012 joint return and 2013 separate returns , earlier, to figure the amount to enter as your 2012 tax on line 8 of Form 2210. Federal tax amendment form Short Method for Figuring the Penalty (Part III) You may be able to use the short method in Part III of Form 2210 to figure your penalty for underpayment of estimated tax. Federal tax amendment form If you qualify to use this method, it will result in the same penalty amount as the regular method. Federal tax amendment form However, either the annualized income installment method or the actual withholding method, explained later, may result in a smaller penalty. Federal tax amendment form You can use the short method only if you meet one of the following requirements. Federal tax amendment form You made no estimated tax payments for 2013 (it does not matter whether you had income tax withholding). Federal tax amendment form You paid the same amount of estimated tax on each of the four payment due dates. Federal tax amendment form If you do not meet either requirement, figure your penalty using the regular method in Part IV of Form 2210 and the Penalty Worksheet in the instructions. Federal tax amendment form Note. Federal tax amendment form If any payment was made before the due date, you can use the short method, but the penalty may be less if you use the regular method. Federal tax amendment form However, if the payment was only a few days early, the difference is likely to be small. Federal tax amendment form You cannot use the short method if any of the following apply. Federal tax amendment form You made any estimated tax payments late. Federal tax amendment form You checked box C or D in Part II of Form 2210. Federal tax amendment form You are filing Form 1040NR or 1040NR-EZ and you did not receive wages as an employee subject to U. Federal tax amendment form S. Federal tax amendment form income tax withholding. Federal tax amendment form If you use the short method, you cannot use the annualized income installment method to figure your underpayment for each payment period. Federal tax amendment form Also, you cannot use your actual withholding during each period to figure your payments for each period. Federal tax amendment form These methods, which may give you a smaller penalty amount, are explained under Figuring Your Underpayment (Part IV, Section A). Federal tax amendment form Complete Part III of Form 2210 following the line-by-line instructions in the Instructions for Form 2210. Federal tax amendment form Regular Method for Figuring the Penalty (Part IV) You can use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if you paid one or more estimated tax payments earlier than the due date. Federal tax amendment form You must use the regular method in Part IV of Form 2210 to figure your penalty for underpayment of estimated tax if any of the following apply to you. Federal tax amendment form You paid one or more estimated tax payments on a date after the due date. Federal tax amendment form You paid at least one, but less than four, installments of estimated tax. Federal tax amendment form You paid estimated tax payments in un- equal amounts. Federal tax amendment form You use the annualized income installment method to figure your underpayment for each payment period. Federal tax amendment form You use your actual withholding during each payment period to figure your payments. Federal tax amendment form Under the regular method, figure your underpayment for each payment period in Section A, then figure your penalty using the Penalty Worksheet in the Instructions for Form 2210. Federal tax amendment form Enter the results on line 27 of Section B. Federal tax amendment form Figuring Your Underpayment (Part IV, Section A) Figure your underpayment of estimated tax for each payment period in Section A following the line-by-line instructions in the Instructions for Form 2210. Federal tax amendment form Complete lines 20 through 26 of the first column before going to line 20 of the next column. Federal tax amendment form Required installments—line 18. Federal tax amendment form   Your required payment for each payment period (line 18) is usually one-fourth of your required annual payment (Part I, line 9). Federal tax amendment form This method—the regular method—is the one to use if you received your income evenly throughout the year. Federal tax amendment form   However, if you did not receive your income evenly throughout the year, you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Federal tax amendment form First complete Schedule AI (Form 2210), then enter the amounts from line 25 of that schedule on line 18 of Form 2210, Part IV. Federal tax amendment form See Annualized Income Installment Method (Schedule AI), later. Federal tax amendment form Payments made—line 19. Federal tax amendment form   Enter in each column the total of: Your estimated tax paid after the due date for the previous column and by the due date shown at the top of the column, and One-fourth of your withholding. Federal tax amendment form For special rules for figuring your payments, see Form 2210 instructions for line 19. Federal tax amendment form   If you file Form 1040, your withholding is the amount on line 62, plus any excess social security or tier 1 RRTA tax withholding on line 69. Federal tax amendment form If you file Form 1040A, your withholding is the amount on line 36 plus any excess social security or tier 1 RRTA tax withholding included in line 41. Federal tax amendment form Actual withholding method. Federal tax amendment form    Instead of using one-fourth of your withholding for each quarter, you can choose to use the amounts actually withheld by each due date. Federal tax amendment form You can make this choice separately for the tax withheld from your wages and for all other withholding. Federal tax amendment form This includes any excess social security and tier 1 RRTA tax withheld. Federal tax amendment form   Using your actual withholding may result in a smaller penalty if most of your withholding occurred early in the year. Federal tax amendment form   If you use your actual withholding, you must check box D in Form 2210, Part II. Federal tax amendment form Then complete Form 2210 using the regular method (Part IV) and file it with your return. Federal tax amendment form Worksheet for Form 2210, Part IV, Section B—Figuring the Penalty Figure the amount of your penalty for Section B using the Penalty Worksheet in the Form 2210 instructions. Federal tax amendment form The penalty is imposed on each underpayment amount shown on Form 2210, Section A, line 25, for the number of days that it remained unpaid. Federal tax amendment form For 2013, there are four rate periods—April 16 through June 30, July 1 through September 30, October 1 through December 31, and January 1, 2014 through April 15, 2014. Federal tax amendment form A 3% rate applies to all four periods. Federal tax amendment form Payments. Federal tax amendment form    Before completing the Penalty Worksheet, it may be helpful to make a list of the payments you made and income tax withheld after the due date (or the last day payments could be made on time) for the earliest payment period an underpayment occurred. Federal tax amendment form For example, if you had an underpayment for the first payment period, list your payments after April 15, 2013. Federal tax amendment form You can use the table in the Form 2210 instructions to make your list. Federal tax amendment form Follow those instructions for listing income tax withheld and payments made with your return. Federal tax amendment form Use the list to determine when each underpayment was paid. Federal tax amendment form   If you mail your estimated tax payments, use the date of the U. Federal tax amendment form S. Federal tax amendment form postmark as the date of payment. Federal tax amendment form Line 1b. Federal tax amendment form   Apply the payments listed to underpayment balance in the first column until it is fully paid. Federal tax amendment form Apply payments in the order made. Federal tax amendment form Figuring the penalty. Federal tax amendment form   If an underpayment was paid in two or more payments on different dates, you must figure the penalty separately for each payment. Federal tax amendment form On line 3 of the Penalty Worksheet enter the number of days between the due date (line 2) and the date of each payment on line 1b. Federal tax amendment form On line 4 figure the penalty for the amount of each payment applied on line 1b or the amount remaining unpaid. Federal tax amendment form If no payments are applied, figure the penalty on the amount on line 1a. Federal tax amendment form Aid for counting days. Federal tax amendment form    Table 4-1 provides a simple method for counting the number of days between a due date and a payment date. Federal tax amendment form Find the number for the date the payment was due by going across to the column of the month the payment was due and moving down the column to the due date. Federal tax amendment form In the same manner, find the number for the date the payment was made. Federal tax amendment form Subtract the due date “number” from the payment date “number. Federal tax amendment form ”   For example, if a payment was due on June 15 (61), but was not paid until September 1 (139), the payment was 78 (139 – 61) days late. Federal tax amendment form Table 4-1. Federal tax amendment form Calendar To Determine the Number of Days a Payment Is Late Instructions. Federal tax amendment form Use this table with Form 2210 if you are completing Part IV, Section B. Federal tax amendment form First, find the number for the payment due date by going across to the column of the month the payment was due and moving down the column to the due date. Federal tax amendment form Then, in the same manner, find the number for the date the payment was made. Federal tax amendment form Finally, subtract the due date number from the payment date number. Federal tax amendment form The result is the number of days the payment is late. Federal tax amendment form Example. Federal tax amendment form The payment due date is June 15 (61). Federal tax amendment form The payment was made on November 4 (203). Federal tax amendment form The payment is 142 days late (203 – 61). Federal tax amendment form Tax Year 2013 Day of 2013 2013 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 Month April May June July Aug. Federal tax amendment form Sept. Federal tax amendment form Oct. Federal tax amendment form Nov. Federal tax amendment form Dec. Federal tax amendment form Jan. Federal tax amendment form Feb. Federal tax amendment form Mar. Federal tax amendment form Apr. Federal tax amendment form 1   16 47 77 108 139 169 200 230 261 292 320 351 2   17 48 78 109 140 170 201 231 262 293 321 352 3   18 49 79 110 141 171 202 232 263 294 322 353 4   19 50 80 111 142 172 203 233 264 295 323 354 5   20 51 81 112 143 173 204 234 265 296 324 355 6   21 52 82 113 144 174 205 235 266 297 325 356 7   22 53 83 114 145 175 206 236 267 298 326 357 8   23 54 84 115 146 176 207 237 268 299 327 358 9   24 55 85 116 147 177 208 238 269 300 328 359 10   25 56 86 117 148 178 209 239 270 301 329 360 11   26 57 87 118 149 179 210 240 271 302 330 361 12   27 58 88 119 150 180 211 241 272 303 331 362 13   28 59 89 120 151 181 212 242 273 304 332 363 14   29 60 90 121 152 182 213 243 274 305 333 364 15 0 30 61 91 122 153 183 214 244 275 306 334 365 16 1 31 62 92 123 154 184 215 245 276 307 335   17 2 32 63 93 124 155 185 216 246 277 308 336   18 3 33 64 94 125 156 186 217 247 278 309 337   19 4 34 65 95 126 157 187 218 248 279 310 338   20 5 35 66 96 127 158 188 219 249 280 311 339   21 6 36 67 97 128 159 189 220 250 281 312 340   22 7 37 68 98 129 160 190 221 251 282 313 341   23 8 38 69 99 130 161 191 222 252 283 314 342   24 9 39 70 100 131 162 192 223 253 284 315 343   25 10 40 71 101 132 163 193 224 254 285 316 344   26 11 41 72 102 133 164 194 225 255 286 317 345   27 12 42 73 103 134 165 195 226 256 287 318 346   28 13 43 74 104 135 166 196 227 257 288 319 347   29 14 44 75 105 136 167 197 228 258 289   348   30 15 45 76 106 137 168 198 229 259 290   349   31   46   107 138   199   260 291   350   Annualized Income Installment Method (Schedule AI) If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Federal tax amendment form Under this method, your required installment (Part IV, line 18) for one or more payment periods may be less than one-fourth of your required annual payment. Federal tax amendment form To figure your underpayment using this method, complete Form 2210, Schedule AI. Federal tax amendment form Schedule AI annualizes your tax at the end of each payment period based on your income, deductions, and other items relating to events that occurred from the beginning of the tax year through the end of the period. Federal tax amendment form If you use the annualized income installment method, you must check box C in Part II of Form 2210. Federal tax amendment form Also, you must attach Form 2210 and Schedule AI to your return. Federal tax amendment form If you use Schedule AI for any payment due date, you must use it for all payment due dates. Federal tax amendment form Completing Schedule AI. Federal tax amendment form   Follow the Form 2210 instructions to complete Schedule AI. Federal tax amendment form For each period shown on Schedule AI, figure your income and deductions based on your method of accounting. Federal tax amendment form If you use the cash method of accounting (used by most people), include all income actually or constructively received during the period and all deductions actually paid during the period. Federal tax amendment form Note. Federal tax amendment form Each period includes amounts from the previous period(s). Federal tax amendment form Period (a) includes items for January 1 through March 31. Federal tax amendment form Period (b) includes items for January 1 through May 31. Federal tax amendment form Period (c) includes items for January 1 through August 31. Federal tax amendment form Period (d) includes items for the entire year. Federal tax amendment form Farmers and Fishermen If you are a farmer or fisherman, the following special rules for underpayment of estimated tax apply to you. Federal tax amendment form The penalty for underpaying your 2013 estimated tax will not apply if you file your return and pay all the tax due by March 3, 2014. Federal tax amendment form If you are a fiscal year taxpayer, the penalty will not apply if you file your return and pay the tax due by the first day of the third month after the end of your tax year. Federal tax amendment form Any penalty you owe for underpaying your 2013 estimated tax will be figured from one payment due date, January 15, 2014. Federal tax amendment form The underpayment penalty for 2013 is figured on the difference between the amount of 2013 withholding plus estimated tax paid by the due date and the smaller of: 662/3% (rather than 90%) of your 2013 tax, or 100% of the tax shown on your 2012 return. Federal tax amendment form Even if these special rules apply to you, you will not owe the penalty if you meet either of the two conditions discussed under Exceptions . Federal tax amendment form See Who Must Pay Estimated Tax in chapter 2 for the definition of a farmer or fisherman who is eligible for these special rules. Federal tax amendment form Form 2210-F. Federal tax amendment form   Use Form 2210-F to figure any underpayment penalty. Federal tax amendment form Do not attach it to your return unless you check a box in Part I. Federal tax amendment form However, if none of the boxes apply to you and you owe a penalty, you do not need to attach Form 2210-F. Federal tax amendment form Enter the amount from line 16 on Form 1040, line 77 and add the penalty to any balance due on your return or subtract it from your refund. Federal tax amendment form Keep your filled-in Form 2210-F for your records. Federal tax amendment form    If none of the boxes on Form 2210-F apply to you and you owe a penalty, the IRS can figure your penalty and send you a bill. Federal tax amendment form Waiver of Penalty The IRS can waive the penalty for underpayment if either of the following applies. Federal tax amendment form You did not make a payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty. Federal tax amendment form You retired (after reaching age 62) or became disabled in 2012 or 2013 and both the following requirements are met. Federal tax amendment form You had a reasonable cause for not making the payment. Federal tax amendment form Your underpayment was not due to willful neglect. Federal tax amendment form How to request a waiver. Federal tax amendment form   To request a waiver, see the Instructions for Form 2210. Federal tax amendment form Farmers and fishermen. Federal tax amendment form   To request a waiver, see the Instructions for Form 2210-F. Federal tax amendment form Federally declared disaster. Federal tax amendment form   Certain estimated tax payment deadlines for taxpayers who reside or have a business in a federally declared disaster area are postponed for a period during and after the disaster. Federal tax amendment form During the processing of your tax return, the IRS automatically identifies taxpayers located in a covered disaster area (by county or parish) and applies the appropriate penalty relief. Federal tax amendment form Do not file Form 2210 or 2210-F if your underpayment was due to a federally declared disaster. Federal tax amendment form If you still owe a penalty after the automatic waiver is applied, we will send you a bill. Federal tax amendment form   Individuals, estates, and trusts not in a covered disaster area but whose books, records, or tax professionals' offices are in a covered area are also entitled to relief. Federal tax amendment form Also eligible are relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in a covered disaster area. Federal tax amendment form If you meet either of these eligibility requirements, you must call the IRS disaster hotline at 1-866-562-5227 and identify yourself as eligible for this relief. Federal tax amendment form   Details on the applicable disaster postponement period can be found at IRS. Federal tax amendment form gov. Federal tax amendment form Enter Tax Relief in Disaster Situations. Federal tax amendment form Select the federally declared disaster that affected you. Federal tax amendment form    Worksheet 4-1. Federal tax amendment form 2013 Form 2210, Schedule AI—Line 12 Qualified Dividends and Capital Gain Tax Worksheet Note. Federal tax amendment form To figure the annualized entries for lines 2, 3, and 5 below, multiply the expected amount for the period by the  annualization amount on line 2 of Schedule AI for the same period. Federal tax amendment form                   1. Federal tax amendment form Enter line 11 of your Schedule AI, or line 3 from Worksheet 4-2 1. Federal tax amendment form       2. Federal tax amendment form Enter your annualized qualified dividends for the period 2. Federal tax amendment form           3. Federal tax amendment form Are you filing Schedule D?               □ Yes. Federal tax amendment form Enter the smaller of your annualized amount from line 15 or line 16 of Schedule D. Federal tax amendment form If either line 15 or line 16 is blank or a loss, enter -0-. Federal tax amendment form 3. Federal tax amendment form             □ No. Federal tax amendment form Enter your annualized capital gain distributions from Form 1040, line 13             4. Federal tax amendment form Add lines 2 and 3   4. Federal tax amendment form           5. Federal tax amendment form If you are claiming investment interest expense on Form 4952, enter your annualized amount from line 4g of that form. Federal tax amendment form Otherwise, enter -0-   5. Federal tax amendment form           6. Federal tax amendment form Subtract line 5 from line 4. Federal tax amendment form If zero or less, enter -0- 6. Federal tax amendment form       7. Federal tax amendment form Subtract line 6 from line 1. Federal tax amendment form If zero or less, enter -0- 7. Federal tax amendment form       8. Federal tax amendment form Enter: $36,900 if single or married filing separately, $73,800 if married filing jointly or qualifying widow(er), $49,400 if head of household. Federal tax amendment form 8. Federal tax amendment form       9. Federal tax amendment form Enter the smaller of line 1 or line 8 9. Federal tax amendment form       10. Federal tax amendment form Enter the smaller of line 7 or line 9 10. Federal tax amendment form       11. Federal tax amendment form Subtract line 10 from line 9. Federal tax amendment form This amount is taxed at 0% 11. Federal tax amendment form       12. Federal tax amendment form Enter the smaller of line 1 or line 6 12. Federal tax amendment form       13. Federal tax amendment form Enter the amount from line 11 13. Federal tax amendment form       14. Federal tax amendment form Subtract line 13 from line 12 14. Federal tax amendment form       15. Federal tax amendment form Multiply line 14 by 15% (. Federal tax amendment form 15) 15. Federal tax amendment form   16. Federal tax amendment form Figure the tax on the amount on line 7. Federal tax amendment form If the amount on line 7 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal tax amendment form If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 16. Federal tax amendment form   17. Federal tax amendment form Add lines 15 and 16 17. Federal tax amendment form   18. Federal tax amendment form Figure the tax on the amount on line 1. Federal tax amendment form If the amount on line 1 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal tax amendment form If the amount on line 1 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 18. Federal tax amendment form   19. Federal tax amendment form Tax on all taxable income. Federal tax amendment form Enter the smaller of line 17 or line 18. Federal tax amendment form Also enter this amount on line 12 of Schedule AI in the appropriate column. Federal tax amendment form However, if you are using this worksheet to figure the tax on the amount on line 3 of Worksheet 4-2, enter the amount from line 19 on Worksheet 4-2, line 4 19. Federal tax amendment form   Worksheet 4-2. Federal tax amendment form 2013 Form 2210, Schedule AI—Line 12 Foreign Earned Income Tax Worksheet Before you begin:If Schedule AI, line 11, is zero for the period, do not complete this worksheet. Federal tax amendment form             1. Federal tax amendment form Enter the amount from line 11 of Schedule AI for the period 1. Federal tax amendment form   2. Federal tax amendment form Enter the annualized amount* of foreign earned income and housing amount excluded or deducted (from  Form 2555, lines 45 and 50, or Form 2555-EZ, line 18) in figuring the amount entered for the period on line 1  of Schedule AI 2. Federal tax amendment form   3. Federal tax amendment form Add lines 1 and 2 3. Federal tax amendment form   4. Federal tax amendment form Tax on the amount on line 3. Federal tax amendment form Use the Tax Table, Tax Computation Worksheet, Form 8615**, Qualified Dividends and Capital Gain Tax Worksheet***, or Schedule D Tax Worksheet***, whichever applies. Federal tax amendment form See the 2013 Instructions for Form 1040, line 44, to find out which tax computation method to use. Federal tax amendment form (Note. Federal tax amendment form You do not have to use the same method for each period on Schedule AI. Federal tax amendment form ) 4. Federal tax amendment form   5. Federal tax amendment form Tax on the amount on line 2. Federal tax amendment form If the amount on line 2 is less than $100,000, use the Tax Table in the 2013 Form 1040 instructions to figure this tax. Federal tax amendment form If the amount on line 7 is $100,000 or more, use the Tax Computation Worksheet in the 2013 Form 1040 instructions 5. Federal tax amendment form   6. Federal tax amendment form Subtract line 5 from line 4. Federal tax amendment form Enter the result here and on line 12 of Schedule AI. Federal tax amendment form If zero or less,  enter -0- 6. Federal tax amendment form             * To figure the annualized amount for line 2, multiply the exclusion or deduction for the period by the annualization amount on line 2 of Schedule AI for the same period. Federal tax amendment form     ** If you use Form 8615 to figure the tax on line 4 above, enter the amount from line 3 above on line 4 of Form 8615. Federal tax amendment form If the child's parent files Form 2555 or 2555-EZ, enter the amounts from lines 3 and 4 of the parent's Foreign Earned Income Tax Worksheet on lines 6 and 10, respectively, of Form 8615. Federal tax amendment form Complete the rest of Form 8615 according to its instructions. Federal tax amendment form Then complete lines 5 and 6 above. Federal tax amendment form     *** Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet (or Worksheet 4-1 in this chapter) or the Schedule D Tax Worksheet, whichever worksheet you use to figure the tax on line 4 above. Federal tax amendment form Complete that worksheet through line 6 (line 10 if you use the Schedule D Tax Worksheet). Federal tax amendment form Next, determine if you have a capital gain excess. Federal tax amendment form     Figuring capital gain excess. Federal tax amendment form To find out if you have a capital gain excess for the appropriate period, subtract line 11 of Schedule AI from line 6 of Worksheet 4-1 or your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). Federal tax amendment form If the result is more than zero, that amount is your capital gain excess. Federal tax amendment form     No capital gain excess. Federal tax amendment form If you do not have a capital gain excess, complete the rest of Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or the Schedule D Tax Worksheet according to the worksheet's instructions. Federal tax amendment form Then complete lines 5 and 6 above. Federal tax amendment form     Capital gain excess. Federal tax amendment form If you have a capital gain excess, complete a second Worksheet 4-1, Qualified Dividends and Capital Gain Tax Worksheet, or Schedule D Tax Worksheet (whichever applies) as instructed above but in its entirety and with the following additional modifications. Federal tax amendment form Then complete lines 5 and 6 above. Federal tax amendment form     Make the modifications below only for purposes of filling out Worksheet 4-2 above. Federal tax amendment form     a. Federal tax amendment form Reduce (but not below zero) the amount you otherwise would enter on line 3 of your Worksheet 4-1, line 3 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 9 of your Schedule D Tax Worksheet by your capital gain excess. Federal tax amendment form     b. Federal tax amendment form Reduce (but not below zero) the amount you otherwise would enter on line 2 of your Worksheet 4-1, line 2 of your Qualified Dividends and Capital Gain Tax Worksheet, or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (a) above. Federal tax amendment form     c. Federal tax amendment form Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess. Federal tax amendment form     d. Federal tax amendment form Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the 2013 Instructions for Schedule D (Form 1040). 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Understanding Your CP286 Notice

