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File 2007 Taxes

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File 2007 Taxes

File 2007 taxes Internal Revenue Bulletin:  2009-36  September 8, 2009  Rev. File 2007 taxes Proc. File 2007 taxes 2009-37 Table of Contents SECTION 1. File 2007 taxes PURPOSE SECTION 2. File 2007 taxes BACKGROUND SECTION 3. File 2007 taxes SCOPE SECTION 4. File 2007 taxes ELECTION PROCEDURES SECTION 5. File 2007 taxes REQUIRED INFORMATION STATEMENT SECTION 6. File 2007 taxes EFFECTIVE DATE SECTION 7. File 2007 taxes TRANSITION RULE SECTION 8. File 2007 taxes PAPERWORK REDUCTION ACT DRAFTING INFORMATION SECTION 1. File 2007 taxes PURPOSE . File 2007 taxes 01 This revenue procedure provides the exclusive procedures for taxpayers to make an election to defer recognizing discharge of indebtedness income (“COD income”) under § 108(i) of the Internal Revenue Code. File 2007 taxes . File 2007 taxes 02 This revenue procedure also requires taxpayers making the § 108(i) election to provide additional information on returns beginning with the taxable year following the taxable year for which the taxpayer makes the election. File 2007 taxes This revenue procedure describes the time and manner of providing this additional information. File 2007 taxes . File 2007 taxes 03 The Internal Revenue Service and Treasury Department intend to issue additional guidance under § 108(i) that may include regulations addressing matters in this revenue procedure. File 2007 taxes Taxpayers should be aware that these regulations may be retroactive. File 2007 taxes See § 7805(b)(2). File 2007 taxes This revenue procedure may be modified to provide procedures consistent with additional guidance. File 2007 taxes SECTION 2. File 2007 taxes BACKGROUND . File 2007 taxes 01 Section 108(i), Generally. File 2007 taxes Section 108(i) was added to the Code by § 1231 of the American Recovery and Reinvestment Tax Act of 2009, Pub. File 2007 taxes L. File 2007 taxes No. File 2007 taxes 111-5, 123 Stat. File 2007 taxes 338. File 2007 taxes In general, § 108(i) provides that, at the election of a taxpayer, COD income realized in connection with a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument is includible in gross income ratably over a 5-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year following the taxable year of the reacquisition. File 2007 taxes Generally, if a taxpayer makes a § 108(i) election and reacquires (or is treated as reacquiring) the applicable debt instrument generating the COD income for a new debt instrument with original issue discount (“OID”), then interest deductions for this OID also are deferred, as provided in § 108(i)(2). File 2007 taxes The OID deferral rule, however, does not apply if the amount of OID is less than a de minimis amount, as determined under § 1273(a)(3) and § 1. File 2007 taxes 1273-1(d) of the Income Tax Regulations. File 2007 taxes The OID deferral rule in § 108(i)(2) applies at the entity level for a pass-through entity. File 2007 taxes For example, a partnership (and therefore its partners) may not deduct currently the OID described in § 108(i)(2)(A)(i). File 2007 taxes A taxpayer must take into account any item of income or deduction deferred under § 108(i), and not previously taken into account, in the taxable year in which certain events occur (such as the liquidation of the taxpayer and upon other events specified in administrative guidance). File 2007 taxes See § 108(i)(5)(D). File 2007 taxes The rule regarding acceleration of deferred COD income and OID deductions also applies in the case of certain dispositions by persons holding ownership interests in pass-through entities. File 2007 taxes Section 108(i)(5)(D)(ii). File 2007 taxes For purposes of § 108(i), regulated investment companies (as defined in § 851(a)) and real estate investment trusts (as defined in § 856(a)) are not pass-through entities. File 2007 taxes . File 2007 taxes 02 Applicable Debt Instrument. File 2007 taxes Section 108(i)(3)(A) defines the term “applicable debt instrument” to mean any debt instrument issued by a C corporation or by any other person in connection with the conduct of a trade or business by that person. File 2007 taxes The term “debt instrument” means any bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness within the meaning of § 1275(a)(1). File 2007 taxes Section 108(i)(3)(B). File 2007 taxes For purposes of § 108(i), in the case of an intercompany obligation (as defined in § 1. File 2007 taxes 1502-13(g)(2)(ii)), an applicable debt instrument includes only an instrument for which COD income is realized upon the instrument’s deemed satisfaction under § 1. File 2007 taxes 1502-13(g)(5). File 2007 taxes . File 2007 taxes 03 Reacquisition. File 2007 taxes Section 108(i)(4)(A) defines the term “reacquisition” to mean, with respect to any applicable debt instrument, any acquisition of the debt instrument by the debtor that issued (or is otherwise the obligor under) the debt instrument, or a person related to the debtor under § 108(e)(4). File 2007 taxes The term “acquisition” includes an acquisition of the debt instrument for cash or other property, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, the contribution of the debt instrument to capital, and the complete forgiveness of the indebtedness by the holder of the debt instrument. File 2007 taxes See § 108(i)(4)(B). File 2007 taxes The term “acquisition” also includes an indirect acquisition within the meaning of § 1. File 2007 taxes 108-2(c) if a direct acquisition of the debt instrument would qualify for an election under § 108(i). File 2007 taxes For example, if a corporation acquires debt of a partnership that the partnership issued in connection with its trade or business, and the partnership and corporation become related within six months of the corporation’s acquisition of the debt, the indirect acquisition is an acquisition for which an election under § 108(i) may be made. File 2007 taxes . File 2007 taxes 04 General Requirements for the Section 108(i) Election. File 2007 taxes Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. File 2007 taxes (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return. File 2007 taxes ) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. File 2007 taxes Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified. File 2007 taxes . File 2007 taxes 05 Section 108(i) Elections Made by Pass-through Entities. File 2007 taxes In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. File 2007 taxes Section 108(i)(5)(B)(iii). File 2007 taxes . File 2007 taxes 06 Additional Information on Subsequent Years’ Returns. File 2007 taxes Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years. File 2007 taxes . File 2007 taxes 07 Exclusivity. File 2007 taxes Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i). File 2007 taxes . File 2007 taxes 08 Allocation of Deferred COD Income on Partnership Indebtedness. File 2007 taxes Section 4. File 2007 taxes 04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. File 2007 taxes If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. File 2007 taxes 704-1(b)(2)(iii). File 2007 taxes Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). File 2007 taxes The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). File 2007 taxes The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”). File 2007 taxes . File 2007 taxes 09 Partner’s Deferred § 752 Amount. File 2007 taxes A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). File 2007 taxes A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). File 2007 taxes To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1. File 2007 taxes 731-1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). File 2007 taxes See Rev. File 2007 taxes Rul. File 2007 taxes 92-97, 1992-2 C. File 2007 taxes B. File 2007 taxes 124, and Rev. File 2007 taxes Rul. File 2007 taxes 94-4, 1994-1 C. File 2007 taxes B. File 2007 taxes 195. File 2007 taxes A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i). File 2007 taxes . File 2007 taxes 10 Allocation of Deferred COD Income on S Corporation Indebtedness. File 2007 taxes For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction. File 2007 taxes . File 2007 taxes 11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Taxable Income. File 2007 taxes (1) In general. File 2007 taxes The Service and Treasury Department intend to issue regulations regarding the computation of a corporation’s earnings and profits with respect to COD income and OID deductions that are deferred under § 108(i). File 2007 taxes These regulations generally will provide that deferred COD income increases earnings and profits in the taxable year that it is realized and not in the taxable year or years that the deferred COD income is includible in gross income. File 2007 taxes OID deductions deferred under § 108(i) generally will decrease earnings and profits in the taxable year or years in which the deduction would be allowed without regard to § 108(i). File 