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File 2007 Taxes For Free

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File 2007 taxes for free 10. File 2007 taxes for free   Retirement Plans, Pensions, and Annuities Table of Contents What's New Reminder IntroductionThe General Rule. File 2007 taxes for free Individual retirement arrangements (IRAs). File 2007 taxes for free Civil service retirement benefits. File 2007 taxes for free Useful Items - You may want to see: General InformationIn-plan rollovers to designated Roth accounts. File 2007 taxes for free How To Report Cost (Investment in the Contract) Taxation of Periodic PaymentsExclusion limited to cost. File 2007 taxes for free Exclusion not limited to cost. File 2007 taxes for free Simplified Method Taxation of Nonperiodic PaymentsLump-Sum Distributions RolloversIn-plan rollovers to designated Roth accounts. File 2007 taxes for free Special Additional TaxesTax on Early Distributions Tax on Excess Accumulation Survivors and Beneficiaries What's New For purposes of the Net Investment Income Tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). File 2007 taxes for free However, these distributions are taken into account when determining the modified adjusted gross income threshold. File 2007 taxes for free Distributions from a nonqualified retirement plan are included in net investment income. File 2007 taxes for free See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. File 2007 taxes for free Reminder Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. File 2007 taxes for free For more information, see Designated Roth accounts discussed later. File 2007 taxes for free Introduction This chapter discusses the tax treatment of distributions you receive from: An employee pension or annuity from a qualified plan, A disability retirement, and A purchased commercial annuity. File 2007 taxes for free What is not covered in this chapter. File 2007 taxes for free   The following topics are not discussed in this chapter. File 2007 taxes for free The General Rule. File 2007 taxes for free   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). File 2007 taxes for free For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. File 2007 taxes for free For more information about the General Rule, see Publication 939, General Rule for Pensions and Annuities. File 2007 taxes for free Individual retirement arrangements (IRAs). File 2007 taxes for free   Information on the tax treatment of amounts you receive from an IRA is in chapter 17. File 2007 taxes for free Civil service retirement benefits. File 2007 taxes for free    If you are retired from the federal government (regular, phased, or disability retirement), see Publication 721, Tax Guide to U. File 2007 taxes for free S. File 2007 taxes for free Civil Service Retirement Benefits. File 2007 taxes for free Publication 721 also covers the information that you need if you are the survivor or beneficiary of a federal employee or retiree who died. File 2007 taxes for free Useful Items - You may want to see: Publication 575 Pension and Annuity Income 721 Tax Guide to U. File 2007 taxes for free S. File 2007 taxes for free Civil Service Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File 2007 taxes for free 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts General Information Designated Roth accounts. File 2007 taxes for free   A designated Roth account is a separate account created under a qualified Roth contribution program to which participants may elect to have part or all of their elective deferrals to a 401(k), 403(b), or 457(b) plan designated as Roth contributions. File 2007 taxes for free Elective deferrals that are designated as Roth contributions are included in your income. File 2007 taxes for free However, qualified distributions are not included in your income. File 2007 taxes for free See Publication 575 for more information. File 2007 taxes for free In-plan rollovers to designated Roth accounts. File 2007 taxes for free   If you are a participant in a 401(k), 403(b), or 457(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan. File 2007 taxes for free The rollover of any untaxed amounts must be included in income. File 2007 taxes for free See Publication 575 for more information. File 2007 taxes for free More than one program. File 2007 taxes for free   If you receive benefits from more than one program under a single trust or plan of your employer, such as a pension plan and a profit-sharing plan, you may have to figure the taxable part of each pension or annuity contract separately. File 2007 taxes for free Your former employer or the plan administrator should be able to tell you if you have more than one pension or annuity contract. File 2007 taxes for free Section 457 deferred compensation plans. File 2007 taxes for free    If you work for a state or local government or for a tax-exempt organization, you may be able to participate in a section 457 deferred compensation plan. File 2007 taxes for free If your plan is an eligible plan, you are not taxed currently on pay that is deferred under the plan or on any earnings from the plan's investment of the deferred pay. File 2007 taxes for free You are generally taxed on amounts deferred in an eligible state or local government plan only when they are distributed from the plan. File 2007 taxes for free You are taxed on amounts deferred in an eligible tax-exempt organization plan when they are distributed or otherwise made available to you. File 2007 taxes for free   Your 457(b) plan may have a designated Roth account option. File 2007 taxes for free If so, you may be able to roll over amounts to the designated Roth account or make contributions. File 2007 taxes for free Elective deferrals to a designated Roth account are included in your income. File 2007 taxes for free Qualified distributions from a designated Roth account are not subject to tax. File 2007 taxes for free   This chapter covers the tax treatment of benefits under eligible section 457 plans, but it does not cover the treatment of deferrals. File 2007 taxes for free For information on deferrals under section 457 plans, see Retirement Plan Contributions under Employee Compensation in Publication 525, Taxable and Nontaxable Income. File 2007 taxes for free   For general information on these deferred compensation plans, see Section 457 Deferred Compensation Plans in Publication 575. File 2007 taxes for free Disability pensions. File 2007 taxes for free   If you retired on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer. File 2007 taxes for free You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. File 2007 taxes for free Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. File 2007 taxes for free    You may be entitled to a tax credit if you were permanently and totally disabled when you retired. File 2007 taxes for free For information on the credit for the elderly or the disabled, see chapter 33. File 2007 taxes for free   Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. File 2007 taxes for free Report the payments on Form 1040, lines 16a and 16b, or on Form 1040A, lines 12a and 12b. File 2007 taxes for free    Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) are not included in income. File 2007 taxes for free For more information about payments to survivors of terrorist attacks, see Publication 3920, Tax Relief for Victims of Terrorist Attacks. File 2007 taxes for free   For more information on how to report disability pensions, including military and certain government disability pensions, see chapter 5. File 2007 taxes for free Retired public safety officers. File 2007 taxes for free   An eligible retired public safety officer can elect to exclude from income distributions of up to $3,000 made directly from a government retirement plan to the provider of accident, health, or long-term disability insurance. File 2007 taxes for free See Insurance Premiums for Retired Public Safety Officers in Publication 575 for more information. File 2007 taxes for free Railroad retirement benefits. File 2007 taxes for free   Part of any railroad retirement benefits you receive is treated for tax purposes as social security benefits, and part is treated as an employee pension. File 2007 taxes for free For information about railroad retirement benefits treated as social security benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. File 2007 taxes for free For information about railroad retirement benefits treated as an employee pension, see Railroad Retirement Benefits in Publication 575. File 2007 taxes for free Withholding and estimated tax. File 2007 taxes for free   The payer of your pension, profit-sharing, stock bonus, annuity, or deferred compensation plan will withhold income tax on the taxable parts of amounts paid to you. File 2007 taxes for free You can tell the payer how much to withhold, or not to withhold, by filing Form W-4P. File 2007 taxes for free If you choose not to have tax withheld, or you do not have enough tax withheld, you may have to pay estimated tax. File 2007 taxes for free   If you receive an eligible rollover distribution, you cannot choose not to have tax withheld. File 2007 taxes for free Generally, 20% will be withheld, but no tax will be withheld on a direct rollover of an eligible rollover distribution. File 2007 taxes for free See Direct rollover option under Rollovers, later. File 2007 taxes for free   For more information, see Pensions and Annuities under Tax Withholding for 2014 in chapter 4. File 2007 taxes for free Qualified plans for self-employed individuals. File 2007 taxes for free   Qualified plans set up by self-employed individuals are sometimes called Keogh or H. File 2007 taxes for free R. File 2007 taxes for free 10 plans. File 2007 taxes for free Qualified plans can be set up by sole proprietors, partnerships (but not a partner), and corporations. File 2007 taxes for free They can cover self-employed persons, such as the sole proprietor or partners, as well as regular (common-law) employees. File 2007 taxes for free    Distributions from a qualified plan are usually fully taxable because most recipients have no cost basis. File 2007 taxes for free If you have an investment (cost) in the plan, however, your pension or annuity payments from a qualified plan are taxed under the Simplified Method. File 2007 taxes for free For more information about qualified plans, see Publication 560, Retirement Plans for Small Business. File 2007 taxes for free Purchased annuities. File 2007 taxes for free   If you receive pension or annuity payments from a privately purchased annuity contract from a commercial organization, such as an insurance company, you generally must use the General Rule to figure the tax-free part of each annuity payment. File 2007 taxes for free For more information about the General Rule, get Publication 939. File 2007 taxes for free Also, see Variable Annuities in Publication 575 for the special provisions that apply to these annuity contracts. File 2007 taxes for free Loans. File 2007 taxes for free   If you borrow money from your retirement plan, you must treat the loan as a nonperiodic distribution from the plan unless certain exceptions apply. File 2007 taxes for free This treatment also applies to any loan under a contract purchased under your retirement plan, and to the value of any part of your interest in the plan or contract that you pledge or assign. File 2007 taxes for free This means that you must include in income all or part of the amount borrowed. File 2007 taxes for free Even if you do not have to treat the loan as a nonperiodic distribution, you may not be able to deduct the interest on the loan in some situations. File 2007 taxes for free For details, see Loans Treated as Distributions in Publication 575. File 2007 taxes for free For information on the deductibility of interest, see chapter 23. File 2007 taxes for free Tax-free exchange. File 2007 taxes for free   No gain or loss is recognized on an exchange of an annuity contract for another annuity contract if the insured or annuitant remains the same. File 2007 taxes for free However, if an annuity contract is exchanged for a life insurance or endowment contract, any gain due to interest accumulated on the contract is ordinary income. File 2007 taxes for free See Transfers of Annuity Contracts in Publication 575 for more information about exchanges of annuity contracts. File 2007 taxes for free How To Report If you file Form 1040, report your total annuity on line 16a and the taxable part on line 16b. File 2007 taxes for free If your pension or annuity is fully taxable, enter it on line 16b; do not make an entry on line 16a. File 2007 taxes for free If you file Form 1040A, report your total annuity on line 12a and the taxable part on line 12b. File 2007 taxes for free If your pension or annuity is fully taxable, enter it on line 12b; do not make an entry on line 12a. File 2007 taxes for free More than one annuity. File 2007 taxes for free   If you receive more than one annuity and at least one of them is not fully taxable, enter the total amount received from all annuities on Form 1040, line 16a, or Form 1040A, line 12a, and enter the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. File 2007 taxes for free If all the annuities you receive are fully taxable, enter the total of all of them on Form 1040, line 16b, or Form 1040A, line 12b. File 2007 taxes for free Joint return. File 2007 taxes for free   If you file a joint return and you and your spouse each receive one or more pensions or annuities, report the total of the pensions and annuities on Form 1040, line 16a, or Form 1040A, line 12a, and report the taxable part on Form 1040, line 16b, or Form 1040A, line 12b. File 2007 taxes for free Cost (Investment in the Contract) Before you can figure how much, if any, of a distribution from your pension or annuity plan is taxable, you must determine your cost (your investment in the contract) in the pension or annuity. File 2007 taxes for free Your total cost in the plan includes the total premiums, contributions, or other amounts you paid. File 2007 taxes for free This includes the amounts your employer contributed that were taxable to you when paid. File 2007 taxes for free Cost does not include any amounts you deducted or were excluded from your income. File 2007 taxes for free From this total cost, subtract any refunds of premiums, rebates, dividends, unrepaid loans that were not included in your income, or other tax-free amounts that you received by the later of the annuity starting date or the date on which you received your first payment. File 2007 taxes for free Your annuity starting date is the later of the first day of the first period for which you received a payment or the date the plan's obligations became fixed. File 2007 taxes for free Designated Roth accounts. File 2007 taxes for free   Your cost in these accounts is your designated Roth contributions that were included in your income as wages subject to applicable withholding requirements. File 2007 taxes for free Your cost will also include any in-plan Roth rollovers you included in income. File 2007 taxes for free Foreign employment contributions. File 2007 taxes for free   If you worked in a foreign country and contributions were made to your retirement plan, special rules apply in determining your cost. File 2007 taxes for free See Foreign employment contributions under Cost (Investment in the Contract) in Publication 575. File 2007 taxes for free Taxation of Periodic Payments Fully taxable payments. File 2007 taxes for free   Generally, if you did not pay any part of the cost of your employee pension or annuity and your employer did not withhold part of the cost from your pay while you worked, the amounts you receive each year are