We send this notice when we approve Form 8716, Election To Have a Tax Year Other Than a Required Tax Year.


What you need to do


You may want to


Answers to Common Questions

What should I do if I want to change my tax year for Form 1065 or Form 1120S to a calendar year filing?
File a final Form 8752, which will terminate your section 444 election. If you have a credit on your account, you must file a final Form 8752 for us to refund the payments to you. You must also file a short period business income tax return with your final Form 8752 (Form 1065 or Form 1120S) ending December 31.

Do I need to file Form 8752 when I don’t owe a payment?
Yes. You must file Form 8752 each year the section 444 election is in effect, even if no payment is due.

What if I am no longer required to file a Form 1065 or Form 1120S? Do I need to ask the IRS to terminate my election?
Yes. You must send a final Form 1065 or Form 1120S, along with a final Form 8752.

Are there any consequences if I don’t file Form 8752 or send in my payment when I file?
Failure to file or failure to pay will result in the termination of your fiscal year election.


Understanding your notice

Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP286, Page 1

 

Page Last Reviewed or Updated: 14-Jan-2014

Printable samples of this notice (PDF)

 

 

How to get help

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

The Federal Tax Amendment Form

Federal tax amendment form 4. Federal tax amendment form   Interest Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Allocation of InterestOrder of funds spent. Federal tax amendment form Payments from checking accounts. Federal tax amendment form Amounts paid within 30 days. Federal tax amendment form Optional method for determining date of reallocation. Federal tax amendment form Interest on a segregated account. Federal tax amendment form How to report. Federal tax amendment form Interest You Can DeductStatement. Federal tax amendment form Expenses paid to obtain a mortgage. Federal tax amendment form Prepayment penalty. Federal tax amendment form De minimis OID. Federal tax amendment form Constant-yield method. Federal tax amendment form Loan or mortgage ends. Federal tax amendment form Interest You Cannot DeductPenalties. Federal tax amendment form Who is a key person? Exceptions for pre-June 1997 contracts. Federal tax amendment form Interest allocated to unborrowed policy cash value. Federal tax amendment form Capitalization of Interest When To Deduct InterestPrepaid interest. Federal tax amendment form Discounted loan. Federal tax amendment form Refunds of interest. Federal tax amendment form Prepaid interest. Federal tax amendment form Discounted loan. Federal tax amendment form Tax deficiency. Federal tax amendment form Related person. Federal tax amendment form Below-Market LoansLimit on forgone interest for gift loans of $100,000 or less. Federal tax amendment form Introduction This chapter discusses the tax treatment of business interest expense. Federal tax amendment form Business interest expense is an amount charged for the use of money you borrowed for business activities. Federal tax amendment form Topics - This chapter discusses: Allocation of interest Interest you can deduct Interest you cannot deduct Capitalization of interest When to deduct interest Below-market loans Useful Items - You may want to see: Publication 537 Installment Sales 550 Investment Income and Expenses 936 Home Mortgage Interest Deduction Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch E (Form 1040) Supplemental Income and Loss Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Federal tax amendment form Sch K-1 (Form 1120S) Shareholder's Share of Income, Deductions, Credits, etc. Federal tax amendment form 1098 Mortgage Interest Statement 3115 Application for Change in Accounting Method 4952 Investment Interest Expense Deduction 8582 Passive Activity Loss Limitations See chapter 12 for information about getting publications and forms. Federal tax amendment form Allocation of Interest The rules for deducting interest vary, depending on whether the loan proceeds are used for business, personal, or investment activities. Federal tax amendment form If you use the proceeds of a loan for more than one type of expense, you must allocate the interest based on the use of the loan's proceeds. Federal tax amendment form Allocate your interest expense to the following categories. Federal tax amendment form Nonpassive trade or business activity interest Passive trade or business activity interest Investment interest Portfolio interest Personal interest In general, you allocate interest on a loan the same way you allocate the loan proceeds. Federal tax amendment form You allocate loan proceeds by tracing disbursements to specific uses. Federal tax amendment form The easiest way to trace disbursements to specific uses is to keep the proceeds of a particular loan separate from any other funds. Federal tax amendment form Secured loan. Federal tax amendment form   The allocation of loan proceeds and the related interest is not generally affected by the use of property that secures the loan. Federal tax amendment form Example. Federal tax amendment form You secure a loan with property used in your business. Federal tax amendment form You use the loan proceeds to buy an automobile for personal use. Federal tax amendment form You must allocate interest expense on the loan to personal use (purchase of the automobile) even though the loan is secured by business property. Federal tax amendment form    If the property that secures the loan is your home, you generally do not allocate the loan proceeds or the related interest. Federal tax amendment form The interest is usually deductible as qualified home mortgage interest, regardless of how the loan proceeds are used. Federal tax amendment form For more information, see Publication 936. Federal tax amendment form Allocation period. Federal tax amendment form   The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates. Federal tax amendment form The date the loan is repaid. Federal tax amendment form The date the loan is reallocated to another use. Federal tax amendment form Proceeds not disbursed to borrower. Federal tax amendment form   Even if the lender disburses the loan proceeds to a third party, the allocation of the loan is still based on your use of the funds. Federal tax amendment form This applies whether you pay for property, services, or anything else by incurring a loan, or you take property subject to a debt. Federal tax amendment form Proceeds deposited in borrower's account. Federal tax amendment form   Treat loan proceeds deposited in an account as property held for investment. Federal tax amendment form It does not matter whether the account pays interest. Federal tax amendment form Any interest you pay on the loan is investment interest expense. Federal tax amendment form If you withdraw the proceeds of the loan, you must reallocate the loan based on the use of the funds. Federal tax amendment form Example. Federal tax amendment form Celina, a calendar-year taxpayer, borrows $100,000 on January 4 and immediately uses the proceeds to open a checking account. Federal tax amendment form No other amounts are deposited in the account during the year and no part of the loan principal is repaid during the year. Federal tax amendment form On April 2, Celina uses $20,000 from the checking account for a passive activity expenditure. Federal tax amendment form On September 4, Celina uses an additional $40,000 from the account for personal purposes. Federal tax amendment form Under the interest allocation rules, the entire $100,000 loan is treated as property held for investment for the period from January 4 through April 1. Federal tax amendment form From April 2 through September 3, Celina must treat $20,000 of the loan as used in the passive activity and $80,000 of the loan as property held for investment. Federal tax amendment form From September 4 through December 31, she must treat $40,000 of the loan as used for personal purposes, $20,000 as used in the passive activity, and $40,000 as property held for investment. Federal tax amendment form Order of funds spent. Federal tax amendment form   Generally, you treat loan proceeds deposited in an account as used (spent) before either of the following amounts. Federal tax amendment form Any unborrowed amounts held in the same account. Federal tax amendment form Any amounts deposited after these loan proceeds. Federal tax amendment form Example. Federal tax amendment form On January 9, Olena opened a checking account, depositing $500 of the proceeds of Loan A and $1,000 of unborrowed funds. Federal tax amendment form The following table shows the transactions in her account during the tax year. Federal tax amendment form Date Transaction January 9 $500 proceeds of Loan A and $1,000 unborrowed funds deposited January 14 $500 proceeds of Loan B  deposited February 19 $800 used for personal purposes February 27 $700 used for passive activity June 19 $1,000 proceeds of Loan C  deposited November 20 $800 used for an investment December 18 $600 used for personal purposes Olena treats the $800 used for personal purposes as made from the $500 proceeds of Loan A and $300 of the proceeds of Loan B. Federal tax amendment form She treats the $700 used for a passive activity as made from the remaining $200 proceeds of Loan B and $500 of unborrowed funds. Federal tax amendment form She treats the $800 used for an investment as made entirely from the proceeds of Loan C. Federal tax amendment form She treats the $600 used for personal purposes as made from the remaining $200 proceeds of Loan C and $400 of unborrowed funds. Federal tax amendment form For the periods during