2007 taxes COD income and OID deductions that are deferred increase or decrease adjusted current earnings under § 56(g)(4) in the taxable year or years that the income or deduction is includible or deductible in determining taxable income. File 2007 taxes See § 1. File 2007 taxes 56(g)-1(c)(1). File 2007 taxes (2) Exceptions for certain special status corporations. File 2007 taxes The Service and Treasury Department intend to issue regulations providing that in the case of regulated investment companies and real estate investment trusts, COD income deferred under § 108(i) generally increases earnings and profits in the taxable year or years in which the deferred COD income is includible in gross income and not in the year that the deferred COD income is realized. File 2007 taxes OID deductions deferred under § 108(i) generally decrease earnings and profits in the taxable year or years that the deferred OID deductions are deductible. File 2007 taxes . File 2007 taxes 12 Extension of Time to Make Election. File 2007 taxes Under § 301. File 2007 taxes 9100-1 of the Procedure and Administration Regulations, the Service may grant an extension of time to make a regulatory election. File 2007 taxes An election is a regulatory election if the due date is prescribed by regulation or other published guidance of general applicability. File 2007 taxes Section 301. File 2007 taxes 9100-2(a) provides an automatic 12-month extension from the due date for making certain regulatory elections. File 2007 taxes SECTION 3. File 2007 taxes SCOPE This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i). File 2007 taxes SECTION 4. File 2007 taxes ELECTION PROCEDURES . File 2007 taxes 01 In General. File 2007 taxes (1) A taxpayer within the scope of this revenue procedure makes the § 108(i) election by— (a) Attaching a statement meeting the requirements of section 4. File 2007 taxes 05 of this revenue procedure to the taxpayer’s timely filed (including extensions) original federal income tax return for the taxable year in which the reacquisition of the applicable debt instrument occurs, and (b) If applicable, satisfying the additional requirements of section 4. File 2007 taxes 07, 4. File 2007 taxes 08, 4. File 2007 taxes 09, or 4. File 2007 taxes 10 of this revenue procedure. File 2007 taxes (2) The Service grants an automatic extension of 12 months from the due date prescribed in section 4. File 2007 taxes 01(1)(a) of this revenue procedure for making the § 108(i) election. File 2007 taxes The rules that apply to an automatic extension under § 301. File 2007 taxes 9100-2(a) apply to this automatic extension. File 2007 taxes . File 2007 taxes 02 Section 108(i) Elections Made by Members of Consolidated Groups. File 2007 taxes The common parent of a consolidated group makes the § 108(i) election on behalf of all members of the group. File 2007 taxes See § 1. File 2007 taxes 1502-77(a). File 2007 taxes . File 2007 taxes 03 Aggregation Rule. File 2007 taxes A taxpayer within the scope of this revenue procedure may treat two or more applicable debt instruments that are part of the same issue and that are reacquired during the same taxable year as one applicable debt instrument for purposes of this revenue procedure. File 2007 taxes A pass-through entity may not treat two or more applicable debt instruments as one applicable debt instrument under this section 4. File 2007 taxes 03 if the owners and their ownership interests in the pass-through entity immediately prior to the reacquisition of each applicable debt instrument are not identical. File 2007 taxes . File 2007 taxes 04 Partial Elections. File 2007 taxes (1) A taxpayer within the scope of this revenue procedure may make an election for any portion of COD income realized from the reacquisition of any applicable debt instrument. File 2007 taxes Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument, the taxpayer may elect under § 108(i)(1) to defer only $40 of the $100 of COD income. File 2007 taxes The taxpayer may exclude from income the portion of COD income that the taxpayer does not elect to defer under § 108(i) ($60 in this example) under § 108(a)(1)(A), (B), (C), or (D), if applicable. File 2007 taxes (2) A taxpayer is not required to make an election for the same portion of COD income arising from each applicable debt instrument that it reacquires, but may make an election for different portions of COD income arising from different applicable debt instruments (whether or not part of the same issue). File 2007 taxes Thus, for example, if a taxpayer realizes $100 of COD income from the reacquisition of an applicable debt instrument (Instrument A) and $100 of COD income from the reacquisition of a different applicable debt instrument (Instrument B), the taxpayer may elect to defer all or a portion of the COD income associated with Instrument A and none or a different portion of the COD income associated with Instrument B. File 2007 taxes (3) A partnership that elects to defer less than all of the COD income realized from the reacquisition of an applicable debt instrument may determine, in any manner, the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. File 2007 taxes Thus, for example, one partner’s deferred amount may be zero while another partner’s deferred amount may equal that partner’s COD income amount (or any portion thereof). File 2007 taxes A partner may exclude from income the partner’s included amount under § 108(a)(1)(A), (B), (C), or (D), if applicable. File 2007 taxes The provisions of this section 4. File 2007 taxes 04(3) apply for purposes of § 108(i) only and are not intended as an interpretation of or a change to existing law under § 704. File 2007 taxes . File 2007 taxes 05 Contents of Election Statement. File 2007 taxes A statement meets the requirements of this section 4. File 2007 taxes 05 if the statement— (1) Label. File 2007 taxes States “Section 108(i) Election” across the top. File 2007 taxes (2) Required information. File 2007 taxes Provides, for each applicable debt instrument the reacquisition of which generates COD income that the taxpayer is electing to defer under § 108(i)— (a) The name and taxpayer identification numbers, if any, of the issuer or issuers of the applicable debt instrument; (b) A general description of the applicable debt instrument (including the issue and maturity dates) and, in the case of any person other than a C corporation, a general description of the person’s trade or business to which the applicable debt instrument is connected; (c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s)); (d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated; (e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i); (f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and (g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1. File 2007 taxes 1001-3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year. File 2007 taxes . File 2007 taxes 06 Supplemental information. File 2007 taxes The statement described in section 4. File 2007 taxes 05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4. File 2007 taxes 05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4. File 2007 taxes 05(2)(d) of this revenue procedure. File 2007 taxes This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. File 2007 taxes If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s additional COD income that would be deferred (the partner’s additional deferred amount), which the partnership may describe for each partner as the partner’s entire share of the partnership’s additional COD income or as a percentage of the partner’s share of the partnership’s additional COD income. File 2007 taxes If the taxpayer is an S corporation, the S corporation must specify each shareholder’s share of the S corporation’s additional COD income that would be deferred, which the S corporation may describe for each shareholder as the shareholder’s entire share of the S corporation’s additional COD income or as a percentage of the shareholder’s share of the S corporation’s additional COD income. File 2007 taxes In the case of partnerships and S corporations, the additional COD income and the portion of additional COD income that would be deferred are allocated or determined as provided in sections 2. File 2007 taxes 08, 2. File 2007 taxes 10 and, if applicable, 4. File 2007 taxes 04(3) of this revenue procedure, respectively, as if the additional COD income was realized. File 2007 taxes . File 2007 taxes 07 Additional Requirements for Certain Partnerships Making a § 108(i) Election. File 2007 taxes The rules of this section 4. File 2007 taxes 07 apply to partnerships other than partnerships described in section 4. File 2007 taxes 10 of this revenue procedure. File 2007 taxes (1) Information filing on Schedule K-1 (Form 1065 and Form 1065-B). File 2007 taxes For the taxable year in which the § 108(i) election is made, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B), Partner’s Share of Income, Deductions, Credits, etc. File 2007 taxes , in