fully taxable. File 2007 taxes for free You must report them on your income tax return. File 2007 taxes for free Partly taxable payments. File 2007 taxes for free   If you paid part of the cost of your pension or annuity, you are not taxed on the part of the pension or annuity you receive that represents a return of your cost. File 2007 taxes for free The rest of the amount you receive is generally taxable. File 2007 taxes for free You figure the tax-free part of the payment using either the Simplified Method or the General Rule. File 2007 taxes for free Your annuity starting date and whether or not your plan is qualified determine which method you must or may use. File 2007 taxes for free   If your annuity starting date is after November 18, 1996, and your payments are from a qualified plan, you must use the Simplified Method. File 2007 taxes for free Generally, you must use the General Rule if your annuity is paid under a nonqualified plan, and you cannot use this method if your annuity is paid under a qualified plan. File 2007 taxes for free   If you had more than one partly taxable pension or annuity, figure the tax-free part and the taxable part of each separately. File 2007 taxes for free   If your annuity is paid under a qualified plan and your annuity starting date is after July 1, 1986, and before November 19, 1996, you could have chosen to use either the General Rule or the Simplified Method. File 2007 taxes for free Exclusion limit. File 2007 taxes for free   Your annuity starting date determines the total amount of annuity payments that you can exclude from your taxable income over the years. File 2007 taxes for free Once your annuity starting date is determined, it does not change. File 2007 taxes for free If you calculate the taxable portion of your annuity payments using the simplified method worksheet, the annuity starting date determines the recovery period for your cost. File 2007 taxes for free That recovery period begins on your annuity starting date and is not affected by the date you first complete the worksheet. File 2007 taxes for free Exclusion limited to cost. File 2007 taxes for free   If your annuity starting date is after 1986, the total amount of annuity income that you can exclude over the years as a recovery of the cost cannot exceed your total cost. File 2007 taxes for free Any unrecovered cost at your (or the last annuitant's) death is allowed as a miscellaneous itemized deduction on the final return of the decedent. File 2007 taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit. File 2007 taxes for free Exclusion not limited to cost. File 2007 taxes for free   If your annuity starting date is before 1987, you can continue to take your monthly exclusion for as long as you receive your annuity. File 2007 taxes for free If you chose a joint and survivor annuity, your survivor can continue to take the survivor's exclusion figured as of the annuity starting date. File 2007 taxes for free The total exclusion may be more than your cost. File 2007 taxes for free Simplified Method Under the Simplified Method, you figure the tax-free part of each annuity payment by dividing your cost by the total number of anticipated monthly payments. File 2007 taxes for free For an annuity that is payable for the lives of the annuitants, this number is based on the annuitants' ages on the annuity starting date and is determined from a table. File 2007 taxes for free For any other annuity, this number is the number of monthly annuity payments under the contract. File 2007 taxes for free Who must use the Simplified Method. File 2007 taxes for free   You must use the Simplified Method if your annuity starting date is after November 18, 1996, and you both: Receive pension or annuity payments from a qualified employee plan, qualified employee annuity, or a tax-sheltered annuity (403(b)) plan, and On your annuity starting date, you were either under age 75, or entitled to less than 5 years of guaranteed payments. File 2007 taxes for free Guaranteed payments. File 2007 taxes for free   Your annuity contract provides guaranteed payments if a minimum number of payments or a minimum amount (for example, the amount of your investment) is payable even if you and any survivor annuitant do not live to receive the minimum. File 2007 taxes for free If the minimum amount is less than the total amount of the payments you are to receive, barring death, during the first 5 years after payments begin (figured by ignoring any payment increases), you are entitled to less than 5 years of guaranteed payments. File 2007 taxes for free How to use the Simplified Method. File 2007 taxes for free    Complete the Simplified Method Worksheet in Publication 575 to figure your taxable annuity for 2013. File 2007 taxes for free Single-life annuity. File 2007 taxes for free    If your annuity is payable for your life alone, use Table 1 at the bottom of the worksheet to determine the total number of expected monthly payments. File 2007 taxes for free Enter on line 3 the number shown for your age at the annuity starting date. File 2007 taxes for free Multiple-lives annuity. File 2007 taxes for free   If your annuity is payable for the lives of more than one annuitant, use Table 2 at the bottom of the worksheet to determine the total number of expected monthly payments. File 2007 taxes for free Enter on line 3 the number shown for the combined ages of you and the youngest survivor annuitant at the annuity starting date. File 2007 taxes for free   However, if your annuity starting date is before 1998, do not use Table 2 and do not combine the annuitants' ages. File 2007 taxes for free Instead you must use Table 1 and enter on line 3 the number shown for the primary annuitant's age on the annuity starting date. File 2007 taxes for free    Be sure to keep a copy of the completed worksheet; it will help you figure your taxable annuity next year. File 2007 taxes for free Example. File 2007 taxes for free Bill Smith, age 65, began receiving retirement benefits in 2013, under a joint and survivor annuity. File 2007 taxes for free Bill's annuity starting date is January 1, 2013. File 2007 taxes for free The benefits are to be paid for the joint lives of Bill and his wife Kathy, age 65. File 2007 taxes for free Bill had contributed $31,000 to a qualified plan and had received no distributions before the annuity starting date. File 2007 taxes for free Bill is to receive a retirement benefit of $1,200 a month, and Kathy is to receive a monthly survivor benefit of $600 upon Bill's death. File 2007 taxes for free Bill must use the Simplified Method to figure his taxable annuity because his payments are from a qualified plan and he is under age 75. File 2007 taxes for free Because his annuity is payable over the lives of more than one annuitant, he uses his and Kathy's combined ages and Table 2 at the bottom of the worksheet in completing line 3 of the worksheet. File 2007 taxes for free His completed worksheet is shown in Worksheet 10-A. File 2007 taxes for free Bill's tax-free monthly amount is $100 ($31,000 ÷ 310) as shown on line 4 of the worksheet. File 2007 taxes for free Upon Bill's death, if Bill has not recovered the full $31,000 investment, Kathy will also exclude $100 from her $600 monthly payment. File 2007 taxes for free The full amount of any annuity payments received after 310 payments are paid must be included in gross income. File 2007 taxes for free If Bill and Kathy die before 310 payments are made, a miscellaneous itemized deduction will be allowed for the unrecovered cost on the final income tax return of the last to die. File 2007 taxes for free This deduction is not subject to the 2%-of-adjusted- gross-income limit. File 2007 taxes for free Worksheet 10-A. File 2007 taxes for free Simplified Method Worksheet for Bill Smith 1. File 2007 taxes for free Enter the total pension or annuity payments received this year. File 2007 taxes for free Also, add this amount to the total for Form 1040, line 16a, or Form 1040A, line 12a 1. File 2007 taxes for free 14,400 2. File 2007 taxes for free Enter your cost in the plan (contract) at the annuity starting date plus any death benefit exclusion*. File 2007 taxes for free See Cost (Investment in the Contract) , earlier 2. File 2007 taxes for free 31,000       Note: If your annuity starting date was before this year and you completed this worksheet last year, skip line 3 and enter the amount from line 4 of last year's worksheet on line 4 below (even if the amount of your pension or annuity has changed). File 2007 taxes for free Otherwise, go to line 3. File 2007 taxes for free         3. File 2007 taxes for free Enter the appropriate number from Table 1 below. File 2007 taxes for free But if your annuity starting date was after 1997 and the payments are for your life and that of your beneficiary, enter the appropriate number from Table 2 below 3. File 2007 taxes for free 310     4. File 2007 taxes for free Divide line 2 by the number on line 3 4. File 2007 taxes for free 100     5. File 2007 taxes for free Multiply line 4 by the number of months for which this year's payments were made. File 2007 taxes for free If your annuity starting date was before 1987, enter this amount on line 8 below and skip lines 6, 7, 10, and 11. File 2007 taxes for free Otherwise, go to line 6 5. File 2007 taxes for free 1,200     6. File 2007 taxes for free Enter any amounts previously recovered tax free in years after 1986. File 2007 taxes for free This is the amount shown on line 10 of your worksheet for last year 6. File 2007 taxes for free -0-     7. File 2007 taxes for free Subtract line 6 from line 2 7. File 2007 taxes for free 31,000     8. File 2007 taxes for free Enter the smaller of line 5 or line 7 8. File 2007 taxes for free 1,200 9. File 2007 taxes for free Taxable amount for year. File 2007 taxes for free Subtract line 8 from line 1. File 2007 taxes for free Enter the result, but not less than zero. File 2007 taxes for free Also, add this amount to the total for Form 1040, line 16b, or Form 1040A, line 12b 9. File 2007 taxes for free 13,200   Note: If your Form 1099-R shows a larger taxable amount, use the amount figured on this line instead. File 2007 taxes for free If you are a retired public safety officer, see Insurance Premiums for Retired Public Safety Officers in Publication 575 before entering an amount on your tax return. File 2007 taxes for free     10. File 2007 taxes for free Was your annuity starting date before 1987? □ Yes. File 2007 taxes for free STOP. File 2007 taxes for free Do not complete the rest of this worksheet. File 2007 taxes for free  ☑ No. File 2007 taxes for free Add lines 6 and 8. File 2007 taxes for free This is the amount you have recovered tax free through 2013. File 2007 taxes for free You will need this number if you need to fill out this worksheet next year 10. File 2007 taxes for free 1,200 11. File 2007 taxes for free Balance of cost to be recovered. File 2007 taxes for free Subtract line 10 from line 2. File 2007 taxes for free If zero, you will not have to complete this worksheet next year. File 2007 taxes for free The payments you receive next year will generally be fully taxable 11. File 2007 taxes for free 29,800 TABLE 1 FOR LINE 3 ABOVE   AND your annuity starting date was— IF the age at annuity starting date was. File 2007 taxes for free . File 2007 taxes for free . File 2007 taxes for free before November 19, 1996, enter on line 3. File 2007 taxes for free . File 2007 taxes for free . File 2007 taxes for free after November 18, 1996, enter on line 3. File 2007 taxes for free . File 2007 taxes for free . File 2007 taxes for free 55 or under 300 360 56–60 260 310 61–65 240 260 66–70 170 210 71 or older 120 160 TABLE 2 FOR LINE 3 ABOVE IF the combined ages at annuity starting date were. File 2007 taxes for free . File 2007 taxes for free . File 2007 taxes for free   THEN enter on line 3. File 2007 taxes for free . File 2007 taxes for free . File 2007 taxes for free 110 or under   410 111–120   360 121–130   310 131–140   260 141 or older   210 * A death benefit exclusion (up to $5,000) applied to certain benefits received by employees who died before August 21, 1996. File 2007 taxes for free Who must use the General Rule. File 2007 taxes for free   You must use the General Rule if you receive pension or annuity payments from: A nonqualified plan (such as a private annuity, a purchased commercial annuity, or a nonqualified employee plan), or A qualified plan if you are age 75 or older on your annuity starting date and your annuity payments are guaranteed for at least 5 years. File 2007 taxes for free Annuity starting before November 19, 1996. File 2007 taxes for free   If your annuity starting date is after July 1, 1986, and before November 19, 1996, you had to use the General Rule for either circumstance just described. File 2007 taxes for free You also had to use it for any fixed-period annuity. File 2007 taxes for free If you did not have to use the General Rule, you could have chosen to use it. File 2007 taxes for free If your annuity starting date is before July 2, 1986, you had to use the General Rule unless you could use the Three-Year Rule. File 2007 taxes for free   If you had to use the General Rule (or chose to use it), you must continue to use it each year that you recover your cost. File 2007 taxes for free Who cannot use the General Rule. File 2007 taxes for free   You cannot use the General Rule if you receive your pension or annuity from a qualified plan and none of the circumstances described in the preceding discussions apply to you. File 2007 taxes for free See Who must use the Simplified Method , earlier. File 2007 taxes for free More information. File 2007 taxes for free   For complete information on using the General Rule, including the actuarial tables you need, see Publication 939. File 2007 taxes for free Taxation of Nonperiodic Payments Nonperiodic distributions are also known as amounts not received as an annuity. File 2007 taxes for free They include all payments other than periodic payments and corrective distributions. File 2007 taxes for free Examples of nonperiodic payments are cash withdrawals, distributions of current earnings, certain loans, and the value of annuity contracts transferred without full and adequate consideration. File 2007 taxes for free Corrective distributions of excess plan contributions. File 2007 taxes for free   Generally, if the contributions made for you during the year to certain retirement plans exceed certain limits, the excess is taxable to you. File 2007 taxes for free To correct an excess, your plan may distribute it to you (along with any income earned on the excess). File 2007 taxes for free For information on plan contribution limits and how to report corrective distributions of excess contributions, see Retirement Plan Contributions under Employee Compensation in Publication 525. File 2007 taxes for free Figuring the taxable amount of nonperiodic payments. File 2007 taxes for free   How you figure the taxable amount of a nonperiodic distribution depends on whether it is made before the annuity starting date, or on or after the annuity starting date. File 2007 taxes for free If it is made before the annuity starting date, its tax treatment also depends on whether it is made under a qualified or nonqualified plan. File 2007 taxes for free If it is made under a nonqualified plan, its tax treatment depends on whether it fully discharges the contract, is received under certain life insurance or endowment contracts, or is allocable to an investment you made before August 14, 1982. File 2007 taxes for free Annuity starting date. File 2007 taxes for free   The annuity starting date is either the first day of the first period for which you receive an annuity payment under the contract or the date