which loan proceeds are held in the account, Olena treats them as property held for investment. Federal tax amendment form Payments from checking accounts. Federal tax amendment form   Generally, you treat a payment from a checking or similar account as made at the time the check is written if you mail or deliver it to the payee within a reasonable period after you write it. Federal tax amendment form You can treat checks written on the same day as written in any order. Federal tax amendment form Amounts paid within 30 days. Federal tax amendment form   If you receive loan proceeds in cash or if the loan proceeds are deposited in an account, you can treat any payment (up to the amount of the proceeds) made from any account you own, or from cash, as made from those proceeds. Federal tax amendment form This applies to any payment made within 30 days before or after the proceeds are received in cash or deposited in your account. Federal tax amendment form   If the loan proceeds are deposited in an account, you can apply this rule even if the rules stated earlier under Order of funds spent would otherwise require you to treat the proceeds as used for other purposes. Federal tax amendment form If you apply this rule to any payments, disregard those payments (and the proceeds from which they are made) when applying the rules stated under Order of funds spent. Federal tax amendment form   If you received the loan proceeds in cash, you can treat the payment as made on the date you received the cash instead of the date you actually made the payment. Federal tax amendment form Example. Federal tax amendment form Giovanni gets a loan of $1,000 on August 4 and receives the proceeds in cash. Federal tax amendment form Giovanni deposits $1,500 in an account on August 18 and on August 28 writes a check on the account for a passive activity expense. Federal tax amendment form Also, Giovanni deposits his paycheck, deposits other loan proceeds, and pays his bills during the same period. Federal tax amendment form Regardless of these other transactions, Giovanni can treat $1,000 of the deposit he made on August 18 as being paid on August 4 from the loan proceeds. Federal tax amendment form In addition, Giovanni can treat the passive activity expense he paid on August 28 as made from the $1,000 loan proceeds treated as deposited in the account. Federal tax amendment form Optional method for determining date of reallocation. Federal tax amendment form   You can use the following method to determine the date loan proceeds are reallocated to another use. Federal tax amendment form You can treat all payments from loan proceeds in the account during any month as taking place on the later of the following dates. Federal tax amendment form The first day of that month. Federal tax amendment form The date the loan proceeds are deposited in the account. Federal tax amendment form However, you can use this optional method only if you treat all payments from the account during the same calendar month in the same way. Federal tax amendment form Interest on a segregated account. Federal tax amendment form   If you have an account that contains only loan proceeds and interest earned on the account, you can treat any payment from that account as being made first from the interest. Federal tax amendment form When the interest earned is used up, any remaining payments are from loan proceeds. Federal tax amendment form Example. Federal tax amendment form You borrowed $20,000 and used the proceeds of this loan to open a new savings account. Federal tax amendment form When the account had earned interest of $867, you withdrew $20,000 for personal purposes. Federal tax amendment form You can treat the withdrawal as coming first from the interest earned on the account, $867, and then from the loan proceeds, $19,133 ($20,000 − $867). Federal tax amendment form All the interest charged on the loan from the time it was deposited in the account until the time of the withdrawal is investment interest expense. Federal tax amendment form The interest charged on the part of the proceeds used for personal purposes ($19,133) from the time you withdrew it until you either repay it or reallocate it to another use is personal interest expense. Federal tax amendment form The interest charged on the loan proceeds you left in the account ($867) continues to be investment interest expense until you either repay it or reallocate it to another use. Federal tax amendment form Loan repayment. Federal tax amendment form   When you repay any part of a loan allocated to more than one use, treat it as being repaid in the following order. Federal tax amendment form Personal use. Federal tax amendment form Investments and passive activities (other than those included in (3)). Federal tax amendment form Passive activities in connection with a rental real estate activity in which you actively participate. Federal tax amendment form Former passive activities. Federal tax amendment form Trade or business use and expenses for certain low-income housing projects. Federal tax amendment form Line of credit (continuous borrowings). Federal tax amendment form   The following rules apply if you have a line of credit or similar arrangement. Federal tax amendment form Treat all borrowed funds on which interest accrues at the same fixed or variable rate as a single loan. Federal tax amendment form Treat borrowed funds or parts of borrowed funds on which interest accrues at different fixed or variable rates as different loans. Federal tax amendment form Treat these loans as repaid in the order shown on the loan agreement. Federal tax amendment form Loan refinancing. Federal tax amendment form   Allocate the replacement loan to the same uses to which the repaid loan was allocated. Federal tax amendment form Make the allocation only to the extent you use the proceeds of the new loan to repay any part of the original loan. Federal tax amendment form Debt-financed distribution. Federal tax amendment form   A debt-financed distribution occurs when a partnership or S corporation borrows funds and allocates those funds to distributions made to partners or shareholders. Federal tax amendment form The manner in which you report the interest expense associated with the distributed debt proceeds depends on your use of those proceeds. Federal tax amendment form How to report. Federal tax amendment form   If the proceeds were used in a nonpassive trade or business activity, report the interest on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership or S corporation in column (a) and the amount in column (h). Federal tax amendment form If the proceeds were used in a passive activity, follow the Instructions for Form 8582, Passive Activity Loss Limitations, to determine the amount of interest expense that can be reported on Schedule E (Form 1040), line 28; enter “interest expense” and the name of the partnership in column (a) and the amount in column (f). Federal tax amendment form If the proceeds were used in an investment activity, enter the interest on Form 4952. Federal tax amendment form If the proceeds are used for personal purposes, the interest is generally not deductible. Federal tax amendment form Interest You Can Deduct You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your trade or business. Federal tax amendment form Interest relates to your trade or business if you use the proceeds of the loan for a trade or business expense. Federal tax amendment form It does not matter what type of property secures the loan. Federal tax amendment form You can deduct interest on a debt only if you meet all the following requirements. Federal tax amendment form You are legally liable for that debt. Federal tax amendment form Both you and the lender intend that the debt be repaid. Federal tax amendment form You and the lender have a true debtor-creditor relationship. Federal tax amendment form Partial liability. Federal tax amendment form   If you are liable for part of a business debt, you can deduct only your share of the total interest paid or accrued. Federal tax amendment form Example. Federal tax amendment form You and your brother borrow money. Federal tax amendment form You are liable for 50% of the note. Federal tax amendment form You use your half of the loan in your business, and you make one-half of the loan payments. Federal tax amendment form You can deduct your half of the total interest payments as a business deduction. Federal tax amendment form Mortgage. Federal tax amendment form   Generally, mortgage interest paid or accrued on real estate you own legally or equitably is deductible. Federal tax amendment form However, rather than deducting the interest currently, you may have to add it to the cost basis of the property as explained later under Capitalization of Interest. Federal tax amendment form Statement. Federal tax amendment form   If you paid $600 or more of mortgage interest (including certain points) during the year on any one mortgage, you generally will receive a Form 1098 or a similar statement. Federal tax amendment form You will receive the statement if you pay interest to a person (including a financial institution or a cooperative housing corporation) in the course of that person's trade or business. Federal tax amendment form A governmental unit is a person for purposes of furnishing the statement. Federal tax amendment form   If you receive a refund of interest you overpaid in an earlier year, this amount will be reported in box 3 of Form 1098. Federal tax amendment form You cannot deduct this amount. Federal tax amendment form For information on how to report this refund, see Refunds of interest, later in this chapter. Federal tax amendment form Expenses paid to obtain a mortgage. Federal tax amendment