the manner specified in the instructions to the forms, for each partner § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. File 2007 taxes Partnerships reporting § 108(i) information on the 2008 Schedule K-1 (Form 1065 or Form 1065-B) must report for each partner on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made: (a) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 11 (“other income”) using code F for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (b) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or (ii), in box 13 (“other deductions”) using code W for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (c) The partner’s deferred amount that has not been included in income in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (d) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); (e) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B); and (f) The partner’s deferred § 752 amount remaining as of the end of the current taxable year, in box 20 (“other information”) using code X for Schedule K-1 (Form 1065) or in box 9 (“other”) using code U for Schedule K-1 (Form 1065-B). File 2007 taxes (2) Election information statement provided to partners. File 2007 taxes The partnership must attach to the Schedule K-1 (Form 1065 or Form 1065-B) provided to each partner for the taxable year in which the § 108(i) election is made a statement satisfying the requirements of this section 4. File 2007 taxes 07(2). File 2007 taxes The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. File 2007 taxes A statement meets the requirements of this section 4. File 2007 taxes 07(2) if the statement— (a) Label. File 2007 taxes States “Section 108(i) Election Information Statement for Partners” across the top. File 2007 taxes (b) Required information. File 2007 taxes Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (i) The partner’s COD income amount, the partner’s deferred amount, and the partner’s included amount; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (v) The partner’s share of each liability of the partnership described in section 4. File 2007 taxes 05(2)(g) of this revenue procedure; (vi) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument; (vii) The partner’s share of the decrease in the partnership liability that results from the reacquisition of the applicable debt instrument that is treated as a distribution of money to the partner under § 752 in the current taxable year; (viii) The partner’s deferred § 752 amount as described in section 2. File 2007 taxes 09 of this revenue procedure; (ix) The partner’s additional deferred amount as described in section 4. File 2007 taxes 06 of this revenue procedure; and (x) The date of the reacquisition transaction generating the COD income. File 2007 taxes (c) If a partner fails to provide the written statement required by section 4. File 2007 taxes 07(3) of this revenue procedure, the partnership must indicate that the amounts described in section 4. File 2007 taxes 07(2)(b)(vii) and (viii) of this revenue procedure cannot be calculated because the partner did not provide the information necessary to report these amounts. File 2007 taxes (3) Partner reporting requirements. File 2007 taxes The partnership must make reasonable efforts prior to making a § 108(i) election to secure from each partner with a deferred amount for which it does not have the information necessary to compute the partner’s basis in its partnership interest (and its deferred § 752 amount as described in section 2. File 2007 taxes 09 of this revenue procedure) a written statement signed under penalties of perjury that includes this information. File 2007 taxes Each partner with a deferred amount must provide this written statement to the partnership within 30 days of the date of request by the partnership. File 2007 taxes A partner’s failure to comply with this reporting requirement does not invalidate the partnership’s election under § 108(i) for an applicable debt instrument only if the partnership makes reasonable efforts before making the § 108(i) election to obtain the written statement from the partner and otherwise complies with the requirements of section 4 of this revenue procedure. File 2007 taxes If a partner provides its written statement under this section 4. File 2007 taxes 07(3) after the partnership has provided to the partner the Section 108(i) Election Information Statement for Partners, the partnership must provide to the partner a revised Section 108(i) Election Information Statement for Partners reporting the information required under section 4. File 2007 taxes 07(2)(b)(vii) and (viii) of this revenue procedure and report the partner’s deferred § 752 amount on the partner’s Schedule K-1 (Form 1065 or Form 1065-B) in subsequent taxable years. File 2007 taxes . File 2007 taxes 08 Additional Requirements for an S Corporation Making a § 108(i) Election. File 2007 taxes (1) Information filing on Schedule K-1 (Form 1120S). File 2007 taxes For the taxable year in which the § 108(i) election is made, the S corporation must report on the Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Deductions, Credits, etc. File 2007 taxes , in the manner specified in the instructions to the forms, for each shareholder § 108(i) information on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made. File 2007 taxes S corporations reporting § 108(i) information on the 2008 Schedule K-1 (Form 1120S) must report for each shareholder, on an aggregate basis for all applicable debt instruments for which a § 108(i) election is made, the shareholder’s share of the S corporation’s: (a) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in box 10 (“other income”) using code E; (b) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or (ii), in box 12 (“other deductions”) using code S; (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years, in box 17 (“other information”) using code T; and (d) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years, in box 17 (“other information”) using code T. File 2007 taxes (2) Election information statement provided to shareholders. File 2007 taxes The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for the taxable year in which the § 108(i) election is made, a statement satisfying the requirements of this section 4. File 2007 taxes 08(2). File 2007 taxes The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. File 2007 taxes A statement meets the requirements of this section 4. File 2007 taxes 08(2) if the statement— (a) Label. File 2007 taxes States “Section 108(i) Election Information Statement for Shareholders” across the top. File 2007 taxes (b) Required information. File 2007 taxes Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income that the S corporation elects to defer under § 108(i); (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iii) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (iv) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (v) Additional COD income that would be deferred as described in section 4. File 2007 taxes 06 of this revenue procedure. File 2007 taxes . File 2007 taxes 09 Section 108(i) Elections Made on Behalf of Certain Foreign Corporations. File 2007 taxes The controlling domestic shareholder(s) (or common parent of the controlling domestic shareholder(s), if applicable) of a controlled foreign corporation or a noncontrolled § 902 corporation not otherwise required to file a return of tax may make the § 108(i) election on behalf of the foreign corporation by satisfying the requirements of § 1. File 2007 taxes 964-1(c)(3). File 2007 taxes Each controlling domestic shareholder must attach a statement identifying the foreign corporation and satisfying the requirements of section 4. File 2007 taxes 05 of this revenue procedure and, if applicable, section 4. File 2007 taxes 06 of this revenue procedure, to its federal income tax return for the taxable year ending within or with the taxable year of the foreign corporation for which the § 108(i) election is made. File 2007 taxes . File 2007 taxes 10 Section 108(i) Elections Made By Certain Foreign Partnerships. File 2007 taxes The rules of this section 4. File 2007 taxes 10 apply to a foreign partnership making a § 108(i) election that is not otherwise required to file a federal partnership return (“nonfiling foreign partnership”). File 2007 taxes See § 1. File 2007 taxes 6031(a)-1(b). File 2007 taxes (1) A nonfiling foreign partnership making the election must attach a statement satisfying the requirements of section 4. File 2007 taxes 05 of this revenue procedure and, if applicable, section 4. File 2007 taxes 06 of this revenue procedure, to a partnership return satisfying the requirements of § 1. File 2007 taxes 6031(a)-1(b)(5) it files with the Service. File 2007 taxes In addition, a nonfiling foreign partnership must include in the information required in section 4. File 2007 taxes 05(2)(d) and (e) of this revenue procedure the aggregate amounts for all partners as well as the aggregate amounts for all U. File 2007 