on which the obligation under the contract becomes fixed, whichever is later. File 2007 taxes for free Distribution on or after annuity starting date. File 2007 taxes for free   If you receive a nonperiodic payment from your annuity contract on or after the annuity starting date, you generally must include all of the payment in gross income. File 2007 taxes for free Distribution before annuity starting date. File 2007 taxes for free   If you receive a nonperiodic distribution before the annuity starting date from a qualified retirement plan, you generally can allocate only part of it to the cost of the contract. File 2007 taxes for free You exclude from your gross income the part that you allocate to the cost. File 2007 taxes for free You include the remainder in your gross income. File 2007 taxes for free   If you receive a nonperiodic distribution before the annuity starting date from a plan other than a qualified retirement plan (nonqualified plan), it is allocated first to earnings (the taxable part) and then to the cost of the contract (the tax-free part). File 2007 taxes for free This allocation rule applies, for example, to a commercial annuity contract you bought directly from the issuer. File 2007 taxes for free    Distributions from nonqualified plans are subject to the net investment income tax. File 2007 taxes for free See the Instructions for Form 8960. File 2007 taxes for free   For more information, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments in Publication 575. File 2007 taxes for free Lump-Sum Distributions This section on lump-sum distributions only applies if the plan participant was born before January 2, 1936. File 2007 taxes for free If the plan participant was born after January 1, 1936, the taxable amount of this nonperiodic payment is reported as discussed earlier. File 2007 taxes for free A lump-sum distribution is the distribution or payment in one tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans). File 2007 taxes for free A distribution from a nonqualified plan (such as a privately purchased commercial annuity or a section 457 deferred compensation plan of a state or local government or tax-exempt organization) cannot qualify as a lump-sum distribution. File 2007 taxes for free The participant's entire balance from a plan does not include certain forfeited amounts. File 2007 taxes for free It also does not include any deductible voluntary employee contributions allowed by the plan after 1981 and before 1987. File 2007 taxes for free For more information about distributions that do not qualify as lump-sum distributions, see Distributions that do not qualify under Lump-Sum Distributions in Publication 575. File 2007 taxes for free If you receive a lump-sum distribution from a qualified employee plan or qualified employee annuity and the plan participant was born before January 2, 1936, you may be able to elect optional methods of figuring the tax on the distribution. File 2007 taxes for free The part from active participation in the plan before 1974 may qualify as capital gain subject to a 20% tax rate. File 2007 taxes for free The part from participation after 1973 (and any part from participation before 1974 that you do not report as capital gain) is ordinary income. File 2007 taxes for free You may be able to use the 10-year tax option, discussed later, to figure tax on the ordinary income part. File 2007 taxes for free Use Form 4972 to figure the separate tax on a lump-sum distribution using the optional methods. File 2007 taxes for free The tax figured on Form 4972 is added to the regular tax figured on your other income. File 2007 taxes for free This may result in a smaller tax than you would pay by including the taxable amount of the distribution as ordinary income in figuring your regular tax. File 2007 taxes for free How to treat the distribution. File 2007 taxes for free   If you receive a lump-sum distribution, you may have the following options for how you treat the taxable part. File 2007 taxes for free Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and the part from participation after 1973 as ordinary income. File 2007 taxes for free Report the part of the distribution from participation before 1974 as a capital gain (if you qualify) and use the 10-year tax option to figure the tax on the part from participation after 1973 (if you qualify). File 2007 taxes for free Use the 10-year tax option to figure the tax on the total taxable amount (if you qualify). File 2007 taxes for free Roll over all or part of the distribution. File 2007 taxes for free See Rollovers , later. File 2007 taxes for free No tax is currently due on the part rolled over. File 2007 taxes for free Report any part not rolled over as ordinary income. File 2007 taxes for free Report the entire taxable part of the distribution as ordinary income on your tax return. File 2007 taxes for free   The first three options are explained in the following discussions. File 2007 taxes for free Electing optional lump-sum treatment. File 2007 taxes for free   You can choose to use the 10-year tax option or capital gain treatment only once after 1986 for any plan participant. File 2007 taxes for free If you make this choice, you cannot use either of these optional treatments for any future distributions for the participant. File 2007 taxes for free Taxable and tax-free parts of the distribution. File 2007 taxes for free    The taxable part of a lump-sum distribution is the employer's contributions and income earned on your account. File 2007 taxes for free You may recover your cost in the lump sum and any net unrealized appreciation (NUA) in employer securities tax free. File 2007 taxes for free Cost. File 2007 taxes for free   In general, your cost is the total of: The plan participant's nondeductible contributions to the plan, The plan participant's taxable costs of any life insurance contract distributed, Any employer contributions that were taxable to the plan participant, and Repayments of any loans that were taxable to the plan participant. File 2007 taxes for free You must reduce this cost by amounts previously distributed tax free. File 2007 taxes for free Net unrealized appreciation (NUA). File 2007 taxes for free   The NUA in employer securities (box 6 of Form 1099-R) received as part of a lump-sum distribution is generally tax free until you sell or exchange the securities. File 2007 taxes for free (For more information, see Distributions of employer securities under Taxation of Nonperiodic Payments in Publication 575. File 2007 taxes for free ) Capital Gain Treatment Capital gain treatment applies only to the taxable part of a lump-sum distribution resulting from participation in the plan before 1974. File 2007 taxes for free The amount treated as capital gain is taxed at a 20% rate. File 2007 taxes for free You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. File 2007 taxes for free Complete Part II of Form 4972 to choose the 20% capital gain election. File 2007 taxes for free For more information, see Capital Gain Treatment under Lump-Sum Distributions in Publication 575. File 2007 taxes for free 10-Year Tax Option The 10-year tax option is a special formula used to figure a separate tax on the ordinary income part of a lump-sum distribution. File 2007 taxes for free You pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. File 2007 taxes for free You can elect this treatment only once for any plan participant, and only if the plan participant was born before January 2, 1936. File 2007 taxes for free The ordinary income part of the distribution is the amount shown in box 2a of the Form 1099-R given to you by the payer, minus the amount, if any, shown in box 3. File 2007 taxes for free You also can treat the capital gain part of the distribution (box 3 of Form 1099-R) as ordinary income for the 10-year tax option if you do not choose capital gain treatment for that part. File 2007 taxes for free Complete Part III of Form 4972 to choose the 10-year tax option. File 2007 taxes for free You must use the special Tax Rate Schedule shown in the instructions for Part III to figure the tax. File 2007 taxes for free Publication 575 illustrates how to complete Form 4972 to figure the separate tax. File 2007 taxes for free Rollovers If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can defer tax on the distribution by rolling it over to another qualified retirement plan or a traditional IRA. File 2007 taxes for free For this purpose, the following plans are qualified retirement plans. File 2007 taxes for free A qualified employee plan. File 2007 taxes for free A qualified employee annuity. File 2007 taxes for free A tax-sheltered annuity plan (403(b) plan). File 2007 taxes for free An eligible state or local government section 457 deferred compensation plan. File 2007 taxes for free Eligible rollover distributions. File 2007 taxes for free   Generally, an eligible rollover distribution is any distribution of all or any part of the balance to your credit in a qualified retirement plan. File 2007 taxes for free For information about exceptions to eligible rollover distributions, see Publication 575. File 2007 taxes for free Rollover of nontaxable amounts. File 2007 taxes for free   You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another qualified retirement plan that is a qualified employee plan or a 403(b) plan, or to a traditional or Roth IRA. File 2007 taxes for free The transfer must be made either through a direct rollover to a qualified plan or 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional or Roth IRA. File 2007 taxes for free   If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution. File 2007 taxes for free   Any after-tax contributions that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. File 2007 taxes for free To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. File 2007 taxes for free For more information, see the Form 8606 instructions. File 2007 taxes for free Direct rollover option. File 2007 taxes for free   You can choose to have any part or all of an eligible rollover distribution paid directly to another qualified retirement plan that accepts rollover distributions or to a traditional or Roth IRA. File 2007 taxes for free If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. File 2007 taxes for free Payment to you option. File 2007 taxes for free   If an eligible rollover distribution is paid to you, 20% generally will be withheld for income tax. File 2007 taxes for free However, the full amount is treated as distributed to you even though you actually receive only 80%. File 2007 taxes for free You generally must include in income any part (including the part withheld) that you do not roll over within 60 days to another qualified retirement plan or to a traditional or Roth IRA. File 2007 taxes for free (See Pensions and Annuities under Tax Withholding for 2014 in chapter 4. File 2007 taxes for free )    If you decide to roll over an amount equal to the distribution before withholding, your contribution to the new plan or IRA must include other money (for example, from savings or amounts borrowed) to replace the amount withheld. File 2007 taxes for free Time for making rollover. File 2007 taxes for free   You generally must complete the rollover of an eligible rollover distribution paid to you by the 60th day following the day on which you receive the distribution from your employer's plan. File 2007 taxes for free (If an amount distributed to you becomes a frozen deposit in a financial institution during the 60-day period after you receive it, the rollover period is extended for the period during which the distribution is in a frozen deposit in a financial institution. File 2007 taxes for free )   The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. File 2007 taxes for free   The administrator of a qualified plan must give you a written explanation of your distribution options within a reasonable period of time before making an eligible rollover distribution. File 2007 taxes for free Qualified domestic relations order (QDRO). File 2007 taxes for free   You may be able to roll over tax free all or part of a distribution from a qualified retirement plan that you receive under a QDRO. File 2007 taxes for free If you receive the distribution as an employee's spouse or former spouse (not as a nonspousal beneficiary), the rollover rules apply to you as if you were the employee. File 2007 taxes for free You can roll over the distribution from the plan into a traditional IRA or to another eligible retirement plan. File 2007 taxes for free See Rollovers in Publication 575 for more information on benefits received under a QDRO. File 2007 taxes for free Rollover by surviving spouse. File 2007 taxes for free   You may be able to roll over tax free all or part of a distribution from a qualified retirement plan you receive as the surviving spouse of a deceased employee. File 2007 taxes for free The rollover rules apply to you as if you were the employee. File 2007 taxes for free You can roll over a distribution into a qualified retirement plan or a traditional or Roth IRA. File 2007 taxes for free For a rollover to a Roth IRA, see Rollovers to Roth IRAs , later. File 2007 taxes for free    A distribution paid to a beneficiary other than the employee's surviving spouse is generally not an eligible rollover distribution. File 2007 taxes for free However, see Rollovers by nonspouse beneficiary next. File 2007 taxes for free Rollovers by nonspouse beneficiary. File 2007 taxes for free   If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you may be able to roll over tax free all or a portion of a distribution you receive from an eligible retirement plan of the employee. File 2007 taxes for free The distribution must be a direct trustee-to-trustee transfer to your traditional or Roth IRA that was set up to receive the distribution. File 2007 taxes for free The transfer will be treated as an eligible rollover distribution and the receiving plan will be treated as an inherited IRA. File 2007 taxes for free For information on inherited IRAs, see What if You Inherit an IRA? in chapter 1 of Publication 590, Individual Retirement Arrangements (IRAs). File 2007 taxes for free Retirement bonds. File 2007 taxes for free   If you redeem retirement bonds purchased under a qualified bond purchase plan, you can roll over the proceeds that exceed your basis tax free into an IRA (as discussed in Publication 590) or a qualified employer plan. File 2007 taxes for free Designated Roth accounts. File 2007 taxes for free   You can roll over an eligible rollover distribution from a designated Roth account into another designated Roth account or a Roth IRA. File 2007 taxes for free If you want to roll over the part of the distribution that is not included in income, you must make a direct rollover of the entire distribution or you can roll over the entire amount (or any portion) to a Roth IRA. File 2007 taxes for free For more information on rollovers from designated Roth accounts, see Rollovers in Publication 575. File 2007 taxes for free In-plan rollovers to designated Roth accounts. File 2007 taxes for free   If you are a plan participant in a 401(k), 403(b), or 457(b) plan, your plan may permit you to roll over amounts in those plans to a designated Roth account within the same plan. File 2007 taxes for free The rollover of any untaxed amounts must be included in income. File 2007 taxes for free See Designated Roth accounts under Rollovers in Publication 575 for more information. File 2007 taxes for free Rollovers to Roth IRAs. File 2007 taxes for free   You can roll over distributions directly from a qualified retirement plan (other than a designated Roth account) to a Roth IRA. File 2007 taxes for free   You must include in your gross income