form   Certain expenses you pay to obtain a mortgage cannot be deducted as interest. Federal tax amendment form These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. Federal tax amendment form If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage. Federal tax amendment form Prepayment penalty. Federal tax amendment form   If you pay off your mortgage early and pay the lender a penalty for doing this, you can deduct the penalty as interest. Federal tax amendment form Interest on employment tax deficiency. Federal tax amendment form   Interest charged on employment taxes assessed on your business is deductible. Federal tax amendment form Original issue discount (OID). Federal tax amendment form   OID is a form of interest. Federal tax amendment form A loan (mortgage or other debt) generally has OID when its proceeds are less than its principal amount. Federal tax amendment form The OID is the difference between the stated redemption price at maturity and the issue price of the loan. Federal tax amendment form   A loan's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on it other than qualified stated interest. Federal tax amendment form Qualified stated interest is stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a single fixed rate. Federal tax amendment form You generally deduct OID over the term of the loan. Federal tax amendment form Figure the amount to deduct each year using the constant-yield method, unless the OID on the loan is de minimis. Federal tax amendment form De minimis OID. Federal tax amendment form   The OID is de minimis if it is less than one-fourth of 1% (. Federal tax amendment form 0025) of the stated redemption price of the loan at maturity multiplied by the number of full years from the date of original issue to maturity (the term of the loan). Federal tax amendment form   If the OID is de minimis, you can choose one of the following ways to figure the amount you can deduct each year. Federal tax amendment form On a constant-yield basis over the term of the loan. Federal tax amendment form On a straight-line basis over the term of the loan. Federal tax amendment form In proportion to stated interest payments. Federal tax amendment form In its entirety at maturity of the loan. Federal tax amendment form You make this choice by deducting the OID in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Federal tax amendment form Example. Federal tax amendment form On January 1, 2013, you took out a $100,000 discounted loan and received $98,500 in proceeds. Federal tax amendment form The loan will mature on January 1, 2023 (a 10-year term), and the $100,000 principal is payable on that date. Federal tax amendment form Interest of $10,000 is payable on January 1 of each year, beginning January 1, 2014. Federal tax amendment form The $1,500 OID on the loan is de minimis because it is less than $2,500 ($100,000 × . Federal tax amendment form 0025 × 10). Federal tax amendment form You choose to deduct the OID on a straight-line basis over the term of the loan. Federal tax amendment form Beginning in 2013, you can deduct $150 each year for 10 years. Federal tax amendment form Constant-yield method. Federal tax amendment form   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Federal tax amendment form You figure your deduction for the first year using the following steps. Federal tax amendment form Determine the issue price of the loan. Federal tax amendment form Generally, this equals the proceeds of the loan. Federal tax amendment form If you paid points on the loan (as discussed later), the issue price generally is the difference between the proceeds and the points. Federal tax amendment form Multiply the result in (1) by the yield to maturity. Federal tax amendment form Subtract any qualified stated interest payments from the result in (2). Federal tax amendment form This is the OID you can deduct in the first year. Federal tax amendment form   To figure your deduction in any subsequent year, follow the above steps, except determine the adjusted issue price in step (1). Federal tax amendment form To get the adjusted issue price, add to the issue price any OID previously deducted. Federal tax amendment form Then follow steps (2) and (3) above. Federal tax amendment form   The yield to maturity is generally shown in the literature you receive from your lender. Federal tax amendment form If you do not have this information, consult your lender or tax advisor. Federal tax amendment form In general, the yield to maturity is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Federal tax amendment form Example. Federal tax amendment form The facts are the same as in the previous example, except that you deduct the OID on a constant yield basis over the term of the loan. Federal tax amendment form The yield to maturity on your loan is 10. Federal tax amendment form 2467%, compounded annually. Federal tax amendment form For 2013, you can deduct $93 [($98,500 × . Federal tax amendment form 102467) − $10,000]. Federal tax amendment form For 2014, you can deduct $103 [($98,593 × . Federal tax amendment form 102467) − $10,000]. Federal tax amendment form Loan or mortgage ends. Federal tax amendment form   If your loan or mortgage ends, you may be able to deduct any remaining OID in the tax year in which the loan or mortgage ends. Federal tax amendment form A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Federal tax amendment form If you refinance with the original lender, you generally cannot deduct the remaining OID in the year in which the refinancing occurs, but you may be able to deduct it over the term of the new mortgage or loan. Federal tax amendment form See Interest paid with funds borrowed from original lender under Interest You Cannot Deduct, later. Federal tax amendment form Points. Federal tax amendment form   The term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a loan or a mortgage. Federal tax amendment form These charges are also called loan origination fees, maximum loan charges, discount points, or premium charges. Federal tax amendment form If any of these charges (points) are solely for the use of money, they are interest. Federal tax amendment form   Because points are prepaid interest, you generally cannot deduct the full amount in the year paid. Federal tax amendment form However, you can choose to fully deduct points in the year paid if you meet certain tests. Federal tax amendment form For exceptions to the general rule, see Publication 936. Federal tax amendment form The points reduce the issue price of the loan and result in original issue discount (OID), deductible as explained in the preceding discussion. Federal tax amendment form Partial payments on a nontax debt. Federal tax amendment form   If you make partial payments on a debt (other than a debt owed the IRS), the payments are applied, in general, first to interest and any remainder to principal. Federal tax amendment form You can deduct only the interest. Federal tax amendment form This rule does not apply when it can be inferred that the borrower and lender understood that a different allocation of the payments would be made. Federal tax amendment form Installment purchase. Federal tax amendment form   If you make an installment purchase of business property, the contract between you and the seller generally provides for the payment of interest. Federal tax amendment form If no interest or a low rate of interest is charged under the contract, a portion of the stated principal amount payable under the contract may be recharacterized as interest (unstated interest). Federal tax amendment form The amount recharacterized as interest reduces your basis in the property and increases your interest expense. Federal tax amendment form For more information on installment sales and unstated interest, see Publication 537. Federal tax amendment form Interest You Cannot Deduct Certain interest payments cannot be deducted. Federal tax amendment form In addition, certain other expenses that may seem to be interest but are not, cannot be deducted as interest. Federal tax amendment form You cannot currently deduct interest that must be capitalized, and you generally cannot deduct personal interest. Federal tax amendment form Interest paid with funds borrowed from original lender. Federal tax amendment form   If you use the cash method of accounting, you cannot deduct interest you pay with funds borrowed from the original lender through a second loan, an advance, or any other arrangement similar to a loan. Federal tax amendment form You can deduct the interest expense once you start making payments on the new loan. Federal tax amendment form   When you make a payment on the new loan, you first apply the payment to interest and then to the principal. Federal tax amendment form All amounts you apply to the interest on the first loan are deductible, along with any interest you pay on the second loan, subject to any limits that apply. Federal tax amendment form Capitalized interest. Federal tax amendment form   You cannot currently deduct interest you are required to capitalize under the uniform capitalization rules. Federal tax amendment form See Capitalization of Interest, later. Federal tax amendment form In addition, if you buy property and pay interest owed by the seller (for example, by assuming the debt and any interest accrued on the property), you cannot deduct the interest. Federal tax amendment form Add this interest to the basis of the property. Federal tax amendment form Commitment fees or standby charges. Federal tax amendment form   Fees you incur to have business funds available on a standby basis, but not for the actual use of the funds, are not deductible as interest payments. Federal tax amendment form You may be able to