taxes S. File 2007 taxes persons (as defined in § 7701(a)(30)) and controlled foreign corporation(s) that are partners with deferred amounts in the nonfiling foreign partnership (“affected partners”). File 2007 taxes (2) The nonfiling foreign partnership must make the election, in accordance with § 1. File 2007 taxes 6031(a)-1(b)(5), by the date provided in section 4. File 2007 taxes 01(1)(a) of this revenue procedure, as if it had a filing obligation for the taxable year in which the reacquisition of the applicable debt instrument occurs. File 2007 taxes (3) For each affected partner, the partnership must file with the Service a Schedule K-1 (Form 1065) and report on the Schedule K-1 (Form 1065) for the affected partner as provided in section 4. File 2007 taxes 07(1) of this revenue procedure. File 2007 taxes Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). File 2007 taxes The partnership must provide a copy of the respective Schedule K-1 (Form 1065) to each affected partner and must also attach to the Schedule K-1 (Form 1065) provided to each affected partner a statement satisfying the requirements of section 4. File 2007 taxes 07(2) of this revenue procedure by the date provided in section 4. File 2007 taxes 01(1)(a) of this revenue procedure. File 2007 taxes The partnership should not attach any statement described in section 4. File 2007 taxes 07(2) of this revenue procedure to the Schedules K-1 that are filed with the Service. File 2007 taxes However, the partnership must retain the statements provided to the affected partners, and each affected partner must retain that partner’s statement, in their respective books and records. File 2007 taxes (4) The partnership and each affected partner must satisfy the requirements of section 4. File 2007 taxes 07(3) of this revenue procedure. File 2007 taxes . File 2007 taxes 11 Protective § 108(i) Election. File 2007 taxes (1) In general. File 2007 taxes A taxpayer may make a protective election under § 108(i) for an applicable debt instrument if the taxpayer concludes that a particular transaction does not result in the realization of COD income, reports the transaction on its federal income tax return in a manner consistent with the taxpayer’s conclusion, and would be within the scope of this revenue procedure if the taxpayer’s conclusion were incorrect. File 2007 taxes If the Service at any time determines the taxpayer’s conclusion that the particular transaction does not result in the realization of COD income is incorrect, the taxpayer’s protective election is treated as a valid, irrevocable election under § 108(i). File 2007 taxes Thus, if a taxpayer makes a protective election, the Service subsequently may require the taxpayer to report COD income deferred pursuant to the valid and irrevocable protective election even if the statute of limitations has expired for the year in which the COD income was realized and the protective election was made. File 2007 taxes A taxpayer makes a protective election by attaching a statement satisfying the requirements of this section 4. File 2007 taxes 11(1) to the taxpayer’s original federal income tax return within the period described in section 4. File 2007 taxes 01(1)(a) of this revenue procedure. File 2007 taxes The taxpayer also must attach the election to its federal income tax return in each of the 8 or 9 taxable years, as applicable, following the taxable year of the election. File 2007 taxes A statement meets the requirements of this section 4. File 2007 taxes 11(1) if the statement— (a) States “Section 108(i) Protective Election” across the top; (b) Provides the information required under section 4. File 2007 taxes 05(2)(a), (b), and (c) of this revenue procedure; (c) Provides that the amounts described in sections 4. File 2007 taxes 05(2)(d) and (e) of this revenue procedure are zero; and (d) Provides the information described in section 4. File 2007 taxes 06 of this revenue procedure. File 2007 taxes (2) Statements provided to shareholders and partners. File 2007 taxes (a) For each applicable debt instrument, a partnership or S corporation that makes a protective election must attach to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) it provides each of its partners or shareholders, as the case may be, for the taxable year in which the protective election is made a statement containing the information described in section 4. File 2007 taxes 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the partner’s or shareholder’s share of the additional COD income that would be deferred as described in section 4. File 2007 taxes 11(1)(d) of this revenue procedure. File 2007 taxes (b) The partnership or S corporation should not attach the statements described in this section 4. File 2007 taxes 11(2) to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. File 2007 taxes . File 2007 taxes 12 Election-Year Reporting by Tiered Pass-Through Entities. File 2007 taxes (1) A partnership required to file a U. File 2007 taxes S. File 2007 taxes partnership return other than under § 1. File 2007 taxes 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting its share of any items listed in section 4. File 2007 taxes 07(1) of this revenue procedure, must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. File 2007 taxes 07(1)(a) through (d) of this revenue procedure). File 2007 taxes (2) If a partnership described in section 4. File 2007 taxes 12(1) of this revenue procedure receives a statement described in sections 4. File 2007 taxes 07(2) or 4. File 2007 taxes 10(3) of this revenue procedure or this section 4. File 2007 taxes 12(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership, including the information described in section 4. File 2007 taxes 07(2)(b)(x) of this revenue procedure. File 2007 taxes If an S corporation receives a statement described in sections 4. File 2007 taxes 07(2) or 4. File 2007 taxes 10(3) of this revenue procedure or this section 4. File 2007 taxes 12(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 4. File 2007 taxes 07(2)(b)(i), (ii), (iii), (iv) and (ix) of this revenue procedure. File 2007 taxes The partnership or S corporation must attach this statement or statements to the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) that it provides to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. File 2007 taxes The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. File 2007 taxes (3) A partnership that receives a statement described in this section 4 identifying its COD income amount with respect to an applicable debt instrument must allocate its COD income amount, without regard to § 108(i), to the partners in the partnership immediately before the reacquisition transaction in the manner in which the income would be included in the distributive shares of these partners under § 704 and the regulations thereunder, including § 1. File 2007 taxes 704-1(b)(2)(iii). File 2007 taxes The partnership may determine in any manner the portion, if any, of a partner’s COD income amount that is the partner’s deferred amount and the portion, if any, of a partner’s COD income amount that is the partner’s included amount. File 2007 taxes No partner’s deferred amount with respect to an applicable debt instrument may exceed its COD income amount with respect to the applicable debt instrument, and the aggregate of deferred amounts of its partners with respect to an applicable debt instrument must equal the partnership’s deferred amount with respect to the applicable debt instrument. File 2007 taxes The partnership allocates amounts described in section 4. File 2007 taxes 06 of this revenue procedure under this section 4. File 2007 taxes 12(3) as if the additional COD income was realized. File 2007 taxes (4) The deferred § 752 amount for partners in a partnership making a § 108(i) election is calculated only for the partnership’s direct partners. File 2007 taxes No further adjustment to the deferred § 752 amount is made to reflect the basis or other attributes of partners that are indirect partners in the partnership. File 2007 taxes (5) If an S corporation receives a statement described in this section 4 identifying its COD income amount, deferred amount, included amount or additional COD income that would be deferred with respect to an applicable debt instrument, these amounts are shared pro rata only among those shareholders that are shareholders in the S corporation immediately before the reacquisition transaction. File 2007 taxes (6) This paragraph 4. File 2007 taxes 12(6) provides the rules for Category 1 and Category 2 filers of Form 8865, Return of U. File 2007 taxes S. File 2007 taxes Persons With Respect to Certain Foreign Partnerships, as defined in the instructions for Form 8865, if the foreign partnership, for which the Category 1 or Category 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items listed in section 4. File 2007 taxes 07(1) of this revenue procedure, or a statement described in sections 4. File 2007 taxes 07(2) or 4. File 2007 taxes 