distributions from a qualified retirement plan (other than a designated Roth account) that you would have had to include in income if you had not rolled them over into a Roth IRA. File 2007 taxes for free You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions to the plan that were taxable to you when paid. File 2007 taxes for free In addition, the 10% tax on early distributions does not apply. File 2007 taxes for free More information. File 2007 taxes for free   For more information on the rules for rolling over distributions, see Rollovers in Publication 575. File 2007 taxes for free Special Additional Taxes To discourage the use of pension funds for purposes other than normal retirement, the law imposes additional taxes on early distributions of those funds and on failures to withdraw the funds timely. File 2007 taxes for free Ordinarily, you will not be subject to these taxes if you roll over all early distributions you receive, as explained earlier, and begin drawing out the funds at a normal retirement age, in reasonable amounts over your life expectancy. File 2007 taxes for free These special additional taxes are the taxes on: Early distributions, and Excess accumulation (not receiving minimum distributions). File 2007 taxes for free These taxes are discussed in the following sections. File 2007 taxes for free If you must pay either of these taxes, report them on Form 5329. File 2007 taxes for free However, you do not have to file Form 5329 if you owe only the tax on early distributions and your Form 1099-R correctly shows a “1” in box 7. File 2007 taxes for free Instead, enter 10% of the taxable part of the distribution on Form 1040, line 58 and write “No” under the heading “Other Taxes” to the left of line 58. File 2007 taxes for free Even if you do not owe any of these taxes, you may have to complete Form 5329 and attach it to your Form 1040. File 2007 taxes for free This applies if you meet an exception to the tax on early distributions but box 7 of your Form 1099-R does not indicate an exception. File 2007 taxes for free Tax on Early Distributions Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made to you before you reach age 59½ are subject to an additional tax of 10%. File 2007 taxes for free This tax applies to the part of the distribution that you must include in gross income. File 2007 taxes for free For this purpose, a qualified retirement plan is: A qualified employee plan, A qualified employee annuity plan, A tax-sheltered annuity plan, or An eligible state or local government section 457 deferred compensation plan (to the extent that any distribution is attributable to amounts the plan received in a direct transfer or rollover from one of the other plans listed here or an IRA). File 2007 taxes for free 5% rate on certain early distributions from deferred annuity contracts. File 2007 taxes for free   If an early withdrawal from a deferred annuity is otherwise subject to the 10% additional tax, a 5% rate may apply instead. File 2007 taxes for free A 5% rate applies to distributions under a written election providing a specific schedule for the distribution of your interest in the contract if, as of March 1, 1986, you had begun receiving payments under the election. File 2007 taxes for free On line 4 of Form 5329, multiply the line 3 amount by 5% instead of 10%. File 2007 taxes for free Attach an explanation to your return. File 2007 taxes for free Distributions from Roth IRAs allocable to a rollover from an eligible retirement plan within the 5-year period. File 2007 taxes for free   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from an eligible retirement plan to a Roth IRA, you take a distribution from the Roth IRA, you may have to pay the additional 10% tax on early distributions. File 2007 taxes for free You generally must pay the 10% additional tax on any amount attributable to the part of the rollover that you had to include in income. File 2007 taxes for free The additional tax is figured on Form 5329. File 2007 taxes for free For more information, see Form 5329 and its instructions. File 2007 taxes for free For information on qualified distributions from Roth IRAs, see Additional Tax on Early Distributions in chapter 2 of Publication 590. File 2007 taxes for free Distributions from designated Roth accounts allocable to in-plan Roth rollovers within the 5-year period. File 2007 taxes for free   If, within the 5-year period starting with the first day of your tax year in which you rolled over an amount from a 401(k), 403(b), or 457(b) plan to a designated Roth account, you take a distribution from the designated Roth account, you may have to pay the additional 10% tax on early distributions. File 2007 taxes for free You generally must pay the 10% additional tax on any amount attributable to the part of the in-plan rollover that you had to include in income. File 2007 taxes for free The additional tax is figured on Form 5329. File 2007 taxes for free For more information, see Form 5329 and its instructions. File 2007 taxes for free For information on qualified distributions from designated Roth accounts, see Designated Roth accounts under Taxation of Periodic Payments in Publication 575. File 2007 taxes for free Exceptions to tax. File 2007 taxes for free    Certain early distributions are excepted from the early distribution tax. File 2007 taxes for free If the payer knows that an exception applies to your early distribution, distribution code “2,” “3,” or “4” should be shown in box 7 of your Form 1099-R and you do not have to report the distribution on Form 5329. File 2007 taxes for free If an exception applies but distribution code “1” (early distribution, no known exception) is shown in box 7, you must file Form 5329. File 2007 taxes for free Enter the taxable amount of the distribution shown in box 2a of your Form 1099-R on line 1 of Form 5329. File 2007 taxes for free On line 2, enter the amount that can be excluded and the exception number shown in the Form 5329 instructions. File 2007 taxes for free    If distribution code “1” is incorrectly shown on your Form 1099-R for a distribution received when you were age 59½ or older, include that distribution on Form 5329. File 2007 taxes for free Enter exception number “12” on line 2. File 2007 taxes for free General exceptions. File 2007 taxes for free   The tax does not apply to distributions that are: Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after your separation from service), Made because you are totally and permanently disabled, or Made on or after the death of the plan participant or contract holder. File 2007 taxes for free Additional exceptions for qualified retirement plans. File 2007 taxes for free   The tax does not apply to distributions that are: From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees), From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order, From a qualified retirement plan to the extent you have deductible medical expenses that exceed 10% (or 7. File 2007 taxes for free 5% if you or your spouse are age 65 or older) of your adjusted gross income, whether or not you itemize your deductions for the year, From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election, From an employee stock ownership plan for dividends on employer securities held by the plan, From a qualified retirement plan due to an IRS levy of the plan, From elective deferral accounts under 401(k) or 403(b) plans or similar arrangements that are qualified reservist distributions, or Phased retirement annuity payments made to federal employees. File 2007 taxes for free See Pub. File 2007 taxes for free 721 for more information on the phased retirement program. File 2007 taxes for free Qualified public safety employees. File 2007 taxes for free   If you are a qualified public safety employee, distributions made from a governmental defined benefit pension plan are not subject to the additional tax on early distributions. File 2007 taxes for free You are a qualified public safety employee if you provide police protection, firefighting services, or emergency medical services for a state or municipality, and you separated from service in or after the year you attained age 50. File 2007 taxes for free Qualified reservist distributions. File 2007 taxes for free   A qualified reservist distribution is not subject to the additional tax on early distributions. File 2007 taxes for free A qualified reservist distribution is a distribution (a) from elective deferrals under a section 401(k) or 403(b) plan, or a similar arrangement, (b) to an individual ordered or called to active duty (because he or she is a member of a reserve component) for a period of more than 179 days or for an indefinite period, and (c) made during the period beginning on the date of the order or call and ending at the close of the active duty period. File 2007 taxes for free You must have been ordered or called to active duty after September 11, 2001. File 2007 taxes for free For more information, see Qualified reservist distributions under Special Additional Taxes in Publication 575. File 2007 taxes for free Additional exceptions for nonqualified annuity contracts. File 2007 taxes for free   The tax does not apply to distributions from: A deferred annuity contract to the extent allocable to investment in the contract before August 14, 1982, A deferred annuity contract under a qualified personal injury settlement, A deferred annuity contract purchased by your employer upon termination of a qualified employee plan or qualified employee annuity plan and held by your employer until your separation from service, or An immediate annuity contract (a single premium contract providing substantially equal annuity payments that start within 1 year from the date of purchase and are paid at least annually). File 2007 taxes for free Tax on Excess Accumulation To make sure that most of your retirement benefits are paid to you during your lifetime, rather than to your beneficiaries after your death, the payments that you receive from qualified retirement plans must begin no later than your required beginning date (defined later). File 2007 taxes for free The payments each year cannot be less than the required minimum distribution. File 2007 taxes for free Required distributions not made. File 2007 taxes for free   If the actual distributions to you in any year are less than the minimum required distribution for that year, you are subject to an additional tax. File 2007 taxes for free The tax equals 50% of the part of the required minimum distribution that was not distributed. File 2007 taxes for free   For this purpose, a qualified retirement plan includes: A qualified employee plan, A qualified employee annuity plan, An eligible section 457 deferred compensation plan, or A tax-sheltered annuity plan (403(b) plan)(for benefits accruing after 1986). File 2007 taxes for free Waiver. File 2007 taxes for free   The tax may be waived if you establish that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. File 2007 taxes for free See the Instructions for Form 5329 for the procedure to follow if you believe you qualify for a waiver of this tax. File 2007 taxes for free State insurer delinquency proceedings. File 2007 taxes for free   You might not receive the minimum distribution because assets are invested in a contract issued by an insurance company in state insurer delinquency proceedings. File 2007 taxes for free If your payments are reduced below the minimum due to these proceedings, you should contact your plan administrator. File 2007 taxes for free Under certain conditions, you will not have to pay the 50% excise tax. File 2007 taxes for free Required beginning date. File 2007 taxes for free   Unless the rule for 5% owners applies, you generally must begin to receive distributions from your qualified retirement plan by April 1 of the year that follows the later of: The calendar year in which you reach age 70½, or The calendar year in which you retire from employment with the employer maintaining the plan. File 2007 taxes for free However, your plan may require you to begin to receive distributions by April 1 of the year that follows the year in which you reach age 70½, even if you have not retired. File 2007 taxes for free   If you reached age 70½ in 2013, you may be required to receive your first distribution by April 1, 2014. File 2007 taxes for free Your required distribution then must be made for 2014 by December 31, 2014. File 2007 taxes for free 5% owners. File 2007 taxes for free   If you are a 5% owner, you must begin to receive distributions by April 1 of the year that follows the calendar year in which you reach age 70½. File 2007 taxes for free   You are a 5% owner if, for the plan year ending in the calendar year in which you reach age 70½, you own (or are considered to own under section 318 of the Internal Revenue Code) more than 5% of the outstanding stock (or more than 5% of the total voting power of all stock) of the employer, or more than 5% of the capital or profits interest in the employer. File 2007 taxes for free Age 70½. File 2007 taxes for free   You reach age 70½ on the date that is 6 calendar months after the date of your 70th birthday. File 2007 taxes for free   For example, if you are retired and your 70th birthday was on June 30, 2013, you were age 70½ on December 30, 2013. File 2007 taxes for free If your 70th birthday was on July 1, 2013, you reached age 70½ on January 1, 2014. File 2007 taxes for free Required distributions. File 2007 taxes for free   By the required beginning date, as explained earlier, you must either: Receive your entire interest in the plan (for a tax-sheltered annuity, your entire benefit accruing after 1986), or Begin receiving periodic distributions in annual amounts calculated to distribute your entire interest (for a tax-sheltered annuity, your entire benefit accruing after 1986) over your life or life expectancy or over the joint lives or joint life expectancies of you and a designated beneficiary (or over a shorter period). File 2007 taxes for free Additional information. File 2007 taxes for free   For more information on this rule, see Tax on Excess Accumulation in Publication 575. File 2007 taxes for free Form 5329. File 2007 taxes for free   You must file Form 5329 if you owe tax because you did not receive a minimum required distribution from your qualified retirement plan. File 2007 taxes for free Survivors and Beneficiaries Generally, a survivor or beneficiary reports pension or annuity income in the same way the plan participant would have. File 2007 taxes for free However, some special rules apply. File 2007 taxes for free See Publication 575 for more information. File 2007 taxes for free Survivors of employees. File 2007 taxes for free   If you are entitled to receive a survivor annuity on the death of an employee who died, you can exclude part of each annuity payment as a tax-free recovery of the employee's investment in the contract. File 2007 taxes for free You must figure the taxable and tax-free parts of your annuity payments using the method that applies as if you were the employee. File 2007 taxes for free Survivors of retirees. File 2007 taxes for free   If you receive benefits as a survivor under a joint and survivor annuity, include those benefits in income in the same way the retiree would have included them in income. File 2007 taxes for free If you receive a survivor annuity because of the death of a retiree who had reported the annuity under the Three-Year Rule and recovered all of the cost tax free, your survivor payments are fully taxable. File 2007 taxes for free    If the retiree was reporting the annuity payments under the General Rule, you must apply the same exclusion percentage to your initial survivor annuity payment called for in the contract. File 2007 taxes for free The resulting tax-free amount will then remain fixed. File 2007 taxes for free Any increases in the survivor annuity are fully taxable. File 2007 taxes for free    If the retiree was reporting the annuity payments under the Simplified Method, the part of each payment that is tax free is the same as the tax-free amount figured by the retiree at the annuity starting date. File 2007 taxes for free This amount remains fixed even if the annuity payments are increased or decreased. File 2007 taxes for free See Simplified Method , earlier. File 2007 taxes for free   In any case, if the annuity starting date is after 1986, the total exclusion over the years cannot be more than the cost. File 2007 taxes for free Estate tax deduction. File 2007 taxes for free   If your annuity was a joint and survivor annuity that was included in the decedent's estate, an estate tax may have been paid on it. File 2007 taxes for free You can deduct the part of the total estate tax that was based on the annuity. File 2007 taxes for free The deceased annuitant must have died after the annuity starting date. File 2007 taxes for free (For details, see section 1. File 2007 taxes for free 691(d)-1 of the regulations. File 2007 taxes for free ) Deduct it in equal amounts over your remaining life expectancy. File 2007 taxes for free   If the decedent died before the annuity starting date of a deferred annuity contract and you receive a death benefit under that contract, the amount you receive (either in a lump sum or as periodic payments) in excess of the decedent's cost is included in your gross income as income in respect of a decedent for which you may be able to claim an estate tax deduction. File 2007 taxes for free   You can take the estate tax deduction as an itemized deduction on Schedule A, Form 1040. File 2007 taxes for free This deduction is not subject to the 2%-of-adjusted-gross-income limit on miscellaneous deductions. File 2007 taxes for free See Publication 559, Survivors, Executors, and Administrators, for more information on the estate tax deduction. File 2007 taxes for free Prev  Up  Next   Home   More Online Publications