deduct them as business expenses. Federal tax amendment form   If the funds are for inventory or certain property used in your business, the fees are indirect costs and you generally must capitalize them under the uniform capitalization rules. Federal tax amendment form See Capitalization of Interest, later. Federal tax amendment form Interest on income tax. Federal tax amendment form   Interest charged on income tax assessed on your individual income tax return is not a business deduction even though the tax due is related to income from your trade or business. Federal tax amendment form Treat this interest as a business deduction only in figuring a net operating loss deduction. Federal tax amendment form Penalties. Federal tax amendment form   Penalties on underpaid deficiencies and underpaid estimated tax are not interest. Federal tax amendment form You cannot deduct them. Federal tax amendment form Generally, you cannot deduct any fines or penalties. Federal tax amendment form Interest on loans with respect to life insurance policies. Federal tax amendment form   You generally cannot deduct interest on a debt incurred with respect to any life insurance, annuity, or endowment contract that covers any individual unless that individual is a key person. Federal tax amendment form   If the policy or contract covers a key person, you can deduct the interest on up to $50,000 of debt for that person. Federal tax amendment form However, the deduction for any month cannot be more than the interest figured using Moody's Composite Yield on Seasoned Corporate Bonds (formerly known as Moody's Corporate Bond Yield Average-Monthly Average Corporates) (Moody's rate) for that month. Federal tax amendment form Who is a key person?   A key person is an officer or 20% owner. Federal tax amendment form However, the number of individuals you can treat as key persons is limited to the greater of the following. Federal tax amendment form Five individuals. Federal tax amendment form The lesser of 5% of the total officers and employees of the company or 20 individuals. Federal tax amendment form Exceptions for pre-June 1997 contracts. Federal tax amendment form   You can generally deduct the interest if the contract was issued before June 9, 1997, and the covered individual is someone other than an employee, officer, or someone financially interested in your business. Federal tax amendment form If the contract was purchased before June 21, 1986, you can generally deduct the interest no matter who is covered by the contract. Federal tax amendment form Interest allocated to unborrowed policy cash value. Federal tax amendment form   Corporations and partnerships generally cannot deduct any interest expense allocable to unborrowed cash values of life insurance, annuity, or endowment contracts. Federal tax amendment form This rule applies to contracts issued after June 8, 1997, that cover someone other than an officer, director, employee, or 20% owner. Federal tax amendment form For more information, see section 264(f) of the Internal Revenue Code. Federal tax amendment form Capitalization of Interest Under the uniform capitalization rules, you generally must capitalize interest on debt equal to your expenditures to produce real property or certain tangible personal property. Federal tax amendment form The property must be produced by you for use in your trade or business or for sale to customers. Federal tax amendment form You cannot capitalize interest related to property that you acquire in any other manner. Federal tax amendment form Interest you paid or incurred during the production period must be capitalized if the property produced is designated property. Federal tax amendment form Designated property is any of the following. Federal tax amendment form Real property. Federal tax amendment form Tangible personal property with a class life of 20 years or more. Federal tax amendment form Tangible personal property with an estimated production period of more than 2 years. Federal tax amendment form Tangible personal property with an estimated production period of more than 1 year if the estimated cost of production is more than $1 million. Federal tax amendment form Property you produce. Federal tax amendment form   You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow it. Federal tax amendment form Treat property produced for you under a contract as produced by you up to the amount you pay or incur for the property. Federal tax amendment form Carrying charges. Federal tax amendment form   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Federal tax amendment form You can choose to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Federal tax amendment form For more information, see chapter 7. Federal tax amendment form Capitalized interest. Federal tax amendment form   Treat capitalized interest as a cost of the property produced. Federal tax amendment form You recover your interest when you sell or use the property. Federal tax amendment form If the property is inventory, recover capitalized interest through cost of goods sold. Federal tax amendment form If the property is used in your trade or business, recover capitalized interest through an adjustment to basis, depreciation, amortization, or other method. Federal tax amendment form Partnerships and S corporations. Federal tax amendment form   The interest capitalization rules are applied first at the partnership or S corporation level. Federal tax amendment form The rules are then applied at the partners' or shareholders' level to the extent the partnership or S corporation has insufficient debt to support the production or construction costs. Federal tax amendment form   If you are a partner or a shareholder, you may have to capitalize interest you incur during the tax year for the production costs of the partnership or S corporation. Federal tax amendment form You may also have to capitalize interest incurred by the partnership or S corporation for your own production costs. Federal tax amendment form To properly capitalize interest under these rules, you must be given the required information in an attachment to the Schedule K-1 you receive from the partnership or S corporation. Federal tax amendment form Additional information. Federal tax amendment form   The procedures for applying the uniform capitalization rules are beyond the scope of this publication. Federal tax amendment form For more information, see sections 1. Federal tax amendment form 263A-8 through 1. Federal tax amendment form 263A-15 of the regulations and Notice 88-99. Federal tax amendment form Notice 88-99 is in Cumulative Bulletin 1988-2. Federal tax amendment form When To Deduct Interest If the uniform capitalization rules, discussed under Capitalization of Interest, earlier, do not apply to you, deduct interest as follows. Federal tax amendment form Cash method. Federal tax amendment form   Under the cash method, you can generally deduct only the interest you actually paid during the tax year. Federal tax amendment form You cannot deduct a promissory note you gave as payment because it is a promise to pay and not an actual payment. Federal tax amendment form Prepaid interest. Federal tax amendment form   You generally cannot deduct any interest paid before the year it is due. Federal tax amendment form Interest paid in advance can be deducted only in the tax year in which it is due. Federal tax amendment form Discounted loan. Federal tax amendment form   If interest or a discount is subtracted from your loan proceeds, it is not a payment of interest and you cannot deduct it when you get the loan. Federal tax amendment form For more information, see Original issue discount (OID) under Interest You Can Deduct, earlier. Federal tax amendment form Refunds of interest. Federal tax amendment form   If you pay interest and then receive a refund in the same tax year of any part of the interest, reduce your interest deduction by the refund. Federal tax amendment form If you receive the refund in a later tax year, include the refund in your income to the extent the deduction for the interest reduced your tax. Federal tax amendment form Accrual method. Federal tax amendment form   Under an accrual method, you can deduct only interest that has accrued during the tax year. Federal tax amendment form Prepaid interest. Federal tax amendment form   See Prepaid interest, earlier. Federal tax amendment form Discounted loan. Federal tax amendment form   See Discounted loan, earlier. Federal tax amendment form Tax deficiency. Federal tax amendment form   If you contest a federal income tax deficiency, interest does not accrue until the tax year the final determination of liability is made. Federal tax amendment form If you do not contest the deficiency, then the interest accrues in the year the tax was asserted and agreed to by you. Federal tax amendment form   However, if you contest but pay the proposed tax deficiency and interest, and you do not designate the payment as a cash bond, then the interest is deductible in the year paid. Federal tax amendment form Related person. Federal tax amendment form   If you use an accrual method, you cannot deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. Federal tax amendment form The relationship is determined as of the end of the tax year for which the interest would otherwise be deductible. Federal tax amendment form See section 267 of the Internal Revenue Code for more information. Federal tax amendment form Below-Market Loans If you receive a below-market gift or demand loan and use the proceeds in your trade or business, you may be able to deduct the forgone interest. Federal tax amendment form See Treatment of gift and demand loans, later, in this discussion. Federal tax amendment form