10(3) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). File 2007 taxes (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. File 2007 taxes 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 4. File 2007 taxes 12(6)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. File 2007 taxes (b) A Category 2 filer must include its share of the information described in section 4. File 2007 taxes 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. File 2007 taxes Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. File 2007 taxes (c) The Category 1 and Category 2 filers should not attach the statements described in sections 4. File 2007 taxes 12(6)(a)(ii) and 4. File 2007 taxes 12(6)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. File 2007 taxes However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. File 2007 taxes (7) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 4. File 2007 taxes 12(1) of this revenue procedure or a shareholder of an S corporation described in section 4. File 2007 taxes 12(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 4. File 2007 taxes 12(1) and (2) of this revenue procedure. File 2007 taxes Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. File 2007 taxes 12(6) of this revenue procedure. File 2007 taxes (8) The provisions of section 4. File 2007 taxes 12(2), (3), (5) and (6) of this revenue procedure also apply to a statement received that is described in section 4. File 2007 taxes 11(2) of this revenue procedure, except that the information that must be provided are those items described in section 4. File 2007 taxes 11(1)(b) of this revenue procedure (an S corporation need not provide its shareholders with the date(s) of the transaction(s) that would constitute the reacquisition transaction or transactions) and the share of the partner or shareholder in the amounts described in section 4. File 2007 taxes 11(1)(d) of this revenue procedure. File 2007 taxes SECTION 5. File 2007 taxes REQUIRED INFORMATION STATEMENT . File 2007 taxes 01 Annual Information Statements. File 2007 taxes Pursuant to § 108(i)(7)(B), a taxpayer that makes an election under § 108(i) (except for a protective election under section 4. File 2007 taxes 11(1) of this revenue procedure) must attach a statement meeting the requirements of section 5. File 2007 taxes 02 of this revenue procedure to its federal income tax return for each taxable year beginning with the taxable year following the taxable year for which the taxpayer makes the election and ending with the first taxable year in which all items deferred under § 108(i) have been recognized. File 2007 taxes . File 2007 taxes 02 Contents of Statement. File 2007 taxes A statement meets the requirements of this section 5. File 2007 taxes 02 if the statement— (1) Label. File 2007 taxes States “Section 108(i) Information Statement” across the top; (2) Required information. File 2007 taxes Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies— (a) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(1); (b) COD income deferred under § 108(i) that is included in income in the current taxable year under § 108(i)(5)(D), including a description and date of the acceleration event described in § 108(i)(5)(D); (c) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years (in the case of a partnership, the aggregate of the partners’ deferred amounts that have not been included in income in the current or prior taxable years, and in the case of an S corporation, the S corporation’s COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years); (d) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (e) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D); and (f) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. File 2007 taxes (3) Election attached. File 2007 taxes Includes a copy of the election statement described in section 4. File 2007 taxes 05 of this revenue procedure. File 2007 taxes . File 2007 taxes 03 Additional Annual Reporting Requirements for Certain Partnerships. File 2007 taxes The rules of this section 5. File 2007 taxes 03 apply to partnerships other than partnerships described in section 5. File 2007 taxes 05 of this revenue procedure. File 2007 taxes (1) In general. File 2007 taxes A partnership that makes an election under § 108(i) (except for a protective election under section 4. File 2007 taxes 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. File 2007 taxes 01 of this revenue procedure. File 2007 taxes In addition, for each taxable year in which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure, the partnership must report on the Schedule K-1 (Form 1065 or Form 1065-B) for each partner § 108(i) information in the manner described in section 4. File 2007 taxes 07(1) of this revenue procedure. File 2007 taxes (2) Annual information statements provided to partners. File 2007 taxes The partnership must attach to the Schedule K-1 (Form 1065) provided to each partner for each taxable year in which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure, a statement meeting the requirements of this section 5. File 2007 taxes 03(2). File 2007 taxes The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner must retain that partner’s statement, in their respective books and records. File 2007 taxes A statement meets the requirements of this section 5. File 2007 taxes 03(2) if the statement— (a) Label. File 2007 taxes States “Section 108(i) Annual Information Statement for Partners” across the top of the statement. File 2007 taxes (b) Required information. File 2007 taxes Clearly identifies for each applicable debt instrument to which a § 108(i) election applies— (i) The partner’s deferred amount that has not been included in income as of the end of the prior taxable year; (ii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(1); (iii) The partner’s deferred amount that the partner must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) The partner’s deferred amount that has not been included in income in the current or prior taxable years; (v) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); (viii) The partner’s share of the partnership’s OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years; and (ix) The partner’s deferred § 752 amount that is treated as a distribution of money to the partner under § 752 in the current taxable year and any remaining deferred § 752 amount. File 2007 taxes If a partner fails to provide the written statement required by section 4. File 2007 taxes 07(3) of this revenue procedure, the partnership must indicate that the amounts described in this section 5. File 2007 taxes 03(2)(b)(ix) cannot be calculated because the partner did not provide the information necessary to report these amounts. File 2007 taxes . File 2007 taxes 04 Additional Annual Reporting Requirements for an S Corporation. File 2007 taxes (1) In general. File 2007 taxes An S corporation that makes an election under § 108(i) (except for a protective election under section 4. File 2007 taxes 11(1) of this revenue procedure) must attach to its federal income tax returns the statements required under section 5. File 2007 taxes 01 of this revenue procedure. File 2007 taxes In addition, for each taxable year in which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure, the S corporation must report on the Schedule K-1 (Form 1120S) for each shareholder § 108(i) information in the manner described in section 4. File 2007 taxes 08(1) of this revenue procedure. File 2007 taxes (2) Annual information statements provided to shareholders. File 2007 taxes The S corporation must attach to the Schedule K-1 (Form 1120S) provided to each shareholder for each taxable year in which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure a statement meeting the requirements of this section 5. File 2007 taxes 04(2). File 2007 taxes The S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each shareholder must retain that shareholder’s statement, in their respective books and records. File 2007 taxes A statement meets the requirements of this section 5. File 2007 taxes 04(2) if the statement— (a) Label. File 2007 taxes States “Section 108(i) Annual Information Statement for Shareholders” across the top; (b) Required information. File 2007 taxes Clearly identifies for each applicable debt instrument to which an election under § 108(i) applies, the shareholder’s share of the S corporation’s— (i) COD income deferred under § 108(i) that has not been included in income as of the end of the prior taxable year; (ii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(1); (iii) COD income deferred under § 108(i) that the shareholder must include in income in the current taxable year under § 108(i)(5)(D)(i) or (ii); (iv) COD income deferred under § 108(i) that has not been included in income in the current or prior taxable years; (v) OID deduction deferred under § 108(i)(2)(A)(i) in the current taxable year; (vi) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(2)(A)(ii); (vii) OID deduction deferred under § 