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File 2007 taxes for free 4. File 2007 taxes for free   Other Section 501(c) Organizations Table of Contents Introduction 501(c)(4) - Civic Leagues and Social Welfare OrganizationsSpecific Organizations 501(c)(5) - Labor, Agricultural and Horticultural OrganizationsLabor Organizations Agricultural and Horticultural Organizations 501(c)(6) - Business Leagues, etc. File 2007 taxes for free Line of business. File 2007 taxes for free Examples. File 2007 taxes for free Improvement of business conditions. File 2007 taxes for free Exception for local legislation. File 2007 taxes for free De minimis exception. File 2007 taxes for free Grass roots lobbying. File 2007 taxes for free 501(c)(7) - Social and Recreation ClubsLimited membership. File 2007 taxes for free Support. File 2007 taxes for free Facilities open to public. File 2007 taxes for free Gross receipts from nonmembership sources. File 2007 taxes for free Gross receipts. File 2007 taxes for free Nontraditional activities. File 2007 taxes for free 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal SocietiesFraternal Beneficiary Societies (501(c)(8)) Domestic Fraternal Societies (501(c)(10)) 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' AssociationsLocal Employees' Associations (501(c)(4)) Voluntary Employees' Beneficiary Associations (501(c)(9)) Supplemental Unemployment Benefit Trusts (501(c)(17)) 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like OrganizationsMembership. File 2007 taxes for free Losses and expenses. File 2007 taxes for free Distributions of proceeds. File 2007 taxes for free The 85% Requirement Local Life Insurance Associations Mutual or Cooperative Associations 501(c)(13) - Cemetery CompaniesBuying cemetery property. File 2007 taxes for free Perpetual care organization. File 2007 taxes for free Care of individual plots. File 2007 taxes for free 501(c)(14) - Credit Unions and Other Mutual Financial OrganizationsState-Chartered Credit Unions Other Mutual Financial Organizations 501(c)(19) - Veterans' Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit TrustsExcise taxes. File 2007 taxes for free 501(c)(2) - Title-Holding Corporations for Single Parent CorporationsExpenses. File 2007 taxes for free Waiver of payment of income. File 2007 taxes for free 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent CorporationsUnrelated Business Income 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations 501(c)(29) - CO-OP Health Insurance Issuers New Guidance for IRC 501(c)(29) Qualified Nonprofit Health Insurance Issuers General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement Additional Guidance for Prospective 501(c)(29) Organizations Introduction This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). File 2007 taxes for free Section 501(c)(3) organizations are covered in chapter 3 of this publication. File 2007 taxes for free The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter. File 2007 taxes for free 501(c)(4) - Civic Leagues and Social Welfare Organizations If your organization is not organized for profit and will be operated primarily to promote social welfare to benefit the community, you should file Form 1024 to apply for recognition of exemption from federal income tax under section 501(c)(4). File 2007 taxes for free The discussion that follows describes the information you must provide when applying. File 2007 taxes for free For application procedures, see chapter 1. File 2007 taxes for free To qualify for exemption under section 501(c)(4), the organization's net earnings must be devoted primarily to charitable, educational, or recreational purposes. File 2007 taxes for free In addition, no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. File 2007 taxes for free If the organization provides an excess benefit to certain persons, an excise tax may be imposed. File 2007 taxes for free See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax. File 2007 taxes for free Examples. File 2007 taxes for free   Types of organizations that are considered to be social welfare organizations are civic associations and volunteer fire companies. File 2007 taxes for free Nonprofit operation. File 2007 taxes for free   You must submit evidence that your organization is organized and will be operated on a nonprofit basis. File 2007 taxes for free However, such evidence, including the fact that your organization is organized under a state law relating to nonprofit corporations, will not in itself establish a social welfare purpose. File 2007 taxes for free Social welfare. File 2007 taxes for free   To establish that your organization is organized primarily to promote social welfare, you should submit evidence with your application showing that your organization will operate primarily to further (in some way) the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements). File 2007 taxes for free   An organization that restricts the use of its facilities to employees of selected corporations and their guests is primarily benefiting a private group rather than the community. File 2007 taxes for free It therefore does not qualify as a section 501(c)(4) organization. File 2007 taxes for free Similarly, an organization formed to represent member-tenants of an apartment complex does not qualify, since its activities benefit the member-tenants and not all tenants in the community. File 2007 taxes for free However, an organization formed to promote the legal rights of all tenants in a particular community may qualify under section 501(c)(4) as a social welfare organization. File 2007 taxes for free Political activity. File 2007 taxes for free   Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. File 2007 taxes for free However, if you submit proof that your organization is organized primarily to promote social welfare, it can obtain exemption even if it participates legally in some political activity on behalf of or in opposition to candidates for public office. File 2007 taxes for free See the discussion in chapter 2 under Political Organization Income Tax Return . File 2007 taxes for free Social or recreational activity. File 2007 taxes for free   If social activities will be the primary purpose of your organization, you should not file an application for exemption as a social welfare organization but should file for exemption as a social club described in section 501(c)(7). File 2007 taxes for free Retirement benefit program. File 2007 taxes for free   An organization established by its members that has as its primary activity providing supplemental retirement benefits to its members or death benefits to their beneficiaries does not qualify as an exempt social welfare organization. File 2007 taxes for free It may qualify under another paragraph of section 501(c) depending on all the facts. File 2007 taxes for free   However, a nonprofit association that is established, maintained, and funded by a local government to provide the only retirement benefits to a class of employees may qualify as a social welfare organization under section 501(c)(4). File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Donations to volunteer fire companies are deductible on the donor's federal income tax return, but only if made for exclusively public purposes. File 2007 taxes for free Contributions to civic leagues or other section 501(c)(4) organizations generally are not deductible as charitable contributions for federal income tax purposes. File 2007 taxes for free They may be deductible as trade or business expenses, if ordinary and necessary in the conduct of the taxpayer's business. File 2007 taxes for free However, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. File 2007 taxes for free for more information. File 2007 taxes for free For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization at IRS. File 2007 taxes for free gov. File 2007 taxes for free Specific Organizations The following information should be contained in the application form and accompanying statements of certain types of civic leagues or social welfare organizations. File 2007 taxes for free Volunteer fire companies. File 2007 taxes for free   If your organization wishes to obtain exemption as a volunteer fire company or similar organization, you should submit evidence that its members are actively engaged in fire fighting and similar disaster assistance, whether it actually owns the fire fighting equipment, and whether it provides any assistance for its members, such as death and medical benefits in case of injury to them. File 2007 taxes for free   If your organization does not have an independent social purpose, such as providing recreational facilities for members, it may be exempt under section 501(c)(3). File 2007 taxes for free In this event, your organization should file Form 1023. File 2007 taxes for free Homeowners' associations. File 2007 taxes for free   A membership organization formed by a real estate developer to own and maintain common green areas, streets, and sidewalks and to enforce covenants to preserve the appearance of the development should show that it is operated for the benefit of all the residents of the community. File 2007 taxes for free The term community generally refers to a geographical unit recognizable as a governmental subdivision, unit, or district thereof. File 2007 taxes for free Whether a particular association meets the requirement of benefiting a community depends on the facts and circumstances of each case. File 2007 taxes for free Even if an area represented by an association is not a community, the association can still qualify for exemption if its activities benefit a community. File 2007 taxes for free   The association should submit evidence that areas such as roadways and park land that it owns and maintains are open to the general public and not just its own members. File 2007 taxes for free It also must show that it does not engage in exterior maintenance of private homes. File 2007 taxes for free   A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally can elect under the provisions of section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income. File 2007 taxes for free Other organizations. File 2007 taxes for free   Other nonprofit organizations that qualify as social welfare organizations include: An organization operating an airport that is on land owned by a local government, which supervises the airport's operation, and that serves the general public in an area with no other airport, A community association that works to improve public services, housing, and residential parking; publishes a free community newspaper; sponsors a community sports league, holiday programs, and meetings; and contracts with a private security service to patrol the community, A community association devoted to preserving the community's traditions, architecture, and appearance by representing it before the local legislature and administrative agencies in zoning, traffic, and parking matters, An organization that tries to encourage industrial development and relieve unemployment in an area by making loans to businesses so they will relocate to the area, and An organization that holds an annual festival of regional customs and traditions. File 2007 taxes for free 501(c)(5) - Labor, Agricultural and Horticultural Organizations If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. File 2007 taxes for free You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. File 2007 taxes for free In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. File 2007 taxes for free Submit any additional information that may be required, as described in this section. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Contributions to labor, agricultural, and horticultural organizations are not deductible as charitable contributions on the donor's federal income tax return. File 2007 taxes for free However, such payments may be deductible as business expenses if they are ordinary and necessary in the conduct of the taxpayer's trade or business. File 2007 taxes for free For more information about certain limits affecting the deductibility of these business expenses, see Deduction not allowed for dues used for political or legislative activities , under 501(c)(6) - Business Leagues, etc. File 2007 taxes for free Labor Organizations A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions. File 2007 taxes for free To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. File 2007 taxes for free In addition, no net earnings of the organization can inure to the benefit of any member. File 2007 taxes for free Composition of membership. File 2007 taxes for free   While a labor organization generally is composed of employees or representatives of the employees (in the form of collective bargaining agents) and similar employee groups, evidence that an organization's membership consists mainly of workers does not in itself indicate an exempt purpose. File 2007 taxes for free You must show in your application that your organization has the purposes described in the preceding paragraph. File 2007 taxes for free These purposes can be accomplished by a single labor organization acting alone or by several organizations acting together through a separate organization. File 2007 taxes for free Benefits to members. File 2007 taxes for free   The payment by a labor organization of death, sick, accident, and similar benefits to its individual members with funds contributed by its members, if made under a plan to better the conditions of the members, does not preclude exemption as a labor organization. File 2007 taxes for free However, an organization does not qualify for exemption as a labor organization if it has no authority to represent members in job-related matters, even if it provides weekly income to its members in the event of a lawful strike by the members' union, in return for an annual payment by the member. File 2007 taxes for free   For more information on labor organizations, see Life Cycle of a Labor Organization at IRS. File 2007 taxes for free gov. File 2007 taxes for free Agricultural and Horticultural Organizations Agricultural and horticultural organizations are connected with raising livestock, forestry, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits. File 2007 taxes for free For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. File 2007 taxes for free The term harvesting, in this case, includes fishing and related pursuits. File 2007 taxes for free Agricultural organizations can be quasi-public in character and are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. File 2007 taxes for free When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations. File 2007 taxes for free The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products. File 2007 taxes for free The following list contains some examples of activities that show an agricultural or horticultural purpose. File 2007 taxes for free Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau. File 2007 taxes for free Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture. File 2007 taxes for free Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment. File 2007 taxes for free Guarding the purity of a specific breed of livestock. File 2007 taxes for free Encouraging improvements in the production of fish on privately owned fish farms. File 2007 taxes for free Negotiating with processors for the price to be paid to members for their crops. File 2007 taxes for free For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization at IRS. File 2007 taxes for free gov. File 2007 taxes for free 501(c)(6) - Business Leagues, etc. File 2007 taxes for free If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. File 2007 taxes for free For a discussion of the procedure to follow, see chapter 1. File 2007 taxes for free Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). File 2007 taxes for free In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. File 2007 taxes for free It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. File 2007 taxes for free A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. File 2007 taxes for free Trade associations and professional associations are considered business leagues. File 2007 taxes for free Chamber of commerce. File 2007 taxes for free   A chamber of commerce usually is composed of the merchants and traders of a city. File 2007 taxes for free Board of trade. File 2007 taxes for free   A board of trade often consists of persons engaged in similar lines of business. File 2007 taxes for free For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers is a board of trade. File 2007 taxes for free   Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community. File 2007 taxes for free Real estate board. File 2007 taxes for free   A real estate board consists of members interested in improving the business conditions in the real estate field. File 2007 taxes for free It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. File 2007 taxes for free Professional football leagues. File 2007 taxes for free   The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). File 2007 taxes for free They are exempt whether or not they administer a pension fund for football players. File 2007 taxes for free General purpose. File 2007 taxes for free   You must indicate in the material submitted with your application that your organization will be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. File 2007 taxes for free It must be shown that the conditions of a particular trade or the interests of the community will be advanced. File 2007 taxes for free Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose. File 2007 taxes for free Line of business. File 2007 taxes for free   This term generally refers either to an entire industry or to all components of an industry within a geographic area. File 2007 taxes for free It does not include a group composed of businesses that market a particular brand within an industry. File 2007 taxes for free Common business interest. File 2007 taxes for free   A common business interest of all members of the organization must be established by the application documents. File 2007 taxes for free Examples. File 2007 taxes for free   Activities that would tend to illustrate a common business interest are: Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association, Education of the public in the use of credit, Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies, Establishment and maintenance of the integrity of a local commercial market, Operation of a trade publication primarily intended to benefit an entire industry, and Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into lawyer-client relationships on a paying basis as a result). File 2007 taxes for free Improvement of business conditions. File 2007 taxes for free   Generally, this must be shown to be the purpose of the organization. File 2007 taxes for free This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest-free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. File 2007 taxes for free Stock or commodity exchange. File 2007 taxes for free   A stock or commodity exchange is not a business league, chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). File 2007 taxes for free Legislative activity. File 2007 taxes for free   An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members. File 2007 taxes for free Deduction not allowed for dues used for political or legislative activities. File 2007 taxes for free   A taxpayer cannot deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities. File 2007 taxes for free Influencing legislation. File 2007 taxes for free Participating or intervening in a political campaign for, or against, any candidate for public office. File 2007 taxes for free Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying). File 2007 taxes for free Communicating directly with certain executive branch officials to try to influence their official actions or positions. File 2007 taxes for free See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information. File 2007 taxes for free Exception for local legislation. File 2007 taxes for free   Members can deduct dues (or assessments) to an organization that are for expenses of: Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member. File 2007 taxes for free Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business. File 2007 taxes for free De minimis exception. File 2007 taxes for free   In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier will not prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense. File 2007 taxes for free Grass roots lobbying. File 2007 taxes for free   A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected state or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. File 2007 taxes for free Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, are a segment of the general public. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. File 2007 taxes for free They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. File 2007 taxes for free   For more information on business leagues, see Life Cycle of a Business League (Trade Association) on IRS. File 2007 taxes for free gov. File 2007 taxes for free 501(c)(7) - Social and Recreation Clubs If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax. File 2007 taxes for free In applying for recognition of exemption, you should submit the information described in this section. File 2007 taxes for free Also see chapter 1 for the procedures to follow. File 2007 taxes for free Typical organizations that should file for recognition of exemption as social clubs include: College alumni associations that are not described in chapter 3 under Alumni association , College fraternities or sororities operating chapter houses for students, Country clubs, Amateur hunting, fishing, tennis, swimming, and other sport clubs, Dinner clubs that provide a meeting place, library, and dining room for members, Hobby clubs, Garden clubs, and Variety clubs. File 2007 taxes for free Discrimination prohibited. File 2007 taxes for free   Your organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement provides for discrimination against any person on the basis of race, color, or religion. File 2007 taxes for free   However, a club that in good faith limits its membership to the members of a particular religion to further the teachings or principles of that religion and not to exclude individuals of a particular race or color will not be considered as discriminating on the basis of religion. File 2007 taxes for free Also, the restriction on religious discrimination does not apply to a club that is an auxiliary of a fraternal beneficiary society (discussed later) if that society is described in section 501(c)(8) and exempt from tax under section 501(a) and limits its membership to the members of a particular religion. File 2007 taxes for free Private benefit prohibited. File 2007 taxes for free   No part of the organization's net earnings can inure to the benefit of any person having a personal and private interest in the activities of the organization. File 2007 taxes for free For purposes of this requirement, it is not necessary that net earnings be actually distributed. File 2007 taxes for free Even undistributed earnings can benefit members. File 2007 taxes for free Examples of this include a decrease in membership dues or an increase in the services the club provides to its members without a corresponding increase in dues or other fees paid for club support. File 2007 taxes for free However, fixed-fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service. File 2007 taxes for free Purposes. File 2007 taxes for free   To show that your organization possesses the characteristics of a club within the meaning of the exemption law, you should submit evidence with your application that personal contact, commingling, and fellowship exist among members. File 2007 taxes for free You must show that members are bound together by a common objective of pleasure, recreation, and other nonprofitable purposes. File 2007 taxes for free   Fellowship need not be present between each member and every other member of a club if it is a material part in the life of the organization. File 2007 taxes for free A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship is a material part of the life of each local group. File 2007 taxes for free   The term other nonprofitable purposes means other purposes similar to pleasure and recreation. File 2007 taxes for free For example, a club that, in addition to its social activities, has a plan for the payment of sick and death benefits is not operating exclusively for pleasure, recreation, and other nonprofitable purposes. File 2007 taxes for free Limited membership. File 2007 taxes for free   The membership in a social club must be limited. File 2007 taxes for free To show that your organization has a purpose that would characterize it as a club, you should submit evidence with your application that there are limits on admission to membership consistent with the character of the club. File 2007 taxes for free   A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees. File 2007 taxes for free Corporate members of a club are not the kind of members contemplated by the law. File 2007 taxes for free Gross receipts from these members would be a factor in determining whether the club qualifies as a social club. File 2007 taxes for free See Gross receipts from nonmembership sources , later. File 2007 taxes for free Bona fide individual memberships paid for by a corporation would not have an effect on the gross receipts source. File 2007 taxes for free   The fact that a social club may have an associate (nonvoting) class of membership will not be, in and of itself, a cause for nonrecognition of exemption. File 2007 taxes for free However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption. File 2007 taxes for free Support. File 2007 taxes for free   In general, your club should be supported solely by membership fees, dues, and assessments. File 2007 taxes for free However, if otherwise entitled to exemption, your club will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities. File 2007 taxes for free Business activities. File 2007 taxes for free   If your club will engage in business, such as selling real estate, timber, or other products or services, it generally will be denied exemption. File 2007 taxes for free However, evidence submitted with your application form that your organization will provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests will not cause denial of exemption. File 2007 taxes for free Facilities open to public. File 2007 taxes for free   Evidence that your club's facilities will be open to the general public (persons other than members or their dependents or guests) may cause denial of exemption. File 2007 taxes for free This does not mean, however, that any dealing with outsiders will automatically deprive a club of exemption. File 2007 taxes for free Gross receipts from nonmembership sources. File 2007 taxes for free   A section 501(c)(7) organization can receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status. File 2007 taxes for free Income from nontraditional business activity with members is not exempt function income, and thus is included as income from sources outside of the membership. File 2007 taxes for free Of the 35% gross receipts listed above, up to 15% of the gross receipts can be derived from the use of the club's facilities or services by the general public. File 2007 taxes for free If an organization has outside income that is more than these limits, all the facts and circumstances will be taken into account in determining whether the organization qualifies for exempt status. File 2007 taxes for free Gross receipts. File 2007 taxes for free   Gross receipts, for this purpose, are receipts from the normal and usual (traditionally conducted) activities of the club. File 2007 taxes for free These receipts include charges, admissions, membership fees, dues, assessments, investment income, and normal recurring capital gains on investments. File 2007 taxes for free Receipts do not include initiation fees and capital contributions. File 2007 taxes for free Unusual amounts of income, such as from the sale of a clubhouse or similar facility, are not included in gross receipts or in figuring the percentage limits. File 2007 taxes for free Nontraditional activities. File 2007 taxes for free   Activities conducted by a social club need to further its exempt purposes. File 2007 taxes for free Traditional business activities are those that further a social club's exempt purposes. File 2007 taxes for free Nontraditional business activities do not further the exempt purposes of a social club even if conducted solely on a membership basis. File 2007 taxes for free Nontraditional business activities are prohibited (subject to an insubstantial, trivial, and nonrecurrent test) for businesses conducted with both members and nonmembers. File 2007 taxes for free Examples of nontraditional business activities include sale of package liquor, take-out food, and long-term room rental. File 2007 taxes for free Fraternity foundations. File 2007 taxes for free   If your organization is a foundation formed for the exclusive purpose of acquiring and leasing a chapter house to a local fraternity chapter or sorority chapter maintained at an educational institution and does not engage in any social or recreational activities, it may be a title holding corporation (discussed later under section 501(c)(2) organizations and under section 501(c)(25) organizations) rather than a social club. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Donations to exempt social and recreation clubs are not deductible as charitable contributions on the donor's federal income tax return. File 2007 taxes for free 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. File 2007 taxes for free The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies do not provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc. File 2007 taxes for free , purposes. File 2007 taxes for free The procedures to follow in applying for recognition of exemption are described in chapter 1. File 2007 taxes for free If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. File 2007 taxes for free If so, your organization need not apply for individual recognition of exemption. File 2007 taxes for free For more information, see Group Exemption Letter in chapter 1 of this publication. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Donations by an individual to a domestic fraternal beneficiary society or a domestic fraternal society operating under the lodge system are deductible as charitable contributions only if used exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. File 2007 taxes for free Fraternal Beneficiary Societies (501(c)(8)) A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. File 2007 taxes for free The application and accompanying statements should establish that the organization: Is a fraternal organization, Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents. File 2007 taxes for free Lodge system. File 2007 taxes for free   Operating under the lodge system means carrying on activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. File 2007 taxes for free Payment of benefits. File 2007 taxes for free   It is not essential that every member be covered by the society's program of sick, accident, or death benefits. File 2007 taxes for free An organization can qualify for exemption if most of its members are eligible for benefits, and the benefits are paid from contributions or dues paid by those members. File 2007 taxes for free   The benefits must be limited to members and their dependents. File 2007 taxes for free If members will have the ability to confer benefits to other than themselves and their dependents, exemption will not be recognized. File 2007 taxes for free Whole-life insurance. File 2007 taxes for free   Whole-life insurance constitutes a life benefit under section 501(c)(8) even though the policy may contain investment features such as a cash surrender value or a policy loan. File 2007 taxes for free Reinsurance pool. File 2007 taxes for free   Payments by a fraternal beneficiary society into a state-sponsored reinsurance pool that protects participating insurers against excessive losses on major medical health and accident insurance will not preclude exemption as a fraternal beneficiary society. File 2007 taxes for free Domestic Fraternal Societies (501(c)(10)) A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. File 2007 taxes for free The application and accompanying statements should establish that the organization: Is a domestic fraternal organization organized in the U. File 2007 taxes for free S. File 2007 taxes for free , Operates under the lodge system, Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and Does not provide for the payment of life, sick, accident, or other benefits to its members. File 2007 taxes for free The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status. File 2007 taxes for free 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations: A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits. File 2007 taxes for free Both the application form to file and the information to provide are discussed later under the section that describes your employee association. File 2007 taxes for free Chapter 1 describes the procedures to follow in applying for exemption. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Donations to these organizations are not deductible as charitable contributions on the donor's federal income tax return. File 2007 taxes for free Local Employees' Associations (501(c)(4)) A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. File 2007 taxes for free A local employees' association must apply for recognition of exemption by filing Form 1024. File 2007 taxes for free The organization must submit evidence that: It is of a purely local character, Its membership is limited to employees of a designated person or persons in a particular locality, and Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes. File 2007 taxes for free A local association of employees that has established a system of paying retirement or death benefits, or both, to its members will not qualify for exemption since the payment of these benefits is not considered as being for charitable, educational, or recreational purposes. File 2007 taxes for free Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities does not qualify for exemption. File 2007 taxes for free Voluntary Employees' Beneficiary Associations (501(c)(9)) An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. File 2007 taxes for free The material submitted with the application must show that your organization: Is a voluntary association of employees, Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and Will not allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments. File 2007 taxes for free To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. File 2007 taxes for free Note. File 2007 taxes for free Under section 4976, the reversion of funds from a section 501(c)(9) organization to the employer who created the beneficiary association may subject the employer to a 100% penalty excise tax on the amount of the reversion. File 2007 taxes for free Notice requirement. File 2007 taxes for free   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. File 2007 taxes for free The organization gives notice by filing Form 1024. File 2007 taxes for free If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before notice is given. File 2007 taxes for free An extension of time for filing the notice can be granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . File 2007 taxes for free Membership. File 2007 taxes for free   Membership of a section 501(c)(9) organization must consist of individuals who are employees and have an employment-related common bond. File 2007 taxes for free This common bond can be a common employer (or affiliated employers), coverage under one or more collective bargaining agreements, membership in a labor union, or membership in one or more locals of a national or international labor union. File 2007 taxes for free   The membership of an association can include some individuals who are not employees, provided they have an employment-related bond with the employee-members. File 2007 taxes for free For example, the owner of a business whose employees are members of the association can be a member. File 2007 taxes for free An association will be considered composed of employees if 90% of its total membership on one day of each quarter of its tax year consists of employees. File 2007 taxes for free Employees. File 2007 taxes for free   Employees include individuals who became entitled to membership because they are or were employees. File 2007 taxes for free For example, an individual will qualify as an employee even though the individual is on a leave of absence or has been terminated due to retirement, disability, or layoff. File 2007 taxes for free   Generally, membership is voluntary if an affirmative act is required on the part of an employee to become a member. File 2007 taxes for free Conversely, membership is involuntary if the designation as a member is due to employee status. File 2007 taxes for free However, an association will be considered voluntary if employees are required to be members of the organization as a condition of their employment and they do not incur a detriment (such as a payroll deduction) as a result of their membership. File 2007 taxes for free An employer has not imposed involuntary membership on the employee if membership is required as the result of a collective bargaining agreement or as an incident of membership in a labor organization. File 2007 taxes for free Payment of benefits. File 2007 taxes for free   The information submitted with your application must show that your organization will pay life, sick, accident, supplemental unemployment, or other similar benefits. File 2007 taxes for free The benefits can be provided directly by your association or indirectly by your association through the payments of premiums to an insurance company (or fees to a medical clinic). File 2007 taxes for free Benefits can be in the form of medical, clinical, or hospital services, transportation furnished for medical care, or money payments. File 2007 taxes for free Nondiscrimination requirements. File 2007 taxes for free   An organization that is part of a plan will not be exempt unless the plan meets certain nondiscrimination requirements. File 2007 taxes for free However, if the organization is part of a plan that is a collective bargaining agreement that was the subject of good faith bargaining between employee organizations and employers, the plan need not meet these requirements for the organization to qualify as tax exempt. File 2007 taxes for free   A plan meets the nondiscrimination requirements only if both of the following statements are true. File 2007 taxes for free Each class of benefits under the plan is provided under a classification of employees that is set forth in the plan and does not discriminate in favor of employees who are highly compensated individuals. File 2007 taxes for free The benefits provided under each class of benefits do not discriminate in favor of highly compensated individuals. File 2007 taxes for free A life insurance, disability, severance pay, or supplemental unemployment compensation benefit does not discriminate in favor of highly compensated individuals merely because the benefits available bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees covered by the plan. File 2007 taxes for free   For purposes of determining whether a plan meets the nondiscrimination requirements, the employer can elect to exclude all disability or severance payments payable to individuals who are in pay status as of January 1, 1985. File 2007 taxes for free This will not apply to any increase in such payment by any plan amendment adopted after June 22, 1984. File 2007 taxes for free   If a plan provides a benefit for which there is a nondiscrimination provision provided under Chapter 1 of the Internal Revenue Code as a condition of that benefit being excluded from gross income, these nondiscrimination requirements do not apply. File 2007 taxes for free The benefit will be considered nondiscriminatory only if it meets the nondiscrimination provision of the applicable Code section. File 2007 taxes for free For example, benefits provided under a medical reimbursement plan would meet the nondiscrimination requirements for an association, if the benefits meet the nondiscrimination requirements of section 105(h)(3) and 105(h)(4). File 2007 taxes for free Excluded employees. File 2007 taxes for free   Certain employees who are not covered by a plan can be excluded from consideration in applying these requirements. File 2007 taxes for free These include employees: Who have not completed 3 years of service, Who have not attained age 21, Who are seasonal or less than half-time employees, Who are not in the plan and who are included in a unit of employees covered by a collective bargaining agreement if the class of benefits involved was the subject of good faith bargaining, or Who are nonresident aliens and who receive no earned income from the employer that has United States source income. File 2007 taxes for free Highly compensated individual. File 2007 taxes for free   A highly compensated individual is one who: Owned 5 percent or more of the employer at any time during the current year or the preceding year, Received more than $115,000 in compensation from the employer for the preceding year (the amount is annualized for inflation. File 2007 taxes for free Go to IRS. File 2007 taxes for free gov, and search “Pension Plan Limitation” for the year), and Was among the top 20% of employees by compensation for the preceding year. File 2007 taxes for free However, the employer can choose not to have (3) apply. File 2007 taxes for free Aggregation rules. File 2007 taxes for free   The employer can choose to treat two or more plans as one plan for purposes of meeting the nondiscrimination requirements. File 2007 taxes for free Employees of controlled groups of corporations, trades, or businesses under common control, or members of an affiliated service group, are treated as employees of a single employer. File 2007 taxes for free Leased employees are treated as employees of the recipient. File 2007 taxes for free One employee. File 2007 taxes for free   A trust created to provide benefits to one employee will not qualify as a voluntary employees' beneficiary association under section 501(c)(9). File 2007 taxes for free Supplemental Unemployment Benefit Trusts (501(c)(17)) A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. File 2007 taxes for free The trust must be a valid, existing trust under local law and must be evidenced by an executed document. File 2007 taxes for free A conformed copy of the plan of which the trust is a part should be attached to the application. File 2007 taxes for free To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement. File 2007 taxes for free Note. File 2007 taxes for free Under section 4976, the reversion of funds from a section 501(c)(17) organization to the employer who created the supplemental unemployment benefit trust may subject the employer to a 100% penalty excise tax on the amount of the reversion. File 2007 taxes for free Notice requirement. File 2007 taxes for free   An organization will not be considered tax exempt under this section unless the organization gives notice to the IRS that it is applying for recognition of exempt status. File 2007 taxes for free The organization gives notice by filing Form 1024. File 2007 taxes for free If the notice is not given by 15 months after the end of the month in which the organization was created, the organization will not be exempt for any period before such notice is given. File 2007 taxes for free An extension of time for filing the notice is granted under the same procedures as those described for section 501(c)(3) organizations in chapter 3 under Application for Recognition of Exemption . File 2007 taxes for free Types of payments. File 2007 taxes for free   You must show that the supplemental unemployment compensation benefits will be benefits paid to an employee because of the employee's involuntary separation from employment (whether or not the separation is temporary) resulting directly from a reduction-in-force, discontinuance of a plant or operation, or other similar conditions. File 2007 taxes for free In addition, sickness and accident benefits (but not vacation, retirement, or death benefits) may be included in the plan if these are subordinate to the unemployment compensation benefits. File 2007 taxes for free Diversion of funds. File 2007 taxes for free   It must be impossible under the plan (at any time before the satisfaction of all liabilities with respect to employees under the plan) to use or to divert any of the corpus or