A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Federal tax amendment form A gift or demand loan that is a below-market loan generally is considered an arm's-length transaction in which you, the borrower, are considered as having received both the following. Federal tax amendment form A loan in exchange for a note that requires the payment of interest at the applicable federal rate. Federal tax amendment form An additional payment in an amount equal to the forgone interest. Federal tax amendment form The additional payment is treated as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. Federal tax amendment form Forgone interest. Federal tax amendment form   For any period, forgone interest is The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. Federal tax amendment form Applicable federal rates are published by the IRS each month in the Internal Revenue Bulletin. Federal tax amendment form Internal Revenue Bulletins are available on the IRS web site at www. Federal tax amendment form irs. Federal tax amendment form gov/irb. Federal tax amendment form You can also contact an IRS office to get these rates. Federal tax amendment form Loans subject to the rules. Federal tax amendment form   The rules for below-market loans apply to the following. Federal tax amendment form Gift loans (below-market loans where the forgone interest is in the nature of a gift). Federal tax amendment form Compensation-related loans (below-market loans between an employer and an employee or between an independent contractor and a person for whom the contractor provides services). Federal tax amendment form Corporation-shareholder loans. Federal tax amendment form Tax avoidance loans (below-market loans where the avoidance of federal tax is one of the main purposes of the interest arrangement). Federal tax amendment form Loans to qualified continuing care facilities under a continuing care contract (made after October 11, 1985). Federal tax amendment form   Except as noted in (5) above, these rules apply to demand loans (loans payable in full at any time upon the lender's demand) outstanding after June 6, 1984, and to term loans (loans that are not demand loans) made after that date. Federal tax amendment form Treatment of gift and demand loans. Federal tax amendment form   If you receive a below-market gift loan or demand loan, you are treated as receiving an additional payment (as a gift, dividend, etc. Federal tax amendment form ) equal to the forgone interest on the loan. Federal tax amendment form You are then treated as transferring this amount back to the lender as interest. Federal tax amendment form These transfers are considered to occur annually, generally on December 31. Federal tax amendment form If you use the loan proceeds in your trade or business, you can deduct the forgone interest each year as a business interest expense. Federal tax amendment form The lender must report it as interest income. Federal tax amendment form Limit on forgone interest for gift loans of $100,000 or less. Federal tax amendment form   For gift loans between individuals, forgone interest treated as transferred back to the lender is limited to the borrower's net investment income for the year. Federal tax amendment form This limit applies if the outstanding loans between the lender and borrower total $100,000 or less. Federal tax amendment form If the borrower's net investment income is $1,000 or less, it is treated as zero. Federal tax amendment form This limit does not apply to a loan if the avoidance of any federal tax is one of the main purposes of the interest arrangement. Federal tax amendment form Treatment of term loans. Federal tax amendment form   If you receive a below-market term loan other than a gift or demand loan, you are treated as receiving an additional cash payment (as a dividend, etc. Federal tax amendment form ) on the date the loan is made. Federal tax amendment form This payment is equal to the loan amount minus the present value, at the applicable federal rate, of all payments due under the loan. Federal tax amendment form The same amount is treated as original issue discount on the loan. Federal tax amendment form See Original issue discount (OID) under Interest You Can Deduct, earlier. Federal tax amendment form Exceptions for loans of $10,000 or less. Federal tax amendment form   The rules for below-market loans do not apply to any day on which the total outstanding loans between the borrower and lender is $10,000 or less. Federal tax amendment form This exception applies only to the following. Federal tax amendment form Gift loans between individuals if the loan is not directly used to buy or carry income-producing assets. Federal tax amendment form Compensation-related loans or corporation-shareholder loans if the avoidance of any federal tax is not a principal purpose of the interest arrangement. Federal tax amendment form This exception does not apply to a term loan described in (2) above that was previously subject to the below-market loan rules. Federal tax amendment form Those rules will continue to apply even if the outstanding balance is reduced to $10,000 or less. Federal tax amendment form Exceptions for loans without significant tax effect. Federal tax amendment form   The following loans are specifically exempted from the rules for below-market loans because their interest arrangements do not have a significant effect on the federal tax liability of the borrower or the lender. Federal tax amendment form Loans made available by lenders to the general public on the same terms and conditions that are consistent with the lender's customary business practices. Federal tax amendment form Loans subsidized by a federal, state, or municipal government that are made available under a program of general application to the public. Federal tax amendment form Certain employee-relocation loans. Federal tax amendment form Certain loans to or from a foreign person, unless the interest income would be effectively connected with the conduct of a U. Federal tax amendment form S. Federal tax amendment form trade or business and not exempt from U. Federal tax amendment form S. Federal tax amendment form tax under an income tax treaty. Federal tax amendment form Any other loan if the taxpayer can show that the interest arrangement has no significant effect on the federal tax liability of the lender or the borrower. Federal tax amendment form Whether an interest arrangement has a significant effect on the federal tax liability of the lender or the borrower will be determined by all the facts and circumstances. Federal tax amendment form Consider all the following factors. Federal tax amendment form Whether items of income and deduction generated by the loan offset each other. Federal tax amendment form The amount of the items. Federal tax amendment form The cost of complying with the below-market loan provisions if they were to apply. Federal tax amendment form Any reasons, other than taxes, for structuring the transaction as a below-market loan. Federal tax amendment form Exception for loans to qualified continuing care facilities. Federal tax amendment form   The below-market interest rules do not apply to a loan owed by a qualified continuing care facility under a continuing care contract if the lender or lender's spouse is age 62 or older by the end of the calendar year. Federal tax amendment form A qualified continuing care facility is one or more facilities (excluding nursing homes) meeting the requirements listed below. Federal tax amendment form Designed to provide services under continuing care contracts (defined below). Federal tax amendment form Includes an independent living unit, and either an assisted living or nursing facility, or both. Federal tax amendment form Substantially all of the independent living unit residents are covered by continuing care contracts. Federal tax amendment form A continuing care contract is a written contract between an individual and a qualified continuing care facility that includes all of the following conditions. Federal tax amendment form The individual or individual's spouse must be entitled to use the facility for the rest of their life or lives. Federal tax amendment form The individual or individual's spouse will be provided with housing, as appropriate for the health of the individual or individual's spouse in an: independent living unit (which has additional available facilities outside the unit for the provision of meals and other personal care), and assisted living or nursing facility available in the continuing care facility. Federal tax amendment form The individual or individual's spouse will be provided with assisted living or nursing care available in the continuing care facility, as required for the health of the individual or the individual's spouse. Federal tax amendment form For more information, see section 7872(h) of the Internal Revenue Code. Federal tax amendment form Sale or exchange of property. Federal tax amendment form   Different rules generally apply to a loan connected with the sale or exchange of property. Federal tax amendment form If the loan does not provide adequate stated interest, part of the principal payment may be considered interest. Federal tax amendment form However, there are exceptions that may require you to apply the below-market interest rate rules to these loans. Federal tax amendment form See Unstated Interest and Original Issue Discount (OID) in Publication 537. Federal tax amendment form More information. Federal tax amendment form   For more information on below-market loans, see section 7872 of the Internal Revenue Code and section 1. Federal tax amendment form 7872-5 of the regulations. Federal tax amendment form Prev  Up  Next   Home   More Online Publications