108(i)(2)(A)(i) that is allowable as a deduction in the current taxable year under § 108(i)(5)(D)(i) or (ii); and (viii) OID deduction deferred under § 108(i)(2)(A)(i) that has not been deducted in the current or prior taxable years. File 2007 taxes . File 2007 taxes 05 Additional Annual Reporting Requirements for Certain Foreign Partnerships. File 2007 taxes (1) The rules of this section 5. File 2007 taxes 05 apply to nonfiling foreign partnerships. File 2007 taxes (2) A nonfiling foreign partnership that makes an election under § 108(i) (except for a protective election under section 4. File 2007 taxes 11(1) of this revenue procedure) must file federal income tax returns with the Service containing the information under § 1. File 2007 taxes 6031(a)-1(b)(5) for each taxable year in which a statement is required by section 5. File 2007 taxes 01 of this revenue procedure. File 2007 taxes (3) The nonfiling foreign partnership must attach to its federal income tax returns the statements required under section 5. File 2007 taxes 01 of this revenue procedure, but only for that portion of the COD income allocated to affected partners. File 2007 taxes (4) For each taxable year in which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure, the nonfiling foreign partnership must provide each affected partner a Schedule K-1 (Form 1065) reporting § 108(i) information in the manner described in section 4. File 2007 taxes 07(1) of this revenue procedure. File 2007 taxes Except for this § 108(i) information, the partnership need not complete Part III of the Schedule K-1 (Form 1065). File 2007 taxes The partnership must provide each affected partner with a copy of the Schedule K-1 (Form 1065) by the date provided in § 1. File 2007 taxes 6031(b)-1T(b). File 2007 taxes The partnership must attach the Schedules K-1 (Form 1065) to the federal income tax returns filed with the Service pursuant to section 5. File 2007 taxes 05(2) of this revenue procedure. File 2007 taxes (5) For each taxable year for which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure, the nonfiling foreign partnership must attach to each affected partner’s Schedule K-1 (Form 1065) a statement meeting the requirements of section 5. File 2007 taxes 03(2) of this revenue procedure. File 2007 taxes The partnership should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain the statements, and each partner must retain that partner’s statement, in their respective books and records. File 2007 taxes . File 2007 taxes 06 Information Statements Made on Behalf of Certain Foreign Corporations. File 2007 taxes Each controlling domestic shareholder must attach a statement identifying the foreign corporation and meeting the requirements of section 5. File 2007 taxes 02 of this revenue procedure to the shareholder’s federal income tax return for each taxable year for which a statement is required under section 5. File 2007 taxes 01 of this revenue procedure. File 2007 taxes . File 2007 taxes 07 Additional Annual Reporting Requirements for Tiered Pass-Through Entities. File 2007 taxes (1) A partnership required to file a U. File 2007 taxes S. File 2007 taxes partnership return other than under § 1. File 2007 taxes 6031(a)-1(b)(5), or an S corporation, that receives a Schedule K-1 (Form 1065 or Form 1065-B) described in the second sentence of section 5. File 2007 taxes 03(1) of this revenue procedure reflecting its share of any § 108(i) information must report on the Schedules K-1 (Form 1065, Form 1065-B, or Form 1120S) to its partners or shareholders, as the case may be, each partner’s or shareholder’s share of those items (an S corporation only reports to its shareholders the items described in section 4. File 2007 taxes 07(1)(a) through (d) of this revenue procedure). File 2007 taxes (2) If a partnership described in section 5. File 2007 taxes 07(1) of this revenue procedure receives a statement described in sections 5. File 2007 taxes 03(2) or 5. File 2007 taxes 05(5) of this revenue procedure or this section 5. File 2007 taxes 07(2), it must provide each of its partners a statement containing the partner’s share of each of the items listed on each statement received by the partnership. File 2007 taxes If an S corporation receives a statement described in sections 5. File 2007 taxes 03(2) or 5. File 2007 taxes 05(5) of this revenue procedure or this section 5. File 2007 taxes 07(2), it must provide each of its shareholders a statement containing the shareholder’s share of each of the items listed on each statement received by the S corporation that are described in section 5. File 2007 taxes 03(2)(b)(i) through (viii) of this revenue procedure. File 2007 taxes The partnership or S corporation must attach the statement or statements to the Schedule K-1 (Form 1065 or Form 1065-B) or Schedule K-1 (Form 1120S) that is provided to each of its partners or shareholders, as the case may be, for the taxable year of the partnership or S corporation. File 2007 taxes The partnership or S corporation should not attach these statements to the Schedules K-1 that are filed with the Service, but must retain these statements, and each partner and shareholder must retain that partner’s or shareholder’s statement, in their respective books and records. File 2007 taxes (3) This paragraph 5. File 2007 taxes 07(3) provides the rules for persons described in section 4. File 2007 taxes 12(6) of this revenue procedure if the foreign partnership, for which the Category 1 or 2 filer has a filing requirement, receives a Schedule K-1 (Form 1065 or Form 1065-B) reflecting the partnership’s share of any items described in the second sentence of section 5. File 2007 taxes 03(1) of this revenue procedure, or a statement described in sections 5. File 2007 taxes 03(2) or 5. File 2007 taxes 05(5) of this revenue procedure (because the foreign partnership owns an interest directly or indirectly in another partnership in which an election was made under § 108(i) with respect to that foreign partnership’s distributive share from the other entity). File 2007 taxes (a) For each partner for whom the Category 1 filer is required to complete a Schedule K-1 (Form 8865) (which includes the Category 1 filer itself), the Category 1 filer must: (i) Include the information described in section 4. File 2007 taxes 07(1) of this revenue procedure in the Schedule K-1 (Form 8865) that the Category 1 filer files with the Service and completes for the partner; (ii) Produce a statement containing the partner’s share of the items listed on each statement received by the partnership; and (iii) Attach the statement described in section 5. File 2007 taxes 07(3)(a)(ii) of this revenue procedure to each Schedule K-1 (Form 8865) that it is required to provide to a partner of the foreign partnership. File 2007 taxes (b) A Category 2 filer must include its share of the information described in section 4. File 2007 taxes 07(1) on the Schedule K-1 (Form 8865) that it is required to complete. File 2007 taxes Category 2 filers also must complete a statement containing their share of the items listed on each statement received by the partnership. File 2007 taxes (c) The Category 1 and Category 2 filers should not attach the statements described in sections 5. File 2007 taxes 07(3)(a)(ii) and 5. File 2007 taxes 07(3)(b) of this revenue procedure, respectively, to the Schedules K-1 that are filed with the Service. File 2007 taxes However, Category 1 filers must retain the statements they complete and each partner must retain its own statement, in their respective books and records. File 2007 taxes (4) If as a result of § 108(i)(5)(D)(ii), a partner of a partnership described in section 5. File 2007 taxes 07(1) of this revenue procedure or a shareholder of an S corporation described in section 5. File 2007 taxes 07(1) of this revenue procedure must recognize items deferred under § 108(i), the partnership or S corporation must report these items on the Schedule K-1 (Form 1065, Form 1065-B, or Form 1120S) and statements provided to the partner or shareholder pursuant to section 5. File 2007 taxes 07(1) and (2) of this revenue procedure. File 2007 taxes Similar rules apply to Category 1 and Category 2 filers (Form 8865) described in section 4. File 2007 taxes 12(6) of this revenue procedure. File 2007 taxes SECTION 6. File 2007 taxes EFFECTIVE DATE This revenue procedure is effective for reacquisitions of applicable debt instruments in taxable years ending after December 31, 2008. File 2007 taxes SECTION 7. File 2007 taxes TRANSITION RULE . File 2007 taxes 01 Noncomplying Election. File 2007 taxes Except as otherwise provided in this section 7. File 2007 taxes 01, the Service will treat a § 108(i) election as effective if a taxpayer files an election with the taxpayer’s federal income tax return filed on or before September 16, 2009, using any reasonable procedure to make the election. File 2007 taxes However, an election that does not comply with section 4 of this revenue procedure will not be effective unless the taxpayer on or