income of the trust to any purpose other than the payment of supplemental unemployment compensation benefits (or sickness or accident benefits to the extent just explained). File 2007 taxes for free Discrimination in benefits. File 2007 taxes for free   Neither the terms of the plan nor the actual payment of benefits can be discriminatory in favor of the company's officers, stockholders, supervisors, or highly paid employees. File 2007 taxes for free However, a plan is not discriminatory merely because benefits bear a uniform relationship to compensation or the rate of compensation. File 2007 taxes for free Prohibited transactions and exemption. File 2007 taxes for free   If your organization is a supplemental unemployment benefit trust and has received a denial of exemption because it engaged in a prohibited transaction, as defined by section 503(b), it can file a claim for exemption in any tax year following the tax year in which the notice of denial was issued. File 2007 taxes for free It must file the claim on Form 1024. File 2007 taxes for free The organization must include a written declaration that it will not knowingly again engage in a prohibited transaction. File 2007 taxes for free An authorized principal officer of your organization must make this declaration under the penalties of perjury. File 2007 taxes for free   If your organization has satisfied all requirements as a supplemental unemployment benefit trust described in section 501(c)(17), it will be notified in writing that it has been recognized as exempt. File 2007 taxes for free However, the organization will be exempt only for those tax years after the tax year in which the claim for exemption (Form 1024) is filed. File 2007 taxes for free Tax year in this case means the established annual accounting period of the organization or, if the organization has not established an annual accounting period, the calendar year. File 2007 taxes for free For more information about the requirements for reestablishing an exemption previously denied, contact the IRS. File 2007 taxes for free 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024. File 2007 taxes for free Benevolent life insurance associations of a purely local character and like organizations. File 2007 taxes for free Mutual ditch or irrigation companies and like organizations. File 2007 taxes for free Mutual or cooperative telephone companies and like organizations. File 2007 taxes for free A like organization is an organization that performs a service comparable to that performed by any one of the above organizations. File 2007 taxes for free The information to be provided upon application by each of these organizations is described in this section. File 2007 taxes for free For information as to the procedures to follow in applying for exemption, see chapter 1. File 2007 taxes for free General requirements. File 2007 taxes for free   These organizations must use their income solely to cover losses and expenses, with any excess being returned to members or retained to cover future losses and expenses. File 2007 taxes for free They must collect at least 85% of their income from members for the sole purpose of meeting losses and expenses. File 2007 taxes for free Mutual character. File 2007 taxes for free   These organizations, other than benevolent life insurance associations, must be organized and operated on a mutual or cooperative basis. File 2007 taxes for free They are associations of persons or organizations, or both, banded together to provide themselves a mutually desirable service approximately at cost and on a mutual basis. File 2007 taxes for free To maintain the mutual characteristic of democratic ownership and control, they must be so organized and operated that their members have the right to choose the management, to receive services at cost, to receive a return of any excess of payments over losses and expenses, and to share in any assets upon dissolution. File 2007 taxes for free   The rights and interests of members in the annual savings of the organization must be determined in proportion to their business with the organization. File 2007 taxes for free Upon dissolution, gains from the sale of appreciated assets must be distributed to all persons who were members during the period the assets were owned by the organization in proportion to the amount of business done during that period. File 2007 taxes for free The bylaws must not provide for forfeiture of a member's rights and interest upon withdrawal or termination. File 2007 taxes for free Membership. File 2007 taxes for free   Membership of a mutual organization consists of those who join the organization to obtain its services, and have a voice in its management. File 2007 taxes for free In a stock company, the stockholders are members. File 2007 taxes for free However, a mutual life insurance organization cannot have policyholders other than its members. File 2007 taxes for free Losses and expenses. File 2007 taxes for free   In furnishing services substantially at cost, an organization must use its income solely for paying losses and expenses. File 2007 taxes for free Any excess income not retained in reasonable reserves for future losses and expenses belongs to members in proportion to their patronage or business done with the organization. File 2007 taxes for free If such patronage refunds are retained in reasonable amounts for purposes of expanding and improving facilities, retiring capital indebtedness, acquiring other assets, and unexpected expenses, the organization must maintain records sufficient to reflect the equity of each member in the assets acquired with the funds. File 2007 taxes for free Distributions of proceeds. File 2007 taxes for free   The cooperative may distribute the unexpended balance of collections or assessments remaining on hand at the end of the year to members or patrons prorated on the basis of their patronage or business done with the cooperative. File 2007 taxes for free Such distribution represents a refund in the costs of services rendered to the member. File 2007 taxes for free The 85% Requirement All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. File 2007 taxes for free Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company. File 2007 taxes for free Mutual or cooperative telephone company. File 2007 taxes for free   A mutual or cooperative telephone company will exclude from the computation of the 85% requirement any income received or accrued from: A nonmember telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company, Qualified pole rentals, The sale of display listings in a directory furnished to its members, or The prepayment of a loan created in 1987, 1988, or 1989, under section 306A, 306B, or 311 of the Rural Electrification Act of 1936. File 2007 taxes for free Mutual or cooperative electric company. File 2007 taxes for free   A mutual or cooperative electric company will exclude from the computation of the 85% requirement any income received or accrued from: Qualified pole rentals, Any provision or sale of electric energy transmission services or ancillary service if the services are provided on a nondiscriminatory open access basis under an open access transmission tariff approved or accepted by the Federal Energy Regulatory Commission (FERC) or under an independent transmission provider agreement approved or accepted by FERC (other than income received or accrued directly or indirectly from a member), The provision or sale of electric energy distribution services or ancillary services if the services are provided on a nondiscriminatory open-access basis to distribute electric energy not owned by the mutual or electric cooperative company: To end-users who are served by distribution facilities not owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), or Generated by a generation facility not owned or leased by the company or any of its members and which is directly connected to distribution facilities owned by the company or any of its members (other than income received or accrued directly or indirectly from a member), Any nuclear decommissioning transaction, or Any asset exchange or conversion transaction. File 2007 taxes for free   An electric cooperative's sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85% requirement. File 2007 taxes for free Qualified pole rental. File 2007 taxes for free   The term qualified pole rental means any rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that are used by the company in providing telephone or electric services to its members, and Pursuant to the rental to support one or more wires (in addition to wires described in (1)) for use in connection with the transmission by wire of electricity or of telephone or other communications. File 2007 taxes for free   The term rental, for this purpose, includes any sale of the right to use the pole (or other structure). File 2007 taxes for free The 85% requirement is applied on the basis of an annual accounting period. File 2007 taxes for free Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met. File 2007 taxes for free Gain from the sale or conversion of the organization's property is not considered an amount received from members in determining whether the organization's income consists of amounts collected from members. File 2007 taxes for free Because the 85% income test is based on gross income, capital losses cannot be used to reduce capital gains for purposes of this test. File 2007 taxes for free Example. File 2007 taxes for free   The books of an organization reflect the following for the calendar year. File 2007 taxes for free Collections from members $2,400 Short-term capital gains 600 Short-term capital losses 400 Other income None Gross income ($2,400 + $600 =$3000) 100% Collected from members ($2,400) 80%   Since amounts collected from members do not constitute at least 85% of gross income, the organization is not entitled to exemption from federal income tax for the year. File 2007 taxes for free   Voluntary contributions in the nature of gifts are not taken into account for purposes of the 85% computation. File 2007 taxes for free   Other tax-exempt income besides gifts is considered as income received from other than members in applying the 85% test. File 2007 taxes for free   If the 85% test is not met, your organization, if classifiable under this section, will not qualify for exemption as any other type of organization described in this publication. File 2007 taxes for free Tax treatment of donations. File 2007 taxes for free   Donations to an organization described in this section are not deductible as charitable contributions on the donor's federal income tax return. File 2007 taxes for free Local Life Insurance Associations A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. File 2007 taxes for free If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it will not be entitled to exemption. File 2007 taxes for free To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. File 2007 taxes for free If the activities of an organization are limited only by the borders of a state, it cannot be purely local in character. File 2007 taxes for free A benevolent life insurance association that does not terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements. File 2007 taxes for free A copy of each type of policy issued by your organization should be included with the application for recognition of exemption. File 2007 taxes for free Organizations similar to local benevolent life insurance companies. File 2007 taxes for free   These organizations include those that in addition to paying death benefits also provide for the payment of sick, accident, or health benefits. File 2007 taxes for free However, an organization that pays only sick, accident, or health benefits, but not life insurance benefits, is not an organization similar to a benevolent life insurance association and should not apply for recognition of exemption as described in this section. File 2007 taxes for free Burial and funeral benefit insurance organization. File 2007 taxes for free   This type of organization can apply for recognition of exemption as an organization similar to a benevolent life insurance company if it establishes that the benefits are paid in cash and if it is not engaged directly in the manufacture of funeral supplies or the performance of funeral services. File 2007 taxes for free An organization that provides its benefits in the form of supplies and service is not a life insurance company. File 2007 taxes for free Such an organization can seek recognition of exemption from federal income tax, however, as a mutual insurance company other than life. File 2007 taxes for free Mutual or Cooperative Associations Mutual ditch or irrigation companies, mutual or cooperative telephone companies, and like organizations need not establish that they are of a purely local character. File 2007 taxes for free They can serve noncontiguous areas. File 2007 taxes for free Like organization. File 2007 taxes for free   A like organization is a cooperative or mutual organization that performs a service similar to mutual ditch, irrigation, telephone, or electric companies. File 2007 taxes for free Examples include the following: cooperatives that provide protection of river banks to prevent erosion, water and sewer services, cable television, satellite, television, cellular phone services, two-way radio service, or natural gas services. File 2007 taxes for free 501(c)(13) - Cemetery Companies If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. File 2007 taxes for free For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1. File 2007 taxes for free A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. File 2007 taxes for free A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. File 2007 taxes for free The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, will not affect its status as mutual so long as all the other requirements of section 501(c)(13) are met. File 2007 taxes for free If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it is not permitted by its charter to engage in any business not necessarily incident to that purpose. File 2007 taxes for free Operating a mortuary is not permitted. File 2007 taxes for free However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole. File 2007 taxes for free How income can be used. File 2007 taxes for free   You should show that your organization's earnings are or will be used only in one or more of the following ways. File 2007 taxes for free To pay the ordinary and necessary expenses of operating, maintaining, and improving the cemetery or crematorium. File 2007 taxes for free To buy cemetery property. File 2007 taxes for free To create a fund that will provide a source of income for the perpetual care of the cemetery or a reasonable reserve for any ordinary or necessary purpose. File 2007 taxes for free No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual. File 2007 taxes for free Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager. File 2007 taxes for free Buying cemetery property. File 2007 taxes for free   Payments can be made to amortize debt incurred to buy land, but cannot be in the nature of profit distributions. File 2007 taxes for free You must show the method used to finance the purchase of the cemetery property and that the purchase price of the land at the time of its sale to the cemetery was not unreasonable. File 2007 taxes for free   Except for holders of preferred stock (discussed later), no person can have any interest in the net earnings of a tax-exempt cemetery company or crematorium. File 2007 taxes for free Therefore, if property is transferred to the organization in exchange for an interest in the organization's net earnings, the organization will not