before November 16, 2009, files an amended return for the taxable year of the election and complies with the requirements of section 4 of this revenue procedure. File 2007 taxes . File 2007 taxes 02 Modification of Election. File 2007 taxes A taxpayer that files a § 108(i) election on or before September 16, 2009, may modify that election by filing an amended return on or before November 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). File 2007 taxes To be effective, a modification of an election described in the preceding sentence must satisfy the requirements for an election described in section 4 of this revenue procedure. File 2007 taxes . File 2007 taxes 03 Notations. File 2007 taxes A taxpayer that files the amended return on paper must write “Section 108(i) Election” on the top of the first page. File 2007 taxes A taxpayer that files the amended return electronically should indicate “Section 108(i) Election” on the return. File 2007 taxes See Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-file Providers for Business Returns Tax Year 2008 for more details. File 2007 taxes SECTION 8. File 2007 taxes PAPERWORK REDUCTION ACT The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U. File 2007 taxes S. File 2007 taxes C. File 2007 taxes 3507) under control number 1545-2147. File 2007 taxes An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. File 2007 taxes The collection of information in this revenue procedure is in sections 4, 5 and 7. File 2007 taxes This information is required to determine the amount of income and deductions a taxpayer elects to defer and to track those amounts until the taxpayer has reported all deferred income and deductions on the taxpayer’s tax return. File 2007 taxes This information will be used during examination to verify that a taxpayer has correctly deferred income and deductions. File 2007 taxes The collection of information is required to obtain a benefit. File 2007 taxes The likely respondents are C corporations, shareholders of S corporations, partners of partnerships, and other individuals engaged in a trade or business, that reacquire applicable debt instruments in 2009 or 2010. File 2007 taxes The estimated total annual reporting burden is 300,000 hours. File 2007 taxes The estimated annual burden per respondent varies from 1 to 8 hours, depending on individual circumstances, with an estimated average of 6 hours. File 2007 taxes The estimated number of respondents is 50,000. File 2007 taxes Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. File 2007 taxes Generally, tax returns and return information are confidential, as required by § 6103. File 2007 taxes DRAFTING INFORMATION The principal authors of this revenue procedure are Megan A. File 2007 taxes Stoner of the Office of Associate Chief Counsel (Passthroughs & Special Industries) and Craig Wojay of the Office of Associate Chief Counsel (Income Tax & Accounting). File 2007 taxes For further information regarding this revenue procedure, contact Megan A. File 2007 taxes Stoner at (202) 622-3070 for questions involving partnerships and S corporations, William E. File 2007 taxes Blanchard at (202) 622-3950 for questions involving OID, Ronald M. File 2007 taxes Gootzeit at (202) 622-3860 for questions involving foreign entities, Robert Rhyne at (202) 622-7790 for questions involving earnings and profits and consolidated groups, and Craig Wojay at (202) 622-4920 for questions on § 108(i) generally (not toll-free calls). File 2007 taxes Prev  Up  Next   Home   More Internal Revenue Bulletins
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The File 2007 Taxes

File 2007 taxes 5. File 2007 taxes   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. File 2007 taxes Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. File 2007 taxes When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. File 2007 taxes Otherwise, these are capital expenses that must be added to the basis of the land. File 2007 taxes (See chapter 6 for information on determining basis. File 2007 taxes ) Conservation expenses for land in a foreign country do not qualify for this special treatment. File 2007 taxes The deduction for conservation expenses cannot be more than 25% of your gross income from farming. File 2007 taxes See 25% Limit on Deduction , later. File 2007 taxes Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. File 2007 taxes These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. File 2007 taxes You must include in income most government payments for approved conservation practices. File 2007 taxes However, you can exclude some payments you receive under certain cost-sharing conservation programs. File 2007 taxes For more information, see Agricultural Program Payments in chapter 3. File 2007 taxes To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. File 2007 taxes Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. File 2007 taxes You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. File 2007 taxes You are not farming if you are engaged only in forestry or the growing of timber. File 2007 taxes Farm defined. File 2007 taxes   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. File 2007 taxes It also includes plantations, ranches, ranges, and orchards. File 2007 taxes A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. File 2007 taxes It does not include an area where they are merely caught or harvested. File 2007 taxes A plant nursery is a farm for purposes of deducting soil and water conservation expenses. File 2007 taxes Farm rental. File 2007 taxes   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. File 2007 taxes If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. File 2007 taxes   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. File 2007 taxes Example. File 2007 taxes You own a farm in Iowa and live in California. File 2007 taxes You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. File 2007 taxes You cannot deduct your soil conservation expenses for this farm. File 2007 taxes You must capitalize the expenses and add them to the basis of the land. File 2007 taxes     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. File 2007 taxes Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. File 2007 taxes If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. File 2007 taxes Keep a copy of the plan with your books and records to support your deductions. File 2007 taxes Conservation plan. File 2007 taxes   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. File 2007 taxes There are three types of approved plans. File 2007 taxes NRCS individual site plans. File 2007 taxes These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. File 2007 taxes NRCS county plans. File 2007 taxes These plans include a listing of farm conservation practices approved for the county where the farmland is located. File 2007 taxes You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. File 2007 taxes Comparable state agency plans. File 2007 taxes These plans are approved by state agencies and can be approved individual site plans or county plans. File 2007 taxes   A list of NRCS conservation programs is available at www. File 2007 taxes nrcs. File 2007 taxes usda. File 2007 taxes gov/programs. File 2007 taxes Individual site plans can be obtained from NRCS offices and the comparable state agencies. File 2007 taxes Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. File 2007 taxes These expenses include, but are not limited to, the following. File 2007 taxes The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. File 2007 taxes The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. File 2007 taxes The eradication of brush. File 2007 taxes The planting of windbreaks. File 2007 taxes You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. File 2007 taxes These expenses are added to the basis of the land. File 2007 taxes If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. File 2007 taxes See chapter 3 for information about payments eligible for the cost-sharing exclusion. File 2007 taxes New farm or farmland. File 2007 taxes   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. File 2007 taxes You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. File 2007 taxes The new farming activity does not have to be the same as the old farming activity. File 2007 taxes For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. File 2007 taxes Land not used for farming. File 2007 taxes   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. File 2007 taxes For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. File 2007 taxes You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. File 2007 taxes Depreciable conservation assets. File 2007 taxes   You generally cannot deduct your expenses for depreciable conservation assets. File 2007 taxes However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. File 2007 taxes See Assessment for Depreciable Property , later. File 2007 taxes   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. File 2007 taxes These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. File 2007 taxes You recover your capital investment through annual allowances for depreciation. File 2007 taxes   You can deduct soil and water conservation expenses for nondepreciable earthen items. File 2007 taxes Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. File 2007 taxes Water well. File 2007 taxes   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. File 2007 taxes It is a capital expense. File 2007 taxes You recover your cost through depreciation. File 2007 taxes You also must capitalize your cost for drilling a test hole. File 2007 taxes If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. File 2007 taxes You can recover the total cost through depreciation deductions. File 2007 taxes   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. File 2007 taxes Abandonment means that all economic benefits from the well are terminated. File 2007 taxes For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. File 2007 taxes Endangered species recovery expenses. File 2007 taxes   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. File 2007 taxes Otherwise, these are capital expenses that must be added to the basis of the land. File 2007 taxes   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. File 2007 taxes See Internal Revenue Code section 175 for more information. File 2007 taxes Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. File 2007 taxes You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. File 2007 taxes Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. File 2007 taxes This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. File 2007 taxes The depreciable property must be used in the district's soil and water conservation activities. File 2007 taxes However, the following limits apply to these assessments. File 2007 taxes The total assessment limit. File 2007 taxes The yearly assessment limit. File 2007 taxes After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. File 2007 taxes The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2007 taxes See Table 5-1 for a brief summary of these limits. File 2007 taxes Table 5-1. File 2007 taxes Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. File 2007 taxes Your deductible share of the cost to the district for the property. File 2007 taxes Your gross income from farming. File 2007 taxes No one taxpayer can deduct more than 10% of the total assessment. File 2007 taxes Any amount over 10% is a capital expense and is added to the basis of your land. File 2007 taxes If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File 2007 taxes If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. File 2007 taxes You can deduct the remainder in equal amounts over the next 9 tax years. File 2007 taxes Limit for all conservation expenses, including assessments for depreciable property. File 2007 taxes Amounts greater than 25% can be carried to the following year and added to that year's expenses. File 2007 taxes The total is then subject to the 25% of gross income from farming limit in that year. File 2007 taxes To ensure your deduction is within the deduction limits, keep records to show the following. File 2007 taxes The total assessment against all members of the district for the depreciable property. File 2007 taxes Your deductible share of the cost to the district for the depreciable property. File 2007 taxes Your gross income from farming. File 2007 taxes Total assessment limit. File 2007 taxes   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. File 2007 taxes This applies whether you pay the assessment in one payment or in installments. File 2007 taxes If your assessment is more than 10% of the total amount assessed, both the following rules apply. File 2007 taxes The amount over 10% is a capital expense and is added to the basis of your land. File 2007 taxes If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. File 2007 taxes Yearly assessment limit. File 2007 taxes   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. File 2007 taxes If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. File 2007 taxes If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. File 2007 taxes You can deduct the remainder in equal amounts over the next 9 tax years. File 2007 taxes Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2007 taxes Example 1. File 2007 taxes This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. File 2007 taxes Of the assessment, $1,500 is for digging drainage ditches. File 2007 taxes You can deduct this part as a soil or conservation expense as if you had paid it directly. File 2007 taxes The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. File 2007 taxes The total amount assessed by the district against all its members for the depreciable equipment is $7,000. File 2007 taxes The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. File 2007 taxes The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. File 2007 taxes To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. File 2007 taxes Add $500 to the result for a total of $570. File 2007 taxes Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). File 2007 taxes You can deduct the balance at the rate of $70 a year over the next 9 years. File 2007 taxes You add $70 to the $1,500 portion of the assessment for drainage ditches. File 2007 taxes You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. File 2007 taxes Example 2. File 2007 taxes Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. File 2007 taxes The total amount assessed by the district against all its members for depreciable equipment is $5,500. File 2007 taxes The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. File 2007 taxes The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). File 2007 taxes Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. File 2007 taxes You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. File 2007 taxes Sale or other disposal of land during 9-year period. File 2007 taxes   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. File 2007 taxes Death of farmer during 9-year period. File 2007 taxes   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. File 2007 taxes 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. File 2007 taxes Gross income from farming. File 2007 taxes   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. File 2007 taxes Gains from sales of draft, breeding, or dairy livestock are included. File 2007 taxes Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. File 2007 taxes Carryover of deduction. File 2007 taxes   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. File 2007 taxes However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. File 2007 taxes Example. File 2007 taxes In 2012, you have gross income of $32,000 from two farms. File 2007 taxes During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. File 2007 taxes However, your deduction is limited to 25% of $32,000, or $8,000. File 2007 taxes The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. File 2007 taxes The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. File 2007 taxes Any expenses over the limit in that year are carried to 2014 and later years. File 2007 taxes Net operating loss. File 2007 taxes   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. File 2007 taxes If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. File 2007 taxes When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. File 2007 taxes If you do not choose to deduct the expenses, you must capitalize them. File 2007 taxes Change of method. File 2007 taxes   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. File 2007 taxes To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. File 2007 taxes You or your authorized representative must sign the request. File 2007 taxes   The request must include the following information. File 2007 taxes Your name and address. File 2007 taxes The first tax year the method or change of method is to apply. File 2007 taxes Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. File 2007 taxes If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. File 2007 taxes The total expenses you paid or incurred in the first tax year the method or change of method is to apply. File 2007 taxes A statement that you will account separately in your books for the expenses to which this method or change of method relates. File 2007 taxes Send your request to the following  address. File 2007 taxes  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. File 2007 taxes Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). File 2007 taxes However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. File 2007 taxes Gain on sale of farmland. File 2007 taxes   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. File 2007 taxes If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. File 2007 taxes See Section 1252 property under Other Gains in chapter 9. File 2007 taxes Prev  